Filed with the Securities and Exchange Commission on April 26, 2001
Registration No. 333-51896
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 1
On Form S-2
Registration Statement Under The Securities Act of 1933*
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
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(Exact name of registrant as specified in its charter)
CONNECTICUT
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(State or other jurisdiction of incorporation or organization)
63
--
(Primary Standard Industrial Classification Code Number)
06-1241288
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(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
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(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
KATHLEEN A. CHAPMAN, ASSISTANT CORPORATE SECRETARY
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
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(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy To:
SCOTT K. RICHARDSON, ESQ.
SENIOR COUNSEL
One Corporate Drive, Shelton, Connecticut 06484 (203) 925-3830
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Approximate date of commencement of proposed sale to the public:
May 1, 2001 or as soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 check the following: X .
--
If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof,
pursuant to Item 11(a)(1) of the Form, check the following: ___.
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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
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Annuity Contracts $0 $0
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*Pursuant to Rule 429 under the Securities Exchange Act of 1934, the prospectus contained in this Registration Statement also
relates to annuity contracts which are covered by our earlier registration statement, including Registration File Number 33-62791
and 333-77213.
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**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.
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ASXT/WELLS/EVA/FUSI-XT
asxt
CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501
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1. Forepart of the Registration Statement and Facing Page, Cross Reference Sheet,
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front Cover and Outside Back Cover of Prospectus Available Information,
Incorporation of Certain Documents by
Reference, How Will I Receive Statements, Table of Contents
3. Summary Information, Risk Factors and Ratio of Earnings Investment Options, Fees and Charges,
Managing Your Account Value
4. Use of Proceeds Managing Your Account Value, What are Separate Accounts
5. Determination of the Offering Price Fees and Charges, Managing Your Account Value
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Who Distributes Annuities Offered by American Skandia
9. Description of Securities to be Registered Investment Options, Purchasing Your Annuity,
Valuing Your Investment, What are Separate Accounts,
Rights, Benefits and Services
10. Interests of named Expert and Counsel Not Applicable
11. Information with Respect to the Registrant Who Is American Skandia?
12. Incorporation of Certain Documents by Reference Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification for Indemnification
Securities Act Liabilities
Part II Heading
---------------
14. Other Expenses of Issuance Other Expenses of Issuance
and Distribution and Distribution
15. Indemnification of Directors and Officers Indemnification of Directors and Officers
16. Exhibits Exhibits
17. Undertakings Undertakings
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes American Skandia XTra CreditSM, a flexible premium deferred annuity (the "Annuity") offered by American
Skandia Life Assurance Corporation ("American Skandia", "we", "our" or "us"). The Annuity may be offered as an individual annuity
contract or as an interest in a group annuity. This Prospectus describes the important features of the Annuity and what you
should consider before purchasing the Annuity. We have also filed a Statement of Additional Information that is available from
us, without charge, upon your request. The contents of the Statement of Additional Information are described on page 65. The
Annuity or certain of its investment options and/or features may not be available in all states. Various rights and benefits may
differ between states to meet applicable laws and/or regulations. Certain terms are capitalized in this prospectus. Those terms
are either defined in the Glossary of Terms or in the context of the particular section.
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American Skandia offers several different annuities which your financial professional may be authorized to offer to you. Each
annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how
you intend to use the annuity. The different features and benefits include variations in death benefit protection, the ability to
access your annuity's account value and the charges that you will be subject to if you choose to surrender the annuity. The fees
and charges may also be different between each annuity.
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If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you should consider
any surrender or penalty charges you may incur when replacing your existing coverage and that this Annuity may be subject to a
contingent deferred sales charge if you elect to surrender the Annuity or take a partial withdrawal. You should consider your
need to access the annuity's account value and whether the annuity's liquidity features will satisfy that need.
WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY?
This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for "qualified" investments,
including an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or 403(b)). It may also be used as an investment vehicle for
"non-qualified" investments. The Annuity allows you to invest your money in a number of variable investment options as well as in
one or more fixed investment options.
When an Annuity is purchased as a "non-qualified" investment, you generally are not taxed on any investment gains the Annuity
earns until you make a withdrawal or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be
beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each
year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a
10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. Annuities purchased as a non-qualified
investment are not subject to the maximum contribution limits that may apply to a qualified investment, and are not subject to
required minimum distributions after age 701/2.
When an Annuity is purchased as a "qualified" investment, you should consider that the Annuity does not provide any additional tax
advantages to the preferential treatment already available through your retirement plan under the Internal Revenue Code. An
Annuity may offer features and benefits in addition to providing tax deferral that other investment vehicles may not offer,
including death benefit protection for your beneficiaries, lifetime income options, and the ability to make transfers between
numerous variable investment options offered under the Annuity. You should consult with your financial professional as to whether
the overall benefits and costs of the Annuity are appropriate considering your overall financial plan.
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These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, are NOT insured or guaranteed
by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An
investment in this annuity involves certain investment risks, including possible loss of principal.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING
MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-752-6342
Prospectus Dated: May 1, 2001 Statement of Additional Information Dated: May 1, 2001
ASXT-PROS- (05/2001) ASXTPROS
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If you purchase this Annuity, we apply an additional amount (an XTra CreditSM) to your account value with each purchase payment
you make, including your initial purchase payment and any additional purchase payments.
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4 This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities. However, if you
make a withdrawal that exceeds the free withdrawal amount or choose to surrender your Annuity, the contingent deferred sales
charge (CDSC) on this Annuity is higher and is deducted for a longer period of time as compared to our other variable
annuities. As with any annuity that features a CDSC, you should consider your need to access your account value during the
CDSC period and whether the liquidity provision under the Annuity will satisfy that need.
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4 The XTra CreditSM amount is included in your account value. However, American Skandia may take back the original XTra
CreditSM amount applied to your purchase payment if you die, or elect to withdraw all or a portion of your account value under
the medically-related waiver provision, within 12 months of having received an XTra CreditSM amount. In either situation, the
value of the XTra CreditSM amount could be substantially reduced. However, any investment gain on the XTra CreditSM amount
will not be taken back. Additional conditions and restrictions apply.
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WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
|X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable
flexibility in the timing and amount of premium payments. Generally, investors "defer" receiving annuity payments until
after an accumulation period.
|X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to variable
investment options, the value of your Annuity will vary daily to reflect the investment performance of the underlying
investment options. Fixed investment options of different durations are offered that are guaranteed by us, but may have a
Market Value Adjustment if you withdraw your Account Value before the Maturity Date.
|X| The Annuity features two distinct phases - the accumulation period and the payout period. During the accumulation period
your Account Value is allocated to one or more underlying investment options. The variable investment options, each a Class
1 Sub-account of American Skandia Life Assurance Corporation Variable Account B, invest in an underlying mutual fund
portfolio. Currently, portfolios of the following underlying mutual funds are being offered: American Skandia Trust,
Montgomery Variable Series, Wells Fargo Variable Trust, Rydex Variable Trust, INVESCO Variable Investment Funds, Inc.,
Evergreen Variable Annuity Trust, ProFunds VP, First Defined Portfolio Fund LLC and The Prudential Series Fund, Inc.
|X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2)
for life with a guaranteed minimum number of payments; (3) based on joint lives; or (4) for a guaranteed number of
payments. We currently make annuity payments available on a fixed or variable basis.
|X| This Annuity offers two different types of Credits. We add a Credit to your Annuity with each Purchase Payment we
receive. We also provide an additional 1% credit on Purchase Payments made within the first year and may provide certain
additional benefits if your Account Value has not reached a Target Value on its 10th anniversary.
|X| This Annuity offers a basic Death Benefit. It also offers optional Death Benefits that provide an enhanced level of
protection for your beneficiary(ies) for an additional charge.
|X| You are allowed to withdraw a limited amount of money from your Annuity on an annual basis without any charges. Other
product features allow you to access your Account Value as necessary, although a charge may apply.
|X| Transfers between investment options are tax-free. Currently, you may make twenty transfers each year free of charge.
We also offer several programs that enable you to manage your Account Value as your financial needs and investment
performance change.
HOW DO I PURCHASE THIS ANNUITY?
We sell the Annuity through licensed, registered financial professionals. You must complete an application and submit a minimum
initial purchase payment of $1,000. We may allow you to make a lower initial purchase payment provided you establish a bank
drafting program under which purchase payments received in the first Annuity Year total at least $1,000. If the Annuity is owned
by an individual or individuals, the oldest of those persons must be age 80 or under. If the Annuity is owned by an entity, the
annuitant must be age 80 or under.
Mailing Addresses:
New Business/Additional Purchase Payments: Exchange Paperwork:
American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7040 P.O. Box 7039
Bridgeport, CT 06601-7040 Bridgeport, CT 06601-7039
All other correspondence: Express/Overnight Mail:
American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7038 Three Corporate Drive
Bridgeport, CT 06601-7038 Shelton, CT 06484
TABLE OF CONTENTS
GLOSSARY OF TERMS..................................................................................................................6
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................7
EXPENSE EXAMPLES..................................................................................................................10
INVESTMENT OPTIONS................................................................................................................13
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................13
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................25
FEES AND CHARGES..................................................................................................................26
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................26
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................26
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?...................................................................................27
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................27
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................27
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES......................................................................................27
PURCHASING YOUR ANNUITY...........................................................................................................27
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................27
MANAGING YOUR ANNUITY.............................................................................................................28
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................28
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................29
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................29
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................29
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................29
MANAGING YOUR ACCOUNT VALUE.......................................................................................................29
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................29
HOW DO I RECEIVE CREDITS?......................................................................................................30
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?...................................................................................30
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................32
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................33
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................33
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?............................................33
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?................................................................35
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................36
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................36
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................36
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................37
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................38
ACCESS TO ACCOUNT VALUE...........................................................................................................39
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................39
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................39
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................40
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................40
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................41
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................41
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................41
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................41
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................42
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................42
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?...................................................................................42
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................44
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................44
DEATH BENEFIT.....................................................................................................................45
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................45
OPTIONAL DEATH BENEFITS........................................................................................................45
AMERICAN SKANDIA'S ANNUITY REWARDS.............................................................................................47
PAYMENT OF DEATH BENEFITS......................................................................................................48
VALUING YOUR INVESTMENT...........................................................................................................49
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................49
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................49
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................50
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................50
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................50
TAX CONSIDERATIONS................................................................................................................51
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................51
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................51
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................51
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................51
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED
CONTRACTS?...................................................................................................................53
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................54
GENERAL TAX CONSIDERATIONS.....................................................................................................55
GENERAL INFORMATION...............................................................................................................56
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................56
WHO IS AMERICAN SKANDIA?.......................................................................................................56
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................57
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................58
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................58
AVAILABLE INFORMATION..........................................................................................................60
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................60
HOW TO CONTACT US..............................................................................................................60
INDEMNIFICATION................................................................................................................61
LEGAL PROCEEDINGS..............................................................................................................61
EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................61
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................65
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS................................................................................1
APPENDIX D - SALE OF THE CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK...........................................................1
GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not
repeated in this Glossary of Terms.
Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date, plus any earnings,
and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Contingent
Deferred Sales Charge ("CDSC") and/or any Annual Maintenance Fee. The Account Value includes any additional amounts we applied to
your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is determined separately
for each Sub-account and for each Fixed Allocation, and then totaled to determine Account Value for your entire Annuity. The
Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment.
Annuitization: The application of Account Value to one of the available annuity options to begin receiving periodic payments for
life, for a guaranteed minimum number of payments or for life with a guaranteed minimum number of payments.
Annuity Date: The date you choose for annuity payments to commence. A maximum Annuity Date may apply.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified Guarantee Period
during the accumulation period.
Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation.
Interim Value: The value of the Fixed Allocation on any date other than the Maturity Date. The Interim Value is equal to the
initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less
any transfers or withdrawals from the Fixed Allocation.
Issue Date: The effective date of your Annuity.
MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on any day other than the
Maturity Date of such Fixed Allocation.
Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having
ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner"
refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate.
Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of
the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, Tax Charge, the charge for any optional
benefits and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your
Annuity.
Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission
requires mutual funds or unit investment trusts to be valued.
SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your Annuity while
others are assessed against assets allocated to the variable investment options. The charges that are assessed against the
Annuity include the Contingent Deferred Sales Charge, Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is
assessed against the variable investment options is the Insurance Charge, which is the combination of a mortality and expense risk
charge and a charge for administration of the Annuity. Each underlying mutual fund portfolio assesses a charge for investment
management and for other expenses. The prospectus for each underlying mutual fund provides more detailed information about the
expenses for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and expenses are
described in more detail within this Prospectus.
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YOUR TRANSACTION EXPENSES
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AMOUNT DEDUCTED/
FEE/EXPENSE DESCRIPTION OF CHARGE WHEN DEDUCTED
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Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr.
9+
Contingent Deferred Sales Upon Surrender or
Charge Partial Withdrawal
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8.5% 8.5% 8.5% 8.5% 7.5% 5.5% 3.5% 1.5% 0.0%
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The charge is a percentage of each applicable purchase
payment. The period is measured from the date each purchase
payment is allocated
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Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's
anniversary date or upon surrender
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Transfer Fee $10.00 After the 20th transfer each annuity
year
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Tax Charge Depends on the requirements of the applicable jurisdiction Various
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ANNUAL EXPENSES OF THE SUB-ACCOUNTS
(as a percentage of the average daily net assets of the Sub-accounts)
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Mortality & Expense Risk
Charge 1.25%
Daily
Administration Charge 0.15%
Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment
Sub-accounts* Options only
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* The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the "Insurance Charge"
elsewhere in this prospectus.
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OPTIONAL BENEFITS
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GUARANTEED RETURN OPTION
We offer a program that guarantees a "return of premium" at a future date, while allowing you to 0.25% of Account Value
allocate all or a portion of your Account Value to the Sub-accounts of your choice. Please refer to
the discussion of the Guaranteed Return Option for a description of restrictions under the program. (Amounts are deducted in
arrears each Annuity Year)
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ENHANCED BENEFICIARY PROTECTION DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.25% of Account Value
beneficiary(ies) by providing additional amounts that can be used to offset federal and state taxes
payable on any taxable gains in your Annuity at the time of your death. (Amounts are deducted in
arrears each Annuity Year)
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GUARANTEED MINIMUM DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.30% of the current Death
beneficiary(ies) by providing the greater of the current Account Value, a 5.0% annual increase on Benefit
Purchase Payments minus proportional withdrawals or the Highest Anniversary Value. (Amounts are deducted in
arrears each Annuity Year)
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Please refer to the section entitled "Death Benefit" for a complete discussion of the optional Death Benefits, including restrictions
on the age of the Owner/ Annuitant and limits on the amount payable.
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Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
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Below are the investment management fees, other expenses, and the total annual expenses for each underlying Portfolio as of
December 31, 2000, except as noted. The total annual expenses are the sum of the investment management fee, other expenses and
any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. For certain of the
underlying Portfolios, a portion of the management fee is being waived and/or other expenses are being partially reimbursed.
"N/A" indicates that no portion of the management fee and/or other expenses is being waived and/or reimbursed. Any footnotes
about expenses appear after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios
of American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual funds and has
not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios
for further details. The current prospectus and statement of additional information for the underlying Portfolios can be obtained
by calling 1-800-752-6342.
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Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Fund
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
American Skandia Trust: (2)
AST Founders Passport 1.00% 0.38% 0.00% 1.38% N/A 1.38%
AST Scudder Japan (3) 1.00% 1.78% 0.00% 2.78% 1.03% 1.75%
AST AIM International Equity 0.86% 0.24% 0.06% 1.16% N/A 1.16%
AST Janus Overseas Growth 1.00% 0.18% 0.01% 1.19% N/A 1.19%
AST American Century International Growth 1.00% 0.27% 0.00% 1.27% N/A 1.27%
AST American Century International Growth II 1.00% 0.26% 0.00% 1.26% N/A 1.26%
AST MFS Global Equity 1.00% 0.87% 0.00% 1.87% 0.12% 1.75%
AST Janus Small-Cap Growth 0.90% 0.16% 0.01% 1.07% N/A 1.07%
AST Scudder Small-Cap Growth 0.95% 0.16% 0.02% 1.13% N/A 1.13%
AST Federated Aggressive Growth (3) 0.95% 6.27% 0.00% 7.22% 5.87% 1.35%
AST Goldman Sachs Small-Cap Value 0.95% 0.20% 0.00% 1.15% N/A 1.15%
AST Gabelli Small-CapValue 0.90% 0.21% 0.01% 1.12% N/A 1.12%
AST Janus Mid-Cap Growth 1.00% 0.28% 0.00% 1.28% N/A 1.28%
AST Neuberger Berman Mid-Cap Growth 0.90% 0.16% 0.03% 1.09% N/A 1.09%
AST Neuberger Berman Mid-Cap Value 0.90% 0.18% 0.16% 1.24% N/A 1.24%
AST Alger All-Cap Growth 0.95% 0.24% 0.05% 1.24% N/A 1.24%
AST Gabelli All-Cap Value (3) 0.95% 0.64% 0.00% 1.59% 0.14% 1.45%
AST Kinetics Internet (3) 1.00% 4.34% 0.00% 5.34% 3.94% 1.40%
AST T. Rowe Price Natural Resources 0.90% 0.24% 0.06% 1.20% N/A 1.20%
AST Alliance Growth 0.90% 0.19% 0.07% 1.16% N/A 1.16%
AST MFS Growth 0.90% 0.30% 0.00% 1.20% N/A 1.20%
AST Marsico Capital Growth 0.90% 0.14% 0.02% 1.06% 0.02% 1.04%
AST JanCap Growth 0.90% 0.13% 0.01% 1.04% 0.04% 1.00%
AST Janus Strategic Value (3) 1.00% 1.41% 0.00% 2.41% 1.06% 1.35%
AST Alliance/Bernstein Growth + Value (4) 0.90% 0.24% 0.03% 1.17% N/A 1.17%
AST Sanford Bernstein Core Value (4) 0.75% 0.24% 0.03% 1.02% N/A 1.02%
AST Cohen & Steers Realty 1.00% 0.22% 0.06% 1.28% N/A 1.28%
AST Sanford Bernstein Managed Index 500 0.60% 0.16% 0.02% 0.78% N/A 0.78%
AST American Century Income & Growth 0.75% 0.19% 0.00% 0.94% N/A 0.94%
AST Alliance Growth and Income 0.75% 0.15% 0.16% 1.06% 0.01% 1.05%
AST MFS Growth with Income 0.90% 0.33% 0.00% 1.23% N/A 1.23%
AST INVESCO Equity Income 0.75% 0.17% 0.03% 0.95% 0.01% 0.94%
AST AIM Balanced 0.73% 0.22% 0.00% 0.95% N/A 0.95%
AST American Century Strategic Balanced 0.85% 0.25% 0.00% 1.10% N/A 1.10%
AST T. Rowe Price Asset Allocation 0.85% 0.23% 0.00% 1.08% N/A 1.08%
AST T. Rowe Price Global Bond 0.80% 0.32% 0.00% 1.12% N/A 1.12%
AST Federated High Yield 0.75% 0.21% 0.00% 0.96% N/A 0.96%
AST Lord Abbett Bond-Debenture (3) 0.80% 2.27% 0.00% 3.07% 1.87% 1.20%
AST PIMCO Total Return Bond 0.65% 0.17% 0.00% 0.82% N/A 0.82%
AST PIMCO Limited Maturity Bond 0.65% 0.22% 0.00% 0.87% N/A 0.87%
AST Money Market 0.50% 0.15% 0.00% 0.65% 0.05% 0.60%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Fund
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Montgomery Variable Series:
Emerging Markets 1.25% 0.56% 0.00% 1.81% 0.25% 1.56%
Wells Fargo Variable Trust:
Equity Income 0.70% 0.22% 0.25% 1.17% 0.17% 1.00%
Equity Value 0.70% 0.62% 0.25% 1.57% 0.57% 1.00%
Rydex Variable Trust:
Nova 0.75% 0.67% 0.00% 1.42% N/A 1.42%
Ursa 0.90% 0.69% 0.00% 1.59% N/A 1.59%
OTC 0.75% 0.71% 0.00% 1.46% N/A 1.46%
INVESCO Variable Investment Funds, Inc.:
Technology 0.72% 0.30% 0.00% 1.02% N/A 1.02%
Health Sciences 0.75% 0.32% 0.00% 1.07% N/A 1.07%
Financial Services 0.75% 0.34% 0.00% 1.09% N/A 1.09%
Telecommunications 0.75% 0.31% 0.00% 1.06% N/A 1.06%
Dynamics 0.75% 0.34% 0.00% 1.09% N/A 1.09%
Evergreen Variable Annuity Trust:
Global Leaders 0.87% 0.29% 0.00% 1.16% 0.15% 1.01%
Omega 0.52% 0.16% 0.00% 0.68% N/A 0.68%
Special Equity 0.92% 0.25% 0.00% 1.17% 0.13% 1.04%
ProFund VP:
Europe 30 0.75% 0.75% 0.25% 1.75% N/A 1.75%
UltraSmall-Cap 0.75% 1.34% 0.25% 2.34% 0.29% 2.05%
UltraOTC 0.75% 0.75% 0.25% 1.75% N/A 1.75%
OTC (5) 0.75% 0.95% 0.25% 1.95% N/A 1.95%
Bear (5) 0.75% 0.95% 0.25% 1.95% N/A 1.95%
Bull Plus (5) 0.75% 0.95% 0.25% 1.95% N/A 1.95%
Biotechnology (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Energy (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Financial (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Healthcare (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Real Estate (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Technology (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Telecommunications (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Utilities (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
First Defined Portfolio Fund LLC:
First Trust(R)10 Uncommon Values 0.60% 2.47% 0.25% 3.32% 1.95% 1.37%
The Prudential Series Fund, Inc.:
SP Jennison International Growth (6) 0.85% 0.60% 0.25% 1.70% 0.06% 1.70%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
1 The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain Portfolios until
at least April 30, 2002. The caption "Total Annual Fund Operating Expenses" reflects the Portfolios' fees and expenses before
such waivers and reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects the effect of such waivers
and reimbursements.
2 American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1 of the
Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to receive brokerage commissions in
connection with purchases and sales of securities held by Portfolios of the Trust, and to use these commissions to promote the
sale of shares of such Portfolios. While the brokerage commission rates and amounts paid by the various Portfolios are not
expected to increase as a result of the Distribution Plan, the staff of the Securities and Exchange Commission takes the
position that commission amounts received under the Distribution Plan should be reflected as distribution expenses of the
Portfolios. The Distribution Fee estimates are derived and annualized from data regarding commission amounts directed to the
affiliate under the Distribution Plan for the fiscal year ended December 31, 2000. Although there are no maximum amounts
allowable, actual commission amounts directed under the Distribution Plan will vary and the amounts directed during the first
full fiscal year of the Plan's operations may differ substantially from the annualized amounts listed in the above chart.
3 These Portfolios commenced operations on October 23, 2000. "Other Expenses" and "12b-1 Fees" shown are based on
estimated amounts for the fiscal year ending December 31, 2001.
4 These Portfolios commenced operations on May 1, 2001. "Other Expenses" and "12b-1 Fees" shown are based on estimated
amounts for the fiscal year ending December 31, 2001.
5 These Portfolios commenced operations on January 22, 2001. "Other Expenses" and "12b-1 Fees" shown are based on
estimated amounts for the fiscal year ending December 31, 2001.
6 This Portfolio commenced operations on April 15, 2001. "Other Expenses" are based on estimated amounts for the fiscal
year ending December 31, 2001 and include a 0.15% Administration Fee. The 0.06% fee waiver and expense reimbursement is
currently in effect but may be eliminated. Therefore, the Expense Examples reflect the Total Annual Portfolio Operating
Expenses, not the Net Annual Portfolio Operating Expenses.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various costs and expenses you will incur with the Annuity over
certain periods of time based on specific assumptions. The examples reflect expenses of our Sub-accounts, as well as those of the
underlying mutual fund portfolios. The Securities and Exchange Commission ("SEC") requires these examples.
The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) the Insurance Charge is assessed as
1.40% per year; (c) the Annual Maintenance Fee is reflected as a charge equal to 0.05% based on an assumed average contract size;
(d) you make no withdrawals of Account Value during the period shown; (e) you make no transfers, withdrawals, surrender or other
transactions that we charge a fee during the period shown; (f) no tax charge applies; (g) the expenses throughout the period for
the underlying mutual fund portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled
"Underlying Mutual Fund Portfolio Annual Expenses"; and (h) the Credit applicable to your Annuity is 4% of Purchase Payments. The
Credit may be less when total Purchase Payments are less then $10,000 and may be more when total Purchase Payments are at least
$5,000,000 (see "How do I Receive Credits?"). The examples do not reflect the impact of any Target Value Credits that may be
applied to Purchase Payments within the first Annuity Year.
These examples do not reflect the charge for either optional Death Benefit that is offered under the Annuity or the Guaranteed
Return Option. If you purchase the Annuity with either optional Death Benefit or the Guaranteed Return Option, this charge is
deducted on an annual basis in arrears in addition to the amounts shown below. Please see the example of how we charge for the
optional Death Benefits and the Guaranteed Return Option following these tables.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING
MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- -----------------------------------------------------------------------------------------------------------------------------------------
Expense Examples
(amounts shown are rounded to the nearest dollar)
- -----------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------- ------- -----------------------------------------
If you surrender your Annuity at the end If you do not surrender your Annuity at
of the applicable time period, you would the end of the applicable time period
pay the following expenses on a $1,000 or begin taking annuity payments at
investment, assuming 5% annual return on such time, you would pay the following
assets: expenses on a $1,000 investment,
assuming 5% annual return on assets:
-------------------------------------------- ------- -----------------------------------------
After: After:
- ----------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
AST Founders Passport 115 177 232 330 30 92 157 330
AST Scudder Japan 119 189 251 366 34 104 176 366
AST AIM International Equity 113 170 220 307 28 85 145 307
AST Janus Overseas Growth 113 171 222 310 28 86 147 310
AST American Century International Growth 114 173 225 317 29 88 150 317
AST American Century International Growth 114 173 225 317 29 88 150 317
II
AST MFS Global Equity 119 189 251 366 34 104 176 366
AST Janus Small-Cap Growth 112 167 215 297 27 82 140 297
AST Scudder Small-Cap Growth 112 169 218 304 27 84 143 304
AST Federated Aggressive Growth 115 176 230 327 30 91 155 327
AST Goldman Sachs Small-Cap Value 113 170 219 306 28 85 144 306
AST Gabelli Small-Cap Value 112 169 218 303 27 84 143 303
AST Janus Mid-Cap Growth 114 174 226 319 29 89 151 319
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
After: After:
- ----------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
AST Neuberger Berman Mid-Cap Growth 112 168 217 300 27 83 142 300
AST Neuberger Berman Mid-Cap Value 114 173 224 315 29 88 149 315
AST Alger All-Cap Growth 114 173 224 315 29 88 149 315
AST Gabelli All-Cap Value 116 179 235 337 31 94 160 337
AST Kinetics Internet 115 177 232 330 30 92 157 330
AST T. Rowe Price Natural Resources 113 171 222 310 28 86 147 310
AST Alliance Growth 113 170 220 307 28 85 145 307
AST MFS Growth 113 171 222 310 28 86 147 310
AST Marsico Capital Growth 111 166 213 294 26 81 138 294
AST JanCap Growth 111 165 212 290 26 80 137 290
AST Janus Strategic Value 115 176 230 327 30 91 155 327
AST Alliance/Bernstein Growth + Value 113 170 220 307 28 85 145 307
AST Sanford Bernstein Core Value 111 165 212 291 26 80 137 291
AST Cohen & Steers Realty 114 174 226 319 29 89 151 319
AST Sanford Bernstein Managed Index 500 109 158 200 267 24 73 125 267
AST American Century Income & Growth 110 163 208 284 25 78 133 284
AST Alliance Growth and Income 112 167 214 295 27 82 139 295
AST MFS Growth with Income 113 172 223 313 28 87 148 313
AST INVESCO Equity Income 110 163 208 284 25 78 133 284
AST AIM Balanced 110 163 208 284 25 78 133 284
AST American Century Strategic Balanced 112 168 217 300 27 83 142 300
AST T. Rowe Price Asset Allocation 112 167 215 298 27 82 140 298
AST T. Rowe Price Global Bond 112 169 218 303 27 84 143 303
AST Federated High Yield 111 164 209 286 26 79 134 286
AST Lord Abbett Bond-Debenture 113 171 222 310 28 86 147 310
AST PIMCO Total Return Bond 109 159 202 271 24 74 127 271
AST PIMCO Limited Maturity Bond 110 161 205 277 25 76 130 277
AST Money Market 107 152 190 247 22 67 115 247
MV Emerging Markets 117 183 241 348 32 98 166 348
WFVT Equity Income 111 165 212 290 26 80 137 290
WFVT Equity Value 111 165 212 290 26 80 137 290
Rydex Nova 115 178 233 333 30 93 158 333
Rydex Ursa 117 183 242 350 32 98 167 350
Rydex OTC 116 179 235 337 31 94 160 337
INVESCO VIF Technology 111 165 212 291 26 80 137 291
INVESCO VIF Health Sciences 112 167 215 297 27 82 140 297
INVESCO VIF Financial Services 112 168 217 300 27 83 142 300
INVESCO VIF Telecommunications 112 167 215 297 27 82 140 297
INVESCO VIF Dynamics 112 168 217 300 27 83 142 300
Evergreen VA Global Leaders 111 165 212 291 26 80 137 291
Evergreen VA Omega 108 155 194 256 23 70 119 256
Evergreen VA Special Equity 111 166 213 294 26 81 138 294
ProFund VP Europe 30 119 189 251 366 34 104 176 366
ProFund VP UltraSmall-Cap 122 198 266 395 37 113 191 395
ProFund VP UltraOTC 119 189 251 366 34 104 176 366
ProFund VP OTC 121 195 261 385 36 110 186 385
ProFund VP Bear 121 195 261 385 36 110 186 385
ProFund VP Bull Plus 121 195 261 385 36 110 186 385
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
After: After:
- ----------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
ProFund VP Biotechnology 122 197 264 390 37 112 189 390
ProFund VP Energy 122 197 264 390 37 112 189 390
ProFund VP Financial 122 197 264 390 37 112 189 390
ProFund VP Healthcare 122 197 264 390 37 112 189 390
ProFund VP Real Estate 122 197 264 390 37 112 189 390
ProFund VP Technology 122 197 264 390 37 112 189 390
ProFund VP Telecommunications 122 197 264 390 37 112 189 390
ProFund VP Utilities 122 197 264 390 37 112 189 390
First Trust(R)10 Uncommon Values 115 177 231 328 30 92 156 328
SP Jennison International Growth 118 187 248 361 33 102 173 361
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Expenses For Optional Benefits
Guaranteed Return Option
If you elect to participate in the Guaranteed Return Option program, an annual charge of 0.25% is deducted from your Annuity's
Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed Allocations as of the date the
charge is deducted. Below is an example of how the charge for the Optional Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Enhanced Beneficiary Protection Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, an annual charge of 0.25% is deducted from your
Annuity's Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed Allocations as of the date
the charge is deducted. Below is an example of how the charge for the Optional Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Since charges for the Optional Death Benefit are determined based on a percentage of Account Value, you will pay more for this
benefit if your Account Value increases. The value of the Optional Death Benefit will also increase as the Account Value
increases. However, the Optional Death Benefit is also subject to a maximum benefit. See the section entitled "Optional Death
Benefits" for a description of the Enhanced Beneficiary Protection Optional Death Benefit.
Guaranteed Minimum Death Benefit
If you purchase the Guaranteed Minimum Death Benefit, an annual charge of 0.30% is deducted from your Annuity's Account Value.
The charge will be based on the current Death Benefit under the Guaranteed Minimum Death Benefit as of the date the charge is
deducted. Below is an example of how the charge for the Guaranteed Minimum Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Current Death Benefit: $13,000
Cost of Optional Death Benefit 0.30% X Current Death Benefit = $39.00 per year
The charge for optional Death Benefits is deducted in addition to the Insurance Charge which is deducted on a daily basis from the
Account Value allocated to the Sub-accounts. The charge for the optional Death Benefits is deducted in arrears on each
anniversary of the Issue Date of the Annuity or, if you terminate the optional Death Benefit or surrender your Annuity, on the
date the termination or surrender is effective.
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B (see
"What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively in one Portfolio. You should
carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the
Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a
description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist
you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying mutual fund portfolio
will meet its investment objective.
The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose name includes the
prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is American Skandia Investment Services,
Incorporated ("ASISI"), an affiliated company of American Skandia. However, a sub-advisor, as noted below, is engaged to conduct
day-to-day investment decisions.
Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or sub-advisor as a
retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception. Certain retail mutual funds may
also have been modeled after a Portfolio. While the investment objective and policies of the funds may be substantially similar,
the actual investments made by the funds will differ to varying degrees. Differences in the performance of the funds can be
expected, and in some cases could be substantial. Details about the investment objectives, policies, risks, costs and management
of the Portfolios are found in the prospectuses for the underlying mutual funds.
========================================================================================================================================
Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no longer offered as a Sub-account under the Annuity. Owners
of Contracts issued on or before January 18, 2000 may not allocate additional Account Value or make transfers into the AST Janus
Small-Cap Growth Sub-account, except that, Owners who had previously elected a bank drafting, dollar cost averaging, asset allocation
and/or rebalancing program will be allowed to continue. However, no changes involving the AST Janus Small-Cap Growth Sub-account may
be made to such programs.
Effective March 1, 2000, the AST Janus Overseas Growth portfolio is no longer offered as a Sub-account under the Annuity, except as
noted below. Owners of Contracts issued on or before February 29, 2000 with Account Value allocated to the AST Janus Overseas Growth
Sub-account may continue to allocate Account Value and make transfers into the AST Janus Overseas Growth Sub-account, including any
bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Contracts issued on or after March 1, 2000 will not
be allowed to allocate Account Value to the AST Janus Overseas Growth Sub-account.
The Portfolios may be offered as a Sub-account to Contract Owners at some future date; however, at the present time, American Skandia
has no intention to do so.
========================================================================================================================================
====================================================================================================================================
Effective March 16, 2001, the Nova, Ursa and OTC portfolios of Rydex Variable Trust will no longer be offered as Sub-accounts
under the Annuity. Owners of Annuity contracts issued on or after March 16, 2001 will not be allowed to allocate Account Value to
the Rydex Nova, Rydex Ursa or Rydex OTC Sub-accounts. Except as noted below, Owners of Annuity contracts issued before March 16,
2001, and/or their authorized financial professionals, will no longer be able to allocate additional Account Value or make
transfers into the Rydex Nova, Rydex Ursa or Rydex OTC Sub-accounts. Contract Owners and/or their authorized financial
professionals who elect to transfer Account Value out of the Rydex Sub-accounts on or after March 16, 2001 will not be allowed to
transfer Account Value into the Rydex Sub-accounts at a later date. Bank drafting, dollar cost averaging, asset allocation and
rebalancing programs that were effective on or before March 16, 2001 and included one or more of the Rydex Sub-accounts will be
allowed to continue. However, no changes involving the Rydex Sub-accounts may be made to such programs.
====================================================================================================================================
Please refer to Appendix B for certain required financial information related to the historical performance of the Sub-accounts.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Money Market: seeks to maximize current income and maintain high levels of liquidity. The
MONEY MARKET Portfolio attempts to accomplish its objective by maintaining a dollar-weighted average J. P. Morgan
maturity of not more than 90 days and by investing in securities which have effective Investment Management
maturities of not more than 397 days. Inc.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
AST Lord Abbett Bond-Debenture: seeks high current income and the opportunity for capital
appreciation to produce a high total return. The Portfolio pursues its objective by normally
investing in high yield and investment grade debt securities, securities convertible into
common stock and preferred stocks. Under normal circumstances, the Portfolio invests at least
65% of its total assets in fixed income securities of various types. The Portfolio may find
good value in high yield securities, sometimes called "lower-rated bonds" or "junk bonds," and
frequently may have more than half of its assets invested in those securities. At least 20% Lord, Abbett & Co.
of the Portfolio's assets must be invested in any combination of investment grade debt
securities, U.S. Government securities and cash equivalents. The Portfolio may also make
significant investments in mortgage-backed securities. Although the Portfolio expects to
BOND maintain a weighted average maturity in the range of seven to nine years, there are no
restrictions on the overall Portfolio or on individual securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
AST PIMCO Limited Maturity Bond: seeks to maximize total return consistent with preservation
of capital and prudent investment management. The Portfolio will invest in a diversified Pacific Investment
portfolio of fixed-income securities of varying maturities. The average portfolio duration of Management Company
the Portfolio generally will vary within a one- to three-year time frame based on the
Sub-advisor's forecast for interest rates.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST PIMCO Total Return Bond: seeks to maximize total return consistent with preservation of
capital and prudent investment management. The Portfolio will invest in a diversified Pacific Investment
portfolio of fixed-income securities of varying maturities. The average portfolio duration of Management Company
the Portfolio generally will vary within a three- to six-year time frame based on the
Sub-advisor's forecast for interest rates.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Federated High Yield: seeks high current income by investing primarily in a diversified
portfolio of fixed income securities. The Portfolio will invest at least 65% of its assets in
lower-rated corporate fixed income securities ("junk bonds"). These fixed income securities
HIGH YIELD BOND may include preferred stocks, convertible securities, bonds, debentures, notes, equipment Federated Investment
lease certificates and equipment trust certificates. A fund that invests primarily in Counseling
lower-rated fixed income securities will be subject to greater risk and share price
fluctuation than a typical fixed income fund, and may be subject to an amount of risk that is
comparable to or greater than many equity funds.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST T. Rowe Price Global Bond (f/k/a AST T. Rowe Price International Bond): seeks to provide
high current income and capital growth by investing in high-quality foreign and U.S.
government bonds. The Portfolio will invest at least 65% of its total assets in bonds issued
or guaranteed by the U.S. or foreign governments or their agencies and by foreign authorities,
provinces and municipalities. Corporate bonds, mortgage- and asset-backed securities may also
be purchased. The Sub-advisor bases its investment decisions on fundamental market factors,
GLOBAL BOND currency trends, and credit quality. The Portfolio generally invests in countries where the T. Rowe Price
combination of fixed-income returns and currency exchange rates appears attractive, or, if the International, Inc.
currency trend is unfavorable, where the Sub-advisor believes that the currency risk can be
minimized through hedging. The Portfolio may also invest up to 20% of its assets in the
aggregate in below investment-grade, high-risk bonds ("junk bonds"). In addition, the
Portfolio may invest up to 30% of its assets in mortgage-backed (including derivatives, such
as collateralized mortgage obligations and stripped mortgage securities) and asset-backed
securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST T. Rowe Price Asset Allocation: seeks a high level of total return by investing primarily
in a diversified portfolio of fixed income and equity securities. The Portfolio normally
ASSET ALLOCA-TION invests approximately 60% of its total assets in equity securities and 40% in fixed income
securities. The Sub-advisor concentrates common stock investments in larger, more established T. Rowe Price
companies, but the Portfolio may include small and medium-sized companies with good growth Associates, Inc.
prospects. The fixed income portion of the Portfolio will be allocated among investment grade
securities, high yield or "junk" bonds, foreign high quality debt securities and cash reserves.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
AST AIM Balanced: seeks to provide a well-diversified portfolio of stocks and bonds that will
produce both capital growth and current income. The Portfolio attempts to meet its objective
by investing, normally, a minimum of 30% and a maximum of 70% of its total assets in equity A I M Capital
securities and a minimum of 30% and a maximum of 70% of its total assets in non-convertible Management, Inc.
debt securities. The Sub-advisor will primarily purchase equity securities for growth of
capital and debt securities for income purposes.
BALANCED
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST American Century Strategic Balanced: seeks capital growth and current income. The
Sub-advisor intends to maintain approximately 60% of the Portfolio's assets in equity
securities and the remainder in bonds and other fixed income securities. Both the Portfolio's American Century
equity and fixed income investments will fluctuate in value. The equity securities will Investment
fluctuate depending on the performance of the companies that issued them, general market and Management, Inc.
economic conditions, and investor confidence. The fixed income investments will be affected
primarily by rising or falling interest rates and the credit quality of the issuers.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
AST INVESCO Equity Income: seeks capital growth and current income while following sound
investment practices. The Portfolio seeks to achieve its objective by investing in securities
that are expected to produce relatively high levels of income and consistent, stable returns. INVESCO Funds Group,
The Portfolio normally will invest at least 65% of its assets in dividend-paying common and Inc.
preferred stocks of domestic and foreign issuers. Up to 30% of the Portfolio's assets may be
invested in equity securities that do not pay regular dividends.
EQUITY INCOME
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
WFVT Equity Income: seeks long-term capital appreciation and above-average dividend income.
The Portfolio pursues its objective primarily by investing in the common stocks of large,
high-quality domestic companies with above-average return potential based on current market
valuations and above-average dividend income. Under normal market conditions, the Portfolio Wells Fargo Funds
invests at least 65% of its total assets in income producing equity securities and in issues Management, LLC
of companies with market capitalizations greater than the median of the Russell 1000 Index.
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AST Alliance Growth and Income (f/k/a AST Lord Abbett Growth and Income): seeks long-term
growth of capital and income while attempting to avoid excessive fluctuations in market value.
The Portfolio normally will invest in common stocks (and securities convertible into common
stocks). The Sub-advisor will take a value-oriented approach, in that it will try to keep the Alliance Capital
Portfolio's assets invested in securities that are selling at reasonable valuations in Management, L.P.
relation to their fundamental business prospects. The stocks that the Portfolio will normally
GROWTH invest in are those of seasoned companies that are expected to show above-average growth and
& that the Sub-advisor believes are in sound financial condition.
INCOME
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AST American Century Income & Growth: seeks capital growth with current income as a secondary
objective. The Portfolio invests primarily in common stocks that offer potential for capital
growth, and may, consistent with its investment objective, invest in stocks that offer American Century
potential for current income. The Sub-advisor utilizes a quantitative management technique Investment
with a goal of building an equity portfolio that provides better returns than the S&P 500 Management, Inc.
Index without taking on significant additional risk and while attempting to create a dividend
yield that will be greater than the S&P 500 Index.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST MFS Growth with Income: seeks reasonable current income and long-term capital growth and
income. Under normal market conditions, the Portfolio invests at least 65% of its total
GROWTH assets in common stocks and related securities, such as preferred stocks, convertible Massachusetts
& securities and depositary receipts. The stocks in which the Portfolio invests generally will Financial Services
INCOME pay dividends. While the Portfolio may invest in companies of any size, the Portfolio Company
(Cont.) generally focuses on companies with larger market capitalizations that the Sub-advisor
believes have sustainable growth prospects and attractive valuations based on current and
expected earnings or cash flow. The Portfolio may invest up to 20% of its net assets in
foreign securities.
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AST Cohen & Steers Realty: seeks to maximize total return through investment in real estate
securities. The Portfolio pursues its investment objective by seeking, with approximately
REAL ESTATE equal emphasis, capital growth and current income. Under normal circumstances, the Portfolio
(REIT) will invest substantially all of its assets in the equity securities of real estate companies, Cohen & Steers
i.e., a company that derives at least 50% of its revenues from the ownership, construction, Capital Management,
financing, management or sale of real estate or that has at least 50% of its assets in real Inc.
estate. Real estate companies may include real estate investment trusts or REITs.
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AST Sanford Bernstein Managed Index 500: seeks to outperform the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500(R)") through stock selection resulting in different
weightings of common stocks relative to the index. The Portfolio will invest primarily in the
common stocks of companies included in the S&P 500(R). In seeking to outperform the S&P 500,
the Sub-advisor starts with a portfolio of stocks representative of the holdings of the
MANAGED INDEX index. It then uses a set of fundamental quantitative criteria that are designed to indicate Sanford C. Bernstein
whether a particular stock will predictably perform better or worse than the S&P 500. Based & Co., LLC
on these criteria, the Sub-advisor determines whether the Portfolio should over-weight,
under-weight or hold a neutral position in the stock relative to the proportion of the S&P 500
that the stock represents. In addition, the Sub-advisor also may determine that based on the
quantitative criteria, certain equity securities that are not included in the S&P 500 should
be held by the Portfolio.
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- -------------------
AST Alliance/Bernstein Growth + Value: seeks capital growth by investing approximately 50% of
its assets in growth stocks of large companies and approximately 50% of its assets in value
stocks of large companies. The Portfolio will invest primarily in commons tocks of large U.S.
companies included in the Russell 1000 Index (the "Russell 1000"). The Russell 1000 is a
market capitalization-weighted index that measures the performance of the 1,000 largest U.S. Alliance Capital
companies. Normally, about 60-85 companies will be represented in the Portfolio, with 25-35 Management, L.P.
companies primarily from the Russell 1000 Growth Index constituting approximately 50% of the
Portfolio's net assets and 35-50 companies primarily from the Russell 1000 Value Index
LARGE CAP constituting the remainder of the Portfolio's net assets. There will be a periodic
EQUITY rebalancing of each segment's assets to take account of market fluctuations in order to
maintain the approximately equal allocation.
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AST Alliance Growth: seeks long-term capital growth. The Portfolio invests at least 80% of
its total assets in the equity securities of a limited number of large, carefully selected,
high-quality U.S. companies that are judged likely to achieve superior earnings growth. Alliance Capital
Normally, about 40-60 companies will be represented in the Portfolio, with the 25 companies Management, L.P.
most highly regarded by the Sub-advisor usually constituting approximately 70% of the
Portfolio's net assets. An emphasis is placed on identifying companies whose substantially
above average prospective earnings growth is not fully reflected in current market valuations.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST JanCap Growth: seeks growth of capital in a manner consistent with the preservation of
capital. Realization of income is not a significant investment consideration and any income
realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's
objective. The Portfolio will pursue its objective by investing primarily in common stocks of Janus Capital
companies that the Sub-advisor believes are experiencing favorable demand for their products Corporation
and services, and which operate in a favorable competitive and regulatory environment. The
Sub-advisor generally takes a "bottom up" approach to choosing investments for the Portfolio.
In other words, the Sub-advisor seeks to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
LARGE CAP
EQUITY
(Cont.)
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AST Janus Strategic Value: seeks long-term growth of capital. The Portfolio pursues its
objective by investing primarily in common stocks with the potential for long-term growth of
capital using a "value" approach. This value approach emphasizes investments in companies the
Sub-advisor believes are undervalued relative to their intrinsic worth. Realization of income Janus Capital
is not a significant consideration when choosing investments for the Portfolio. The Portfolio Corporation
will generally focus on the securities of larger companies, however, it may invest in the
securities of smaller companies, including start-up companies offering emerging products or
services.
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AST Marsico Capital Growth: seeks capital growth. Income realization is not an investment
objective and any income realized on the Portfolio's investments, therefore, will be
incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing
primarily in common stocks of larger, more established companies. In selecting investments
for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis Marsico Capital
with "bottom up" stock selection. The "top down" approach identifies sectors, industries and Management, LLC
companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor
then looks for individual companies with earnings growth potential that may not be recognized
by the market at large. This is called "bottom up" stock selection.
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AST MFS Growth: seeks long-term capital growth and future income. Under normal market
conditions, the Portfolio invests at least 80% of its total assets in common stocks and
related securities, such as preferred stocks, convertible securities and depositary receipts, Massachusetts
of companies that the Sub-advisor believes offer better than average prospects for long-term Financial Services
growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run Company
and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign
securities.
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AST Sanford Bernstein Core Value: seeks long-term capital growth by investing primarily in
common stocks. The Sub-advisor expects that the majority of the Portfolio's assets will be
invested in the common stocks of large companies that appear to be undervalued. Among other
things, the Portfolio seeks to identify compelling buying opportunities created when companies Sanford C. Bernstein
are undervalued on the basis of investor reactions to near-term problems or circumstances even & Co., LLC
though their long-term prospects remain sound. The Sub-advisor seeks to identify individual
companies with earnings growth potential that may not be recognized by the market at large.
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AST Alger All-Cap Growth: seeks long-term capital growth. The Portfolio invests primarily in
equity securities, such as common or preferred stocks, that are listed on U.S. exchanges or in
ALL-CAP the over-the-counter market. The Portfolio may invest in the equity securities of companies Fred Alger
EQUITY of all sizes, and may emphasize either larger or smaller companies at a given time based on Management, Inc.
the Sub-advisor's assessment of particular companies and market conditions.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Gabelli All-Cap Value: seeks capital growth. The Portfolio pursues its objective by
investing primarily in readily marketable equity securities including common stocks, preferred
stocks and securities that may be converted at a later time into common stock. The Portfolio
ALL-CAP may invest in the securities of companies of all sizes, and may emphasize either larger or GAMCO Investors, Inc.
EQUITY smaller companies at a given time based on the Sub-advisor's assessment of particular
(Cont.) companies and market conditions. The Portfolio focuses on companies that appear underpriced
relative to their private market value ("PMV"). PMV is the value that the Portfolio's
Sub-advisor believes informed investors would be willing to pay for a company.
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AST Janus Mid-Cap Growth: seeks long-term capital growth. The Portfolio invests primarily in
common stocks, selected for their growth potential, and normally invests at least 65% of its
equity assets in medium-sized companies. For purposes of the Portfolio, medium-sized
companies are those whose market capitalizations (measured at the time of investment) fall Janus Capital
within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor Corporation
seeks to identify individual companies with earnings growth potential that may not be
recognized by the market at large.
MID-CAP EQUITY
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AST Neuberger Berman Mid-Cap Growth: seeks capital growth. The Portfolio primarily invests in
the common stocks of mid-cap companies, i.e., companies with equity market capitalizations Neuberger Berman
from $300 million to $10 billion at the time of investment. The Portfolio is normally managed Management
using a growth-oriented investment approach. The Sub-advisor looks for fast-growing companies Incorporated
that are in new or rapidly evolving industries.
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AST Neuberger Berman Mid-Cap Value: seeks capital growth. The Portfolio primarily invests in
the common stocks of mid-cap companies. Under the Portfolio's value-oriented investment
approach, the Sub-advisor looks for well-managed companies whose stock prices are undervalued Neuberger Berman
and that may rise in price before other investors realize their worth. Factors that the Management
Sub-advisor may use to identify these companies include strong fundamentals, including a low Incorporated
price-to-earnings ratio, consistent cash flow, and a sound track record through all phases of
the market cycle.
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Evergreen VA Omega: seeks maximum capital growth. The Portfolio invests primarily in common
stocks and securities convertible into common stocks of U.S. companies across all market Evergreen Investment
capitalizations. The Portfolio utilizes the fully-managed investment concept whereby the Management Company,
Portfolio's manager will continuously review the Portfolio's holdings in light of market LLC
conditions, business developments and economic trends. During this review process, the (f/k/a Evergreen
Portfolio's manager seeks to identify and invest in industries that are growing faster than Investment Management
the economy. The Portfolio invests in companies of all sizes. The continuous review may lead Company)
to high portfolio turnover, but that will not limit investment decisions. The Portfolio may
also invest up to 25% of its assets in foreign securities.
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INVESCO Variable Investment Funds - Dynamics: seek capital appreciation. The Portfolio
invests primarily in common stocks of mid-size U.S. companies - those with market
capitalizations between $2 billion and $15 billion at the time of purchase - but also has the
flexibility to invest in other types of securities, including preferred stocks, convertible
securities and bonds. The core of the Portfolio's portfolio is invested in securities of INVESCO Funds Group,
established companies that are leaders in attractive growth markets with a history of strong Inc.
returns. The remainder of the Portfolio is invested in securities that show accelerating
growth, driven by product cycles, favorable industry or sector conditions and other factors
that will lead to rapid sales and earnings growth.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
WFVT Equity Value: seeks long-term capital appreciation. The Portfolio pursues its objective
by investing in a diversified portfolio composed primarily of equity securities that are
MID-CAP EQUITY trading at low price-to-earnings ratios, as measured against the stock market as a whole or
(Cont.) against the individual stock's own price history. Under normal market conditions, the Wells Fargo Funds
Portfolio invests primarily in common stocks of both large, well-established companies and Management, LLC
smaller companies with market capitalization exceeding $50 million at the time of purchase.
The Portfolio may also invest in debt instruments that may be converted into the common stocks
of both U.S. and foreign companies.
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- --------------------------------------------------------------------------------------------------------------------------------------------
Although investments in securities of smaller companies are generally considered to offer greater opportunity for appreciation, they also
involve greater risk of depreciation than securities of larger companies. Smaller companies may lack depth of management, financial
resources, or they may be developing or marketing products or services for which there is not an established market. Additionally,
smaller companies normally have fewer shares outstanding and trade less frequently than large companies. Therefore, the securities of
smaller companies may be subject to wider price fluctuations.
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AST Federated Aggressive Growth: seeks capital growth. The Portfolio pursues its investment
objective by investing in equity securities of companies offering superior prospects for
earnings growth. The Portfolio focuses its investments on the equity securities of smaller
companies, but it is not subject to any specific market capitalization requirements. The Federated Investment
Portfolio may invest in foreign issuers through American Depositary Receipts. The Portfolio's Counseling
strategies with respect to security analysis, market capitalization and sector allocation are
designed to produce a portfolio of stocks whose long-term growth prospects are significantly
above those of the S&P 500 Index.
SMALL CAP
EQUITY
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AST Gabelli Small-Cap Value (f/k/a AST T. Rowe Price Small Company Value): seeks to provide
long-term capital growth by investing primarily in small-capitalization stocks that appear to
be undervalued. The Portfolio will normally invest at least 65% of its total assets in stocks
and equity-related securities of small companies ($1 billion or less in market GAMCO
capitalization). Reflecting a value approach to investing, the Portfolio will seek the stocks Investors, Inc.
of companies whose current stock prices do not appear to adequately reflect their underlying
value as measured by assets, earnings, cash flow or business franchises.
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AST Goldman Sachs Small-Cap Value (f/k/a AST Lord Abbett Small Cap Value): seeks long-term
capital appreciation. The Portfolio will seek its objective through investments primarily in
equity securities that are believed to be undervalued in the marketplace. The Portfolio
primarily seeks companies that are small-sized, based on the value of their outstanding Goldman Sachs Asset
stock. Specifically, under normal circumstances, at least 65% of the Portfolio's total assets Management
will be invested in common stocks issued by smaller, less well-known companies (with market
capitalizations of less than $4 billion at the time of investment).
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AST Janus Small-Cap Growth: seeks capital growth. The Portfolio pursues its objective by
normally investing at least 65% of its total assets in the common stocks of small-sized
companies, i.e., those that have market capitalizations of less than $1.5 billion or annual Janus Capital
gross revenues of less than $500 million. Corporation
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AST Scudder Small-Cap Growth (f/k/a AST Kemper Small-Cap Growth): seeks maximum growth of
investors' capital from a portfolio primarily of growth stocks of smaller companies. At least
65% of the Portfolio's total assets normally will be invested in the equity securities of
smaller companies, i.e., those having a market capitalization of $2 billion or less at the Zurich Scudder
time of investment, many of which would be in the early stages of their life cycle. The Investments, Inc.
Portfolio seeks attractive areas for investment that arise from factors such as technological
advances, new marketing methods, and changes in the economy and population.
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Evergreen VA Special Equity: seeks capital growth. The Portfolio strives to provide a return Evergreen Investment
greater than broad stock market indices such as the Russell 2000 Index by investing Management Company,
principally in a diversified portfolio of common stocks of U.S. companies. The Portfolio's LLC
investment adviser principally chooses companies which it expects will experience growth in (f/k/a Meridian
earnings and price, and which have small market capitalizations (up to $1.5 billion). The Investment Company)
Portfolio may purchase stocks in initial public offerings (IPOs).
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST MFS Global Equity: seeks capital growth. Under normal market conditions, the Portfolio
invests at least 65% of its total assets in common stocks and related securities, such as
preferred stock, convertible securities and depositary receipts, of U.S. and foreign issuers Massachusetts
(including issuers in developing countries). The Portfolio generally seeks to purchase Financial Services
securities of companies with relatively large market capitalizations relative to the market in Company
which they are traded.
GLOBAL EQUITY
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Evergreen VA Global Leaders: seeks to provide investors with long-term capital growth. The
Portfolio normally invests as least 65% of its assets in a diversified portfolio of U.S. and Evergreen Investment
non-U.S. equity securities of companies located in the world's major industrialized Management Company,
countries. The Portfolio will invest in no less than three countries, which may include the LLC
U.S., but may invest more than 25% of its total assets in one country. The Portfolio invests (f/k/a Evergreen
only in the best 100 companies, which are selected by the investment advisor based on Asset Management
qualitative and quantitative criteria such as high return on equity, consistent earnings Corp.)
growth and established market presence.
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Investments in securities of foreign issuers may involve risks that are not present with domestic investments. Some of these risks may be
fluctuations in currency exchange rates, less liquid and more volatile securities markets, unstable political and economic structures,
reduced availability of public information and lack of uniform financial reporting and regulatory practices compared to those that apply
to U.S. issuers.
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AST AIM International Equity: seeks capital growth. The Portfolio seeks to meet its objective
by investing, normally, at least 70% of its assets in marketable equity securities of foreign
companies that are listed on a recognized foreign securities exchange or traded in a foreign A I M Capital
over-the-counter market. The Portfolio will normally invest in a diversified portfolio that Management, Inc.
includes companies from at least four countries outside the United States, emphasizing
countries of Western Europe and the Pacific Basin.
INTER-NATIONAL
EQUITY
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AST American Century International Growth: seeks capital growth. The Portfolio will seek to
achieve its investment objective by investing primarily in equity securities of foreign
companies that the Sub-advisor believes will increase in value over time. Under normal
conditions, the Portfolio will invest at least 65% of its assets in equity securities of American Century
issuers from at least three countries outside of the United States. The Sub-advisor uses a Investment
growth investment strategy it developed that looks for companies with earnings and revenue Management, Inc.
growth. The Sub-advisor will consider a number of other factors in making investment
selections, including the prospects for relative economic growth among countries or regions,
economic and political conditions, expected inflation rates, currency exchange fluctuations
and tax considerations.
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AST American Century International Growth II: The investment objective, policies and risks of American Century
the Portfolio are substantially identical to those of the AST American Century International Investment
Growth Portfolio as described immediately above. Management, Inc.
------------------------------------------------------------------------------------------------ -----------------------
AST Founders Passport: seeks capital growth. The Portfolio normally invests primarily in
equity securities issued by foreign companies that have market capitalizations or annual
revenues of $1.5 billion or less. These securities may represent companies in both
established and emerging economies throughout the world. At least 65% of the Portfolio's Founders Asset
total assets normally will be invested in foreign securities representing a minimum of three Management LLC
countries. Foreign securities are generally considered to involve more risk than those of
U.S. companies, and securities of smaller companies are generally considered to be riskier
than those of larger companies.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Janus Overseas Growth: seeks long-term growth of capital. The Portfolio pursues its
objective primarily through investments in common stocks of issuers from at least five
different countries, excluding the United States. Securities are generally selected without Janus Capital
regard to any defined allocation among countries, geographic regions or industry sectors, or Corporation
other similar selection procedure.
INTER-NATIONAL
EQUITY
(Cont.)
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AST Scudder Japan: seeks long-term capital growth. The Portfolio pursues its investment
objective by investing at least 80% of net assets in Japanese securities (those issued by
Japan-based companies or their affiliates, or by any company that derives more than half of Scudder Kemper
its revenues from Japan). The Portfolio may invest in stocks of any size, including up to 30% Investments, Inc.
of its net assets in smaller companies that are traded over-the-counter. The Portfolio's
focus on a single country could give rise to increased risk, as the Portfolio's investments
will not be diversified among countries having varying characteristics and market performance.
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ProFund VP Europe 30: seeks daily investment results that correspond to the performance of
the ProFunds Europe 30 Index. The ProFunds Europe 30 Index, created by ProFund Advisors, is
composed of 30 European companies whose securities are traded on U.S. exchanges or on the ProFund Advisors LLC
NASDAQ as ADRs with the highest market capitalization, as determined annually.
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The Prudential Series Fund, Inc. - SP Jennison International Growth: seeks to provide
long-term growth of capital. The Portfolio pursues its objective by investing in
equity-related securities of foreign issuers that the Sub-advisor believes will increase in Prudential
value over a period of years. The Portfolio invests primarily in the common stock of large Investments Fund
and medium-sized foreign companies. Under normal circumstances, the Portfolio invests at Management, LLC/
least 65% of its total assets in common stock of foreign companies operating or based in at Jennison Associates
least five different countries. The Portfolio looks primarily for stocks of companies whose LLC
earnings are growing at a faster rate than other companies and that have above-average actual
and potential earnings growth over the long term and strong financial and operational
characteristics.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Montgomery Variable Series - Emerging Markets: seeks long-term capital appreciation, under
normal conditions by investing at least 65% of its total assets in stocks of companies of any Montgomery Asset
EMERGING MARKETS size based in the world's developing economies. Under normal conditions, investments are Management, LLC
maintained in at least six countries at all times and no more than 35% of total assets in any
single one of them.
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- --------------------------------------------------------------------------------------------------------------------------------------------
Sector funds generally diversify their investments across particular economic sectors or a single industry. However, because those
investments are limited to a comparatively narrow segment of the economy, the Portfolios are generally not as diversified as other
Portfolios. Sector funds tend to be more volatile than other types of funds. The value of fund shares may go up and down more rapidly
than other funds. Each sector of the economy may also have different regulatory or other risk factors that can cause greater fluctuations
in the share price. Please read the prospectus for the Portfolios for further details about the risks of the particular sector of the
economy. Each ProFunds VP sector Portfolio will concentrate its investments in a particular industry or group of industries to
approximately the same extent the applicable Index is so concentrated.
- --------------------------------------------------------------------------------------------------------------------------------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Kinetics Internet: seeks long-term growth of capital. Under normal circumstances, the
Portfolio invests at least 65% of its total assets in common stocks, convertible securities,
warrants and other equity securities having the characteristics of common stocks, such as
American Depositary Receipts and International Depositary Receipts, of domestic and foreign
companies that are engaged in the Internet and Internet-related activities. Portfolio Kinetics Asset
SECTOR securities will be selected by the Sub-advisor from companies that are engaged in the Management, Inc.
development of hardware, software and telecommunications solutions that enable the transaction
of business on the Internet by individuals and companies, as well as companies that offer
products and services primarily via the Internet. The Portfolio seeks to invest in the equity
securities of companies whose research and development efforts may result in higher stock
values.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST T. Rowe Price Natural Resources: seeks long-term capital growth primarily through the
common stocks of companies that own or develop natural resources (such as energy products,
precious metals, and forest products) and other basic commodities. The Portfolio normally
invests primarily (at least 65% of its total assets) in the common stocks of natural resource T. Rowe Price
companies whose earnings and tangible assets could benefit from accelerating inflation. The Associates, Inc.
Portfolio looks for companies that have the ability to expand production, to maintain superior
exploration programs and production facilities, and the potential to accumulate new resources.
SECTOR
(Cont.)
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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INVESCO Variable Investment Funds - Financial Services: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies involved in the financial
services sector. These companies include, among others, banks (regional and money-centers),
insurance companies (life, property and casualty, and multiline), and investment and INVESCO Funds Group,
miscellaneous industries (asset managers, brokerage firms, and government-sponsored Inc.
agencies). The investment advisor seeks companies which it believes can grow their revenues
and earnings in a variety of interest rate environments - although securities prices of
financial services companies generally are interest rate-sensitive.
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INVESCO Variable Investment Funds - Health Sciences: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies that develop, produce or
distribute products or services related to health care. These companies include, but are not
limited to, medical equipment or supplies, pharmaceuticals, health care facilities, and INVESCO Funds Group,
applied research and development of new products or services. The investment advisor attempts Inc.
to blend well-established healthcare firms with faster-growing, more dynamic health care
companies, which have new products or are increasing their market share of existing products.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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INVESCO Variable Investment Funds - Technology: seeks capital appreciation. The Portfolio
invests primarily in the equity securities of companies engaged in technology-related
industries. These include, but are not limited to, communications, computers, electronics,
Internet, IT services and consulting, oceanography, office and factory automation, networking, INVESCO Funds Group,
applied technology, biotechnology, robotics and video. A core portion of the Portfolio's Inc.
holdings are invested in market-leading technology companies which the investment advisor
believes will maintain or improve their market share regardless of overall economic
conditions. The remainder of the Portfolio's holdings consist of faster-growing, more
volatile technology companies which the investment advisor believes to be emerging leaders in
their fields.
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INVESCO Variable Investment Funds - Telecommunications: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies that are engaged in the
design, development, manufacture, distribution, or sale of communications services and
equipment, and companies that are involved in supplying equipment or services to such INVESCO Funds Group,
companies. The telecommunications sector includes companies that offer telephone services, Inc.
wireless communications, satellite communications, television and movie programming,
broadcasting and Internet access. Normally, the Portfolio will invest primarily in companies
located in at least three different countries, although U.S. issuers will often dominate the
holdings.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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ProFund VP Biotechnology: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Biotechnology Index ("Index"). The Index measures the
performance of the biotechnology sector of the U.S. equity market. The Portfolio invests
primarily in equity securities of, or in instruments that provide exposure to, biotechnology ProFund Advisors LLC
companies engaged in genetic research, and/or the marketing and development of recombinant DNA
products. Companies represented in this sector may include companies that may be newly formed
and that have relatively small market capitalizations.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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ProFund VP Energy: seeks daily investment results that correspond to the daily performance of
the Dow Jones U.S. Energy Sector Index ("Index"). The Index measures the performance of the
energy sector of the U.S. equity market. The Portfolio invests primarily in equity securities ProFund Advisors LLC
of, or in instruments that provide exposure to, energy companies engaged in the business of
oil equipment and services, oil-major, oil-secondary and pipelines.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP Financial: seeks daily investment results that correspond to the daily performance
of the Dow Jones U.S. Financial Sector Index ("Index"). The Index measures the performance of
the financial economic sector of the U.S. equity market. The Portfolio invests primarily in
equity securities of, or in instruments that provide exposure to, financial services
companies, including regional banks, major international banks, insurance companies, companies ProFund Advisors LLC
that invest, directly or indirectly in real estate, Fannie Mae, credit card insurers, check
cashing companies, mortgage lenders, investment advisors, savings and loans, savings banks,
thrifts, building associations and societies, credit unions, securities broker-dealers,
including investment banks and merchant banks, online brokers, publicly traded stock exchanges
and specialty finance companies.
SECTOR
(Cont.)
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ProFund VP Healthcare: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Healthcare Sector Index ("Index"). The Index measures the
performance of the healthcare sector of the U.S. equity market. The Portfolio invests
primarily in equity securities of, or in instruments that provide exposure to, health care ProFund Advisors LLC
providers, biotechnology companies and manufacturers of medical supplies, advanced medical
devices and pharmaceuticals.
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ProFund VP Real Estate: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Real Estate Index ("Index"). The Index measures the
performance of the real estate industry sector of the U.S. equity market. The Portfolio
invests primarily in equity securities of, or in instruments that provide exposure to, hotel ProFund Advisors LLC
and resort companies and real estate investment trusts (REITs) that invest in apartments,
office and retail properties. REITs are passive investment vehicles that invest primarily in
income-producing real estate or real estate related loans or interests.
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ProFund VP Technology: seeks daily investment results that correspond to the daily performance
of the Dow Jones U.S. Technology Sector Index ("Index"). The Index measures the performance
of the technology sector of the U.S. equity market. The Portfolio invests primarily in equity
securities of, or in instruments that provide exposure to, companies involved in the ProFund Advisors LLC
development and production of technology products, including computer hardware and software,
telecommunications equipment, microcomputer components, integrated computer circuits and
office equipment utilizing technology.
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ProFund VP Telecommunications: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Telecommunications Sector Index ("Index"). The Index
measures the performance of the telecommunications sector of the U.S. equity market. The
Portfolio invests primarily in equity securities of, or in instruments that provide exposure ProFund Advisors LLC
to, telecommunications companies including fixed line communications and wireless
communications.
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ProFund VP Utilities: seeks daily investment results that correspond to the daily performance
of the Dow Jones U.S. Utilities Sector Index ("Index"). The Index measures the performance of
the utilities sector of the U.S. equity market. The Portfolio invests primarily in equity ProFund Advisors LLC
securities of, or in instruments that provide exposure to, utility companies, including
electric utilities, gas utilities and water utilities.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- --------------------------------------------------------------------------------------------------------------------------------------------
The First Trust(R)10 Uncommon Values Portfolio of the First Defined Portfolio Fund LLC invests in the securities of a relatively few number
of issuers. Since the assets of the Portfolio are invested in a limited number of issuers, the net asset value of the Portfolio may be
more susceptible to a single adverse economic, political or regulatory occurrence. The Portfolio may also be subject to additional market
risk due to its policy of investing based on an investment strategy and generally not buying or selling securities in response to market
fluctuations. The Portfolio's relative lack of diversity and limited ongoing management may subject Owners to greater market risk than
other portfolios.
- --------------------------------------------------------------------------------------------------------------------------------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
First Trust(R)10 Uncommon Values: seeks to provide above-average capital appreciation. The
Portfolio pursues its objective by investing primarily in the ten common stocks selected by
the Investment Policy Committee of Lehman Brothers Inc. ("Lehman Brothers") with the First Trust Advisors
assistance of the Research Department of Lehman Brothers which, in their opinion have the L.P.
STRATEGY greatest potential for capital appreciation during the next year. The stocks included in the
Portfolio are adjusted annually on or about July 1st in accordance with the selections of
Lehman Brothers.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- --------------------------------------------------------------------------------------------------------------------------------------------
The ProFund VP Bear, Bull Plus, OTC, UltraOTC and UltraSmall-Cap portfolios and the Nova, Ursa and OTC portfolios of the Rydex Variable
Trust are available to all Owners. It is recommended that only those Owners who engage a financial advisor to allocate their funds in
strategic or tactical asset allocation strategies invest in these portfolios. There can be no assurance that any financial advisor will
successfully predict market fluctuations.
- --------------------------------------------------------------------------------------------------------------------------------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP Bear: seeks daily investment results that correspond to the inverse (opposite) of
the daily performance of the S&P 500(R)Index. The S&P 500(R)Index is comprised of diverse,
widely traded, large capitalization companies. If the Portfolio is successful in meeting its
objective, it should increase in value in direct proportion to any decrease in the level of ProFund Advisors LLC
the S&P 500(R)Index. Conversely, its value will decrease in direct proportion to any daily
increase in the level of the S&P 500(R)Index.
STRATEGIC OR
TACTICAL
ALLOCA-TION
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP Bull Plus: seeks daily investment results that correspond to one and a half times
(150%) the daily performance of the S&P(R)500 Index. The S&P 500(R)Index is comprised of
diverse, widely traded, large capitalization companies. If the Portfolio is successful in
meeting its objective, it should gain approximately one and a half times as much as the S&P ProFund Advisors LLC
500(R)Index when the prices of the securities in the S&P 500(R)Index rise on a given day and
should lose approximately one and a half times as much when such prices decline on a given day.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP OTC: seeks daily investment results that correspond to the daily performance of the
NASDAQ 100 Index(TM). The NASDAQ 100 Index(TM)is comprised primarily of large capitalization
companies, most with a technology or growth orientation. If the Portfolio is successful in ProFund Advisors LLC
meeting its objective, it should increase or decrease in value in direct proportion to any
increase or decrease in the daily value of the NASDAQ 100 Index(TM).
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP UltraOTC: seeks daily investment results that correspond to twice (200%) the daily
performance of the NASDAQ 100 Index(TM). The Portfolio principally invests in futures contracts
on stock indexes and options on futures contracts and financial instruments such as equity
caps, collars, floors and options on securities and stock indexes of large capitalization ProFund Advisors LLC
companies. If the Portfolio is successful in meeting its objective, it should gain
approximately twice as much as the growth oriented NASDAQ 100 Index(TM)when the prices of the
securities in that index rise on a given day and should lose approximately twice as much when
such prices decline on that day.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP UltraSmall-Cap (f/k/a ProFund VP Small Cap): seeks daily investment results that
correspond to twice (200%) the daily performance of the Russell 2000(R)Index. The Portfolio
principally invests in futures contracts on stock indexes and options on futures contracts and
financial instruments such as equity caps, collars, floors and options on securities and stock
indexes of diverse, widely traded, small capitalization companies. If the Portfolio is ProFund Advisors LLC
successful in meeting its objective, it should gain approximately twice as much as the growth
oriented Russell 2000(R)Index when the prices of the securities in that index rise on a given
day and should lose approximately twice as much when such prices decline on that day.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
Rydex Variable Trust - Nova: seeks to provide investment returns that are 150% of the daily
price movement of the S&P 500 Composite Stock Price Index by investing to a significant extent
in futures contracts and options on securities, futures contracts and stock indexes. If the Rydex Global Advisers
Portfolio meets its objective the value of its shares will tend to increase by 150% of the (f/k/a PADCO Advisors
daily value of any increase in the S&P 500 Index. However, when the value of the S&P 500 II, Inc.)
Index declines, the value of its shares should also decrease by 150% of the daily value of any
decrease in the S&P 500 Index.
STRATEGIC OR
TACTICAL
ALLOCA-TION
(Cont.)
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Rydex Variable Trust - OTC: seeks to provide investment results that correspond to a
benchmark for over-the-counter securities, currently the NASDAQ 100 Index(TM), by investing
principally in the securities of companies included in that Index. The Portfolio may also
invest in other instruments whose performance is expected to correspond to that of the Index, Rydex Global Advisers
and may engage in futures and options transactions. If the Portfolio meets its objective the (f/k/a PADCO Advisors
value of its shares will tend to increase by the amount of the increase in the NASDAQ 100 II, Inc.)
Index(TM). However, when the value of the NASDAQ 100 Index(TM)declines, the value of its shares
should also decrease by the amount of the decrease in the value of the Index(TM).
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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Rydex Variable Trust - Ursa: seeks to provide investment results that will inversely correlate
(e.g. be the opposite) to the performance of the S&P 500 Composite Stock Price Index by
investing to a significant extent in futures contracts and options on securities, futures Rydex Global Advisers
contracts and stock indexes. The Portfolio will generally not invest in the securities (f/k/a PADCO Advisors
included in the S&P 500 Index. If the Portfolio meets its objective the value of its shares II, Inc.)
will tend to increase when the value of the S&P 500 Index is decreasing. However, when the
value of the S&P 500 Index is increasing, the value of its shares should decrease by an
inversely proportional amount.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of the McGraw-Hill Companies, Inc. and
have been licensed for use by American Skandia Investment Services, Incorporated. The Portfolio is not sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the
Portfolio.
The First Trust(R)10 Uncommon Values portfolio is not sponsored or created by Lehman Brothers, Inc. ("Lehman Brothers"). Lehman
Brothers' only relationship to First Trust is the licensing of certain trademarks and trade names of Lehman Brothers and of the
"10 Uncommon Values" which is determined, composed and calculated by Lehman Brothers without regard to First Trust or the First
Trust(R)10 Uncommon Values portfolio.
Dow Jones has no relationship to the ProFunds VP, other than the licensing of the Dow Jones sector indices and its service marks
for use in connection with the ProFunds VP. The ProFunds VP are not sponsored, endorsed, sold, or promoted by Standard & Poor's
or NASDAQ, and neither Standard & Poor's nor NASDAQ makes any representations regarding the advisability of investing in the
ProFunds VP.
WHAT ARE THE FIXED INVESTMENT OPTIONS?
We offer fixed investment options of different durations during the accumulation period. These "Fixed Allocations" earn a
guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed
Allocations with Guarantee Periods from 1 to 10 years. We may also offer special purpose Fixed Allocations for use with certain
optional investment programs. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer
Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula,
called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the rates that
are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the Market Value Adjustment
Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than
one Fixed Allocation at a time.
Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
(The Contingent Deferred Sales Charge is often referred to as a "Surrender Charge" or "CDSC".)
Contingent Deferred Sales Charge: We may assess a Contingent Deferred Sales Charge or CDSC if you surrender your Annuity or when
you make a partial withdrawal. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn
during the applicable Annuity Year. The amount of the CDSC decreases over time, measured from the date the Purchase Payment is
applied. The CDSC percentages are shown below.
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
YEARS 1 2 3 4 5 6 7 8 9+
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
CHARGE (%) 8.5 8.5 8.5 8.5 7.5 5.5 3.5 1.5 0.0
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Each Purchase Payment has its own CDSC period. When you make a withdrawal, we assume that the oldest Purchase Payment is being
withdrawn first so that the lowest CDSC is deducted from the amount withdrawn. After eight (8) complete years from the date you
make a Purchase Payment, no CDSC will be assessed if you withdraw or surrender that Purchase Payment.
Under certain circumstances you can withdraw a limited amount of Account Value without paying a CDSC. This is referred to as a
"Free Withdrawal." We may waive the CDSC under certain medically-related circumstances or when taking a Minimum Distribution from
an Annuity purchased as a "qualified" investment. Free Withdrawals, Medically-Related Waivers and Minimum Distributions are each
explained more fully in the section entitled "Access to Your Account Value".
Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $30.00
or 2% of your Account Value invested in the variable investment options, whichever is less. This fee will be deducted annually on
the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted
at the time of surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued
after the date of the increase.
Optional Benefits: If you elect to purchase either optional Death Benefit, we will deduct the annual charge from your Account
Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date other than the anniversary date.
Under certain circumstances, we may deduct a pro-rata portion of the annual charge for the optional Death Benefit. Please refer
to the section entitled "Death Benefit" for a description of the charge for each Optional Death Benefit. If you elect to purchase
the Guaranteed Return Option, we will deduct the annual charge from your Account Value on the anniversary of your Annuity's Issue
Date. Under certain circumstances, we may deduct a pro-rata portion of the annual charge for the Guaranteed Return Option.
Please refer to the section entitled "Managing Your Account Value - Do you offer programs designed to guarantee a "return of
premium" at a future date?" for a description of the charge for the Guaranteed Return Option.
Transfer Fee: Currently, you may make twenty (20) free transfers between investment options each Annuity Year. We will charge
$10.00 for each transfer after the twentieth in each Annuity Year. We do not consider transfers made as part of a dollar cost
averaging program when we count the twenty free transfers. Transfers made as part of a rebalancing, market timing or third party
investment advisory service will be subject to the twenty-transfer limit. However, all transfers made on the same day will be
treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period
are not subject to the Transfer Fee and are not counted toward the twenty free transfers. We may reduce the number of free
transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of
electronic means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted
electronically or through other means that reduce our processing costs.
Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will vary from
jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We generally will deduct the
amount of tax payable at the time the tax is imposed, but may also decide to deduct tax charges from each Purchase Payment at the
time of a withdrawal or surrender of your Annuity or at the time you elect to begin receiving annuity payments. We may assess a
charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts.
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?
Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the Sub-accounts. The charge
is equal to 1.40% on an annual basis. The Insurance Charge is intended to compensate American Skandia for providing the insurance
benefits under the Annuity, including the Annuity's basic death benefit that provides guaranteed benefits to your beneficiaries
even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The
charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract,
confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related
expenses. Finally, the charge covers the risk that our assumptions about the administrative and non-mortality expenses under this
Annuity are incorrect. We may increase the portion of the Insurance Charge for administrative costs. However, any increase will
only apply to Annuities issued after the date of the increase.
American Skandia may make a profit on the Insurance Charge if, over time, the actual cost of providing the guaranteed insurance
obligations under the Annuity are less than the amount we deduct for the Insurance Charge. To the extent we make a profit on the
Insurance Charge, such profit may be used for any other corporate purpose, including payment of other expenses that American
Skandia incurs in distributing, issuing and administering the Annuity.
The Insurance Charge is not deducted against assets allocated to a fixed investment option. However, the amount we credit to
Fixed Allocations may also reflect similar assumptions about the insurance guarantees provided to Contract Owners under the
Annuity.
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?
We do not assess any charges directly against the Portfolios. However, each Portfolio charges a total annual fee comprised of an
investment management fee, operating expenses and any distribution and service (12b-1) fees that may apply. More detailed
information about fees and charges can be found in the prospectuses for the Portfolios. Please also see "Service Fees Payable by
Underlying Funds".
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
No specific fee or expenses are deducted when determining the rate we credit to a Fixed Allocation. However, for some of the same
reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration
mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations.
Any CDSC or Tax Charge applies to amounts that are taken from the variable investment options or the Fixed Allocations. A Market
Value Adjustment may also apply to transfers, certain withdrawals, surrender or annuitization from a Fixed Allocation.
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?
In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The amount payable will
depend on the applicable jurisdiction and on the annuity payment option you select. If you select a fixed payment option, the
amount of each fixed payment will depend on the Account Value of your Annuity when you elected to annuitize. There is no specific
charge deducted from these payments; however, the amount of each annuity payment reflects assumptions about our insurance
expenses. If you select a variable payment option that we may offer, then the amount of your benefits will reflect changes in the
value of your Annuity and will continue to be subject to an insurance charge.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is deducted. For
example, we may reduce the amount of the CDSC or the length of time it applies, reduce or eliminate the amount of the Annual
Maintenance Fee or reduce the portion of the Insurance Charge for administrative costs. Generally, these types of changes will be
based on a reduction to our sales, maintenance or administrative expenses due to the nature of the individual or group purchasing
the Annuity. Some of the factors we might consider in making such a decision are: (a) the size and type of group; (b) the number
of Annuities purchased by an Owner; (c) the amount of Purchase Payments or likelihood of additional Purchase Payments; and/or (d)
other transactions where sales, maintenance or administrative expenses are likely to be reduced. We will not discriminate
unfairly between Annuity purchasers if and when we reduce the portion of the Insurance Charge attributed to the charge covering
administrative costs.
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?
Initial Purchase Payment: You must make a minimum initial Purchase Payment of $1,000. However, if you decide to make payments
under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase Payment provided that, within
the first Annuity Year, you make at least $1,000 in total Purchase Payments.
Where allowed by law, initial Purchase Payments in excess of $1,000,000 require our approval prior to acceptance. We may apply
certain limitations and/or restrictions on the Annuity as a condition of our acceptance, including limiting the liquidity features
or the Death Benefit protection provided under the Annuity, changing the number of transfers allowable under the Annuity or
restricting the Sub-accounts that are available to the Contract owner. Other limitations and/or restrictions may apply.
Age Restrictions: The Owner must be age 80 or under as of the Issue Date of the Annuity. If the Annuity is owned jointly, the
oldest of the Owners must be age 80 or under on the Issue Date. If the Annuity is owned by an entity, the Annuitant must be age
80 or under as of the Issue Date. You should consider your need to access the value in your contract and whether the Annuity's
liquidity features will satisfy that need. If you take a distribution prior to age 591/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain.
Additional Purchase Payments may be made at any time before the Annuity Date as long as the oldest Owner or Annuitant (if the
Annuity is entity owned) is not over age 80.
Special Considerations for Purchasers of Bonus or Credit Products
- -> This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities and does not
charge an additional amount for the XTra CreditSM feature. However, if you make a withdrawal that exceeds the free withdrawal
amount or choose to surrender your Annuity, the contingent deferred sales charge (CDSC) on this Annuity is higher and is
deducted for a longer period of time as compared to our other variable annuities. If you expect that you will need to access
your Account Value during the CDSC period and the liquidity provisions are insufficient to satisfy that need, then this
Annuity may be more expensive than other variable annuities.
- -> The XTra CreditSM amount is included in your Account Value. However, American Skandia may take back the original XTra
CreditSM amount applied to your Purchase Payment if you die, or elect to withdraw all or a portion of your Account Value under
the medically-related waiver provision, within 12 months of having received an XTra CreditSM amount. In either situation, the
value of the XTra CreditSM amount could be substantially reduced. However, any investment gain on the XTra CreditSM amount
will not be taken back. Additional conditions and restrictions apply.
Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s), Annuitant and one or
more Beneficiaries for your Annuity.
|X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case all ownership
-----
rights are held jointly. However, this Annuity does not provide a right of survivorship. Refer to the Glossary of Terms
for a complete description of the term "Owner."
|X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we continue to make such
---------
payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during
the accumulation period. Where allowed by law, you may name one or more Contingent Annuitants. A Contingent Annuitant will
become the Annuitant if the Annuitant dies before the Annuity Date. Please refer to the discussion of "Considerations for
Contingent Annuitants" in the Tax Considerations section of the Prospectus.
|X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no beneficiary is
-----------
named the death benefit will be paid to you or your estate.
Your right to make certain designations may be limited if your Annuity is to be used as an IRA or other "qualified" investment
that is given beneficial tax treatment under the Code. You should seek competent tax advice on the income, estate and gift tax
implications of your designations.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where allowed by law, such
changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to:
|X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death;
|X| a new Annuitant subsequent to the Annuity Date;
|X| for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and
|X| a change in Beneficiary if the Owner had previously made the designation irrevocable.
Spousal Owners/Spousal Beneficiaries
If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse unless you elect an
alternative Beneficiary designation. Unless you elect an alternative Beneficiary designation, upon the death of either spousal
Owner, the surviving spouse may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. The Death
Benefit that would have been payable will be the new Account Value of the Annuity as of the date of due proof of death and any
required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the
rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of
determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the initial Purchase
Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the
assumption is effective will be subject to all provisions of the Annuity.
Spousal Contingent Annuitant
If the Annuity is owned by an entity and the surviving spouse is named as a Contingent Annuitant, upon the death of the Annuitant,
the surviving spouse will become the Annuitant. No Death Benefit is payable upon the death of the Annuitant. However, the
Account Value of the Annuity as of the date of due proof of death of the Annuitant (and any required proof of the spousal
relationship) will reflect the amount that would have been payable had a Death Benefit been paid.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
(The right to return the Annuity is often referred to as the "free-look" right or "right to cancel.")
If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain
period of time known as a right to cancel period. Depending on the state in which you purchased your Annuity and, in some states,
if you purchased the Annuity as a replacement for a prior contract, the right to cancel period may be ten (10) days, twenty-one
(21) days or longer, measured from the time that you received your Annuity. If you return your Annuity during the applicable
period, we will refund your current Account Value plus any tax charge deducted. This amount may be higher or lower than your
original Purchase Payment. Where required by law, we will return your current Account Value or the amount of your initial
Purchase Payment, whichever is greater. The same rules may apply to an Annuity that is purchased as an IRA. In any situation
where we are required to return the greater of your Purchase Payment or Account Value, we may allocate your Account Value to the
AST Money Market Sub-account during the right to cancel period and for a reasonable additional amount of time to allow for
delivery of your Annuity. If you return your Annuity, we will not return any additional amounts we applied to your Annuity based
on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in American Skandia's
Systematic Investment Plan or a periodic purchase payment program. We will allocate any additional Purchase Payments you make
according to your most recent allocation instructions, unless you request new allocations when you submit a new Purchase Payment.
Additional Purchase Payments may be paid at any time before the Annuity Date as long as the oldest Owner or Annuitant (if the
Annuity is entity owned) is not over age 80.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and
----------
applying it to your Annuity. This type of program is often called "bank drafting". We call our bank drafting program "American
Skandia's Systematic Investment Plan." Purchase Payments made through bank drafting may only be allocated to the variable
investment options when applied. Bank drafting allows you to invest in an Annuity with a lower initial Purchase Payment, as long
as you authorize payments that will equal at least $1,000 during the first 12 months of your Annuity. We may suspend or cancel
bank drafting privileges if sufficient funds are not available from the applicable financial institution on any date that a
transaction is scheduled to occur.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of qualified investments. If your employer sponsors such a program,
we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to
variable investment options and the periodic Purchase Payments received in the first year total at least $1,000.
MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.)
Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity. The net Purchase
Payment is your initial Purchase Payment minus any tax charges that may apply. On your application we ask you to provide us with
instructions for allocating your Account Value. You can allocate Account Value to one or more variable investment options or
Fixed Allocations.
In those states where we are required to return your Purchase Payment if you exercise your right to return the Annuity, we
initially allocate all amounts that you choose to allocate to the variable investment options to the AST Money Market
Sub-account. At the end of the right to cancel period we will reallocate your Account Value according to your most recent
allocation instructions. Where permitted by law, we will allocate your Purchase Payments according to your initial instructions,
without temporarily allocating to the AST Money Market Sub-account. To do this, we will ask that you execute our form called a
"return waiver" that authorizes us to allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the
"return waiver" and then decide to return your Annuity during the right to cancel period, you will receive your current Account
Value which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my Mind?").
Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation
instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program.
We assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those
allocations or request new allocations when you submit a new Purchase Payment.
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment. The amount of the Credit is payable
from our general account. The amount of the Credit depends on the cumulative amount of Purchase Payments you have made to your
Annuity, payable as a percentage of each specific Purchase Payment, according to the tables below:
The Credits shown below are in effect as of October 23, 2000 in those states where approved.
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Cumulative Purchase Payments Credit
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Between $1,000 and $9,999.99 1.5%
Between $10,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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The Credits shown below apply to all Annuities issued before October 23, 2000 and to Annuities issued after October 23, 2000 in
those states where the above table has not been approved.
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Cumulative Purchase Payments Credit
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Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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Credits Applied to Purchase Payments for Designated Class of Annuity Owner
Where allowed by state law, on Annuities owned by a member of the class defined below, the table of Credits we apply to Purchase
Payments is deleted. The Credit applied to all Purchase Payments on such Annuities will be 8.5%.
The designated class of Annuity Owners includes: (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) the
child(ren) or other legal dependent under the age of 21 of any such person noted in (b) through (h); and (j) the siblings of any
such persons noted in (b) through (h) above.
All other terms and conditions of the Annuity apply to Owners in the designated class, except that we will not provide any
Additional Amounts for any such contracts (see "Additional Amounts in the Fixed Allocations"). Any Target Value Credits applied
under the Performance Advantage benefit are not affected by an Owner's inclusion in the designated class of Annuity Owners.
You must notify us at the time you apply for an Annuity if you are a member of the designated class. American Skandia is not
responsible for monitoring whether you qualify as a member of the designated class. Failure to inform us that you qualify as a
member of the designated class may result in your Annuity receiving fewer Credits than would otherwise be applied to your Annuity.
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?
Each Credit is allocated to your Account Value at the time the Purchase Payment is applied to your Account Value. The amount of
the Credit is allocated to the investment options in the same ratio as the applicable Purchase Payment is applied.
Examples of Applying Credits
Initial Purchase Payment
Assume you make an initial Purchase Payment of $2,500. We would apply a 1.5% Credit to your Purchase Payment and allocate the
amount of the Credit ($37.50 = $2,500 X .015) to your Account Value in the proportion that your Account Value is allocated.
Additional Purchase Payment (at same breakpoint)
Assume that you make an additional Purchase Payment of $5,000. Because your cumulative Purchase Payments are less than the next
breakpoint ($10,000), we would apply a 1.5% Credit to your Purchase Payment and allocate the amount of the Credit ($75.00 = $5,000
X .015) to your Account Value.
Additional Purchase Payment (at higher breakpoint)
Assume that you make an additional Purchase Payment of $400,000. Because your cumulative Purchase Payments are now $407,500
(greater than the next breakpoint), we would apply a 4.0% Credit to your Purchase Payment and allocate the amount of the Credit
($16,000 = $400,000 X .04) to your Account Value.
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This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities and does not charge an
additional amount for the XTra CreditSM feature. However, the amount of any Credits applied to your Account Value can be
recovered by American Skandia under certain circumstances:
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|X| any Credits applied to your Account Value on Purchase Payments made within the 12 months before the date of death will be
recovered.
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|X| the amount available under the medically-related surrender portion of the Annuity will not include the amount of any
Credits payable on Purchase Payments made within 12 months of the date the Annuitant first became eligible for the
medically-related surrender.
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|X| if you elect to "free-look" your Annuity, the amount returned to you will not include the amount of any Credits.
====================================================================================================================================
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The value of the XTra CreditSM amount will be substantially reduced if American Skandia recovers the XTra CreditSM amount under
these circumstances. However, any investment gain on the XTra CreditSM amount will not be taken back.
Examples of Recovering Credits
The following are hypothetical examples of how Credits could be recovered by American Skandia. These examples do not cover every
potential situation.
Recovery from payment of Death Benefits
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 4.0% Credit, for a total of $2,400. If the
Death Benefit becomes payable in the 9th month after the Issue Date, the amount of the Death Benefit would be reduced by the
entire amount of the prior Credits ($2,400).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 4.0% Credit, for a total of $2,400. If death
occurs in the 16th month after the Issue Date, the amount of the Death Benefit would be reduced but only in the amount of
those Credits applied within the previous 12-months. Since the initial Purchase Payment (and the Credits that were applied)
occurred more than 12-months before the date of death, the Death Benefit would not be reduced by the amount of the Credits
applied to the initial Purchase Payment. However, the $10,000 additional Purchase Payment was made within 12-months of the
date of death. Therefore, the amount of the Death Benefit would be reduced by the amount of the Credits payable on the
additional Purchase Payment ($400).
3. NOTE: If the Death Benefit would otherwise have been equal to the Purchase Payments minus any withdrawals due to poor
investment performance, we will not reduce the amount of the Death Benefit by the amount of the Credits as shown in Example 2
above.
Recovery from Medically-Related Surrenders
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You receive a Credit of $2,000 ($50,000 X
.04). The Annuitant is diagnosed as terminally ill in the 6th month after the Issue Date and we grant your request to
surrender your Annuity under the medically-related surrender provision. Assuming the Credits were applied within 12-months of
the date of diagnosis of the terminal illness, the amount that would be payable under the medically-related surrender
provision would be reduced by the entire amount of the Credits ($2,000).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 4.0% Credit, for a total of $2,400. The
Annuitant is diagnosed as terminally ill in the 16th month after the Issue Date and we grant your request to surrender your
Annuity under the medically-related surrender provision. Since the initial Purchase Payment (and the Credits that were
applied) occurred more than 12-months before the diagnosis, the amount that would be payable upon the medically-related
surrender provision would not be reduced by the amount of the Credits applied to the initial Purchase Payment. However, the
$10,000 additional Purchase Payment was made within 12-months of the date of diagnosis. Therefore, the amount of the Death
Benefit would be reduced by the amount of the Credits payable on the additional Purchase Payment ($400).
Credits applied to estimated Purchase Payments
Under certain circumstances, we may determine the amount of Credits payable on two or more separate Purchase Payments based on the
Credit percentage that would have applied had all such Purchase Payments been made at the same time. To make use of this
procedure, often referred to as a "letter of intent", you must provide evidence of your intention to submit the cumulative
additional Purchase Payments within a 13-month period. A letter of intent must be provided to us prior to the Issue Date to be
effective. Acceptance of a letter of intent is at our sole discretion and may be subject to restrictions as to the minimum
initial Purchase Payment that must be submitted to receive the next higher breakpoint.
Failure to inform us that you intend to submit two or more Purchase Payments within a 13-month period may result in your Annuity
receiving fewer Credits than would otherwise be added to your Annuity.
If you submit a letter of intent and receive Credits on Purchase Payments at a higher Credit percentage than would have applied
BUT do not submit the required Purchase Payments during the 13-month period as required by your letter of intent, we may recover
the "excess" Credits. "Excess" Credits are Credits in excess of the Credits that would have been payable without the letter of
intent. If we determine that you have received "excess" Credits, any such amounts will be taken pro-rata from the investment
options based on your Account Values as of the date we act to recover the excess. If the amount of the recovery exceeds your then
current Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
General Information about Credits
|X| We do not consider Credits to be "investment in the contract" for income tax purposes.
|X| You may not withdraw the amount of any Credits under the Free Withdrawal provision without assessment of the contingent
deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
|X| These Credits are separate and distinct from the Target Value Credits discussed below in the section entitled "American
Skandia's Performance Advantage."
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation on
any gain. We currently limit the number of Sub-accounts you can invest in at any one time to twenty (20). However, you can
invest in an unlimited number of Fixed Allocations. We may require a minimum of $500 in each Sub-account you allocate Account
Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be
less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro rata to the other investment
options to which you transferred.
We may impose specific restrictions on financial transactions for certain Portfolios based on the Portfolio's investment
restrictions. Currently, any purchase, redemption or transfer involving the Rydex or ProFunds VP Sub-accounts must be received by
us no later than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time)
to be processed on the current Valuation Day. The "cut-off" time for such financial transactions involving a Rydex or ProFunds VP
Sub-account will be extended to1/2hour prior to any announced closing (generally, 3:30 p.m. Eastern time) for transactions
submitted electronically through American Skandia's Internet website (www.americanskandia.com).
Currently, we charge $10.00 for each transfer after the twentieth (20th) in each Annuity Year, including transfers made as part of
any rebalancing, market timing, asset allocation or similar program which you have authorized. Transfers made as part of a dollar
cost averaging program do not count toward the twenty free transfer limit. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may reduce the number of free transfers
allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic
means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted electronically or
through other means that reduce our processing costs.
We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We also reserve the
right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if:
(a) we believe that excessive trading or a specific transfer request or group of transfer requests may have a detrimental effect
on Unit Values or the share prices of the Portfolios; or (b) we are informed by one or more of the Portfolios that the purchase or
redemption of shares must be restricted because of excessive trading or a specific transfer or group of transfers is deemed to
have a detrimental effect on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where
either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of
the total assets of a particular Portfolio. Under such a circumstance, we will process transfers according to our rules then in
effect and provide notice if the transfer request was denied. If a transfer request is denied, a new transfer request may be
required.
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer
an amount each month from one investment option to one or more other investment options. You can choose to transfer earnings
only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging allows you to invest regularly each month,
regardless of the current unit value (or price) of the Sub-account(s) you invest in. This enables you to purchase more units when
the market price is low and fewer units when the market price is high. This may result in a lower average cost of units over
time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining
market. We do not deduct a charge for participating in a Dollar Cost Averaging program.
You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program.
You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from Fixed Allocations
is subject to a number of rules that include, but are not limited to the following:
|X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years.
|X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the
program must be designed to last the entire Guarantee Period for the Fixed Allocation.
|X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment.
NOTE: When a Dollar Cost Averaging program is established from a Fixed Allocation, the fixed rate of interest we credit to your
Account Value is applied to a declining balance due to the transfers of Account Value to the Sub-accounts during the Guarantee
Period. This will reduce the effective rate of return on the Fixed Allocation over the Guarantee Period.
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?
Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you choose. You can
choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the appropriate date, your variable
investment options are rebalanced to the allocation percentages you request. For example, over time the performance of the
variable investment options will differ, causing your percentage allocations to shift. With automatic rebalancing, we transfer
the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the
percentages you request. If you request a transfer from or into any variable investment option participating in the automatic
rebalancing program, we will assume that you wish to change your rebalancing percentages as well, and will automatically adjust
the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from you.
You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing transfers made on
the same day as part of an automatic rebalancing program are considered as one transfer when counting the number of transfers each
year toward the maximum number of free transfers. We do not deduct a charge for participating in an automatic rebalancing program.
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?
Yes. We offer two different programs for investors who wish to invest in the variable investment options but also wish to protect
their principal, at least as of a specific date in the future. You may not want to use either of these programs if you expect to
begin taking annuity payments before the program would be completed.
Balanced Investment Program
We offer a balanced investment program where a portion of your Account Value is allocated to a Fixed Allocation and the remaining
Account Value is allocated to the variable investment options that you select. When you enroll in the Balanced Investment
program, you choose the duration that you wish the program to last. This determines the duration of the Guarantee Period for the
Fixed Allocation. Based on the fixed rate for the Guarantee Period chosen, we calculate the portion of your Account Value that
must be allocated to the Fixed Allocation to grow to a specific "principal amount" (such as your initial Purchase Payment). We
determine the amount based on the rates then in effect for the Guarantee Period you choose. If you continue the program until the
end of the Guarantee Period and make no withdrawals or transfers, at the end of the Guarantee Period, the Fixed Allocation will
have grown to equal the "principal amount". Withdrawals or transfers from the Fixed Allocation before the end of the Guarantee
Period will terminate the program and may be subject to a Market Value Adjustment. You can transfer the Account Value that is not
allocated to the Fixed Allocation between any of the Sub-accounts available under the Annuity. Account Value you allocate to the
variable investment options is subject to market fluctuations and may increase or decrease in value. We do not deduct a charge for
participating in the Balanced Investment Program.
Example
Assume you invest $100,000. You choose a 10-year program and allocate a portion of your Account Value to a Fixed
Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 5.33%*. Based on the fixed
interest rate for the Guarantee Period chosen, the factor is 0.594948 for determining how much of your Account Value will
be allocated to the Fixed Allocation. That means that $59,495 will be allocated to the Fixed Allocation and the
remaining Account Value ($41,505) will be allocated to the variable investment options. Assuming that you do not make
any withdrawals from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we
cannot predict the value of the remaining Account Value that was allocated to the variable investment options.
* The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration.
Guaranteed Return OptionSM
We also offer a seven-year program where we monitor your Account Value daily and systematically transfer amounts between Fixed
Allocations and the variable investment options you choose. American Skandia guarantees that at the end of the seventh (7th) year
from commencement of the program, you will receive no less than the original amount invested (such as your initial Purchase
Payment). Account Value is only transferred to and maintained in Fixed Allocations to the extent we, in our sole discretion, deem
----
is necessary to support our guarantee under the program. This differs from the Balanced Investment program where a set amount is
allocated to a Fixed Allocation regardless of the performance of the underlying Sub-accounts. With the Guaranteed Return Option,
your Annuity is able to participate in the upside potential of the Sub-accounts while only transferring amounts to Fixed
Allocations to protect against significant market downturns.
Each business day we monitor the performance of your Account Value to determine whether it is greater than, equal to or below our
"reallocation trigger", described below. Based on the performance of the Sub-accounts in which you choose to allocate your
Account Value relative to the reallocation trigger, we may transfer some or all of your Account Value to or from a Fixed
Allocation. You have complete discretion over the allocation of your Account Value that remains allocated in the variable
investment options. However, we reserve the right to restrict certain Portfolios if you participate in the program.
|X| Account Value greater than or equal to reallocation trigger: Account Value in variable investment options remains
allocated according to your most recent instructions. If a portion of Account Value was previously allocated to a
Fixed Allocation, those amounts may be transferred from the Fixed Allocation and re-allocated to the variable
investment options pro-rata according to your current allocations. A Market Value Adjustment will apply.
|X| Account Value below reallocation trigger: A portion of your Account Value in the variable investment options is
transferred to a new Fixed Allocation. These amounts are transferred on a pro-rata basis from the variable
investment options. The new Fixed Allocation will have a Guarantee Period equal to the remaining duration in the
Guaranteed Return Option. The Account Value applied to the new Fixed Allocation will be credited with the fixed
interest rate then being applied to a new Fixed Allocation of the next higher yearly duration. The Account Value
will remain invested in the Fixed Allocation until the maturity date of the program unless, at an earlier date, your
Account Value is at or above the reallocation trigger and amounts can be transferred to the variable investment
options (as described above) while maintaining the guarantee protection under the program.
American Skandia uses an allocation mechanism based on assumptions of expected and maximum market volatility to determine the
reallocation trigger. The allocation mechanism is used to determine the allocation of Account Value between Fixed Allocations and
the Sub-accounts you choose. American Skandia reserves the right to change the allocation mechanism and the reallocation trigger
at its discretion.
Program Termination
The Guaranteed Return Option will terminate on its maturity date. You can elect to participate in a new Guaranteed Return Option
or re-allocate your Account Value at that time. Any Account Value allocated to the Fixed Allocations will be transferred to the
AST Money Market Sub-account, unless you provide us with alternative instructions. On the program maturity date, if your Account
Value is below the initial investment, American Skandia will apply additional amounts to your Account Value so that it is equal to
the initial investment in the program. Any amounts added to your Account Value will be applied to the AST Money Market
Sub-account, unless you provide us with alternative instructions. We will notify you of any amounts added to your Account Value
under the program. We do not consider amounts added to your Account Value to be "investment in the contract" for income tax
purposes.
Special Considerations under the Guaranteed Return Option
This program is subject to certain rules and restrictions, including, but not limited to the following:
|X| You may terminate the Guaranteed Return Option at any time. American Skandia does not provide any guarantees upon
termination of the program.
|X| Withdrawals from your Annuity while the program is in effect will reduce the guaranteed amount under the program in
proportion to the Account Value at the time of the withdrawal. Withdrawals will be subject to all other provisions of the
Annuity, including any Contingent Deferred Sales Charge or Market Value Adjustment that would apply.
|X| Additional Purchase Payments applied to the Annuity while the program is in effect will only increase the amount
guaranteed; however, all or a portion of any additional Purchase Payments may be allocated to the Fixed Allocations.
|X| Annuity Owners cannot transfer Account Value to or from a Fixed Allocation while participating in the program and cannot
participate in any dollar cost averaging program that transfers Account Value from a Fixed Allocation to the variable
investment options.
|X| Transfers from Fixed Allocations will be subject to the Market Value Adjustment formula under the Annuity; however, the
0.10% "cushion" feature of the formula will not apply. A Market Value Adjustment may be either positive or negative.
Transfer amounts will be taken from the most recently applied Fixed Allocation.
|X| Transfers from the Sub-accounts to Fixed Allocations or from Fixed Allocations to the Sub-accounts under the program will
not count toward the maximum number of free transfers allowable under the Annuity.
|X| The Guaranteed Return Option will terminate: (a) upon the death of the Owner or the Annuitant (in an entity owned
contract); and (b) as of the date Account Value is applied to begin annuity payments.
|X| You can elect to restart the seven (7) year program duration on any anniversary of the Issue Date of the Annuity. The
Account Value on the date the restart is effective will become the new guaranteed amount under the program. You can only
elect the program once per Annuity Year.
Charges under the Program
We charge a fee of 0.25% of Account Value per year to participate in the Guaranteed Return Option. The charge is deducted to
compensate American Skandia for: (a) the risk that your Account Value on the maturity date of the program is less than the amount
guaranteed; and (b) administration of the program. The charge is deducted in arrears on an annual basis on each anniversary of
the Issue Date of the Annuity. If you choose to begin the program on a date other than the Issue Date of the Annuity or an
anniversary of the Issue Date of the Annuity, we will charge a pro-rata portion of the annual charge for the remaining portion of
the Annuity Year. If the program terminates before completion for any reason other than death or medically-related surrender, we
will assess a pro-rata portion of the annual charge. We will deduct the annual charge for participating in the program pro-rata
from the variable investment options.
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?
Yes. You may authorize your financial professional to direct the allocation of your Account Value and to request financial
transactions between investment options while you are living, subject to our rules. We require that you provide us with written
proof that you have authorized your financial professional to request financial transactions on your behalf. You must contact us
immediately if and when you revoke such authority. We will not be responsible for acting on instructions from your financial
professional if you fail to inform us that such person's authority has been revoked. We may also suspend or cancel these
privileges at any time. We will notify you if we do.
We or an affiliate of ours may provide administrative support to licensed, registered financial professionals or investment
advisors who you authorize to make financial transactions on your behalf. These financial professionals may be firms or persons
who also are appointed by us as authorized sellers of the Annuity. However, we do not offer advice about how to allocate your
Account Value under any circumstance. Any financial professionals you engage to provide advice and/or make transfers for you is
not acting on our behalf. We are not responsible for any recommendations such financial professionals make, any market timing or
asset allocation programs they choose to follow or any specific transfers they make on your behalf.
We may require financial professionals or investment advisors, who are authorized by multiple contract owners to make financial
transactions, to enter into an administrative agreement with American Skandia as a condition of our accepting transactions on your
behalf. The administrative agreement may impose limitations on the financial professional's or investment advisor's ability to
request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of a financial
professional who is in a position to transfer large amounts of money for multiple clients in a particular Portfolio or type of
portfolio or to comply with specific restrictions or limitations imposed by a Portfolio(s) on American Skandia. The
administrative agreement may limit the available investment options, require advance notice of large transactions, or impose other
trading limitations on your financial professional. Your financial professional will be informed of all such restrictions on an
ongoing basis. We may also require that your financial professional transmit all financial transactions using the electronic
trading functionality available through our Internet website (www.americanskandia.com). Limitations that we may impose on your
financial professional or investment advisor under the terms of the administrative agreement do not apply to financial
transactions requested by an Owner on their own behalf, except as otherwise described in this Prospectus.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
(Fixed Allocations may not be available in all states and may not be available for certain durations.)
We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." Fixed
Allocations currently are offered with Guarantee Periods from 1 to 10 years. We may make Fixed Allocations of different durations
available in the future, including Fixed Allocations offered exclusively for use with certain optional investment programs. The
interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the
Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee
Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your
Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. Any change in interest rate does
not affect Fixed Allocations that were in effect before the date of the change. To inquire as to the current rates for Fixed
Allocations, please call 1-800-766-4530.
A Guarantee Period for a Fixed Allocation begins:
|X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period;
|X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or
|X| when you "renew" a Fixed Allocation by electing a new Guarantee Period.
To the extent permitted by law, we may establish different interest rates for Fixed Allocations offered to a class of Owners who
choose to participate in various optional investment programs we make available. This may include, but is not limited to, Owners
who elect to use Fixed Allocations under a dollar cost averaging program (see "Do You Offer Dollar Cost Averaging?") or a balanced
investment program (see "Do You Offer a Program to Balance Fixed and Variable Investments?"). The interest rate credited to Fixed
Allocations offered to this class of purchasers may be different than those offered to other purchasers who choose the same
Guarantee Period but who do not participate in an optional investment program. Any such program is at our sole discretion.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we
offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed
rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its
agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements,
asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee
Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make,
commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic
trends and competition. Some of these considerations are similar to those we consider in determining the Insurance Charge that we
deduct from Account Value allocated to the Sub-accounts.
We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to
Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class.
The interest rate we credit for a Fixed Allocation is subject to a minimum. Please refer to the Statement of Additional
Information.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will adjust the value
of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market Value Adjustment formula compares
the interest rates credited for Fixed Allocations at the time you invested, to interest rates being credited when you make a
transfer or withdrawal. The amount of any Market Value Adjustment can be either positive or negative, depending on the rates that
are currently being credited on Fixed Allocations.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation to determine the Account Value of the Fixed Allocation on a
particular date. The formula is as follows:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the fixed interest rate we guaranteed to credit to the Fixed Allocation as of its starting
date;
J is the fixed interest rate for your class of annuities at the time of the withdrawal for a
new Fixed Allocation with a Guarantee Period equal to the remaining number of years in your
original Guarantee Period;
N is the number of months remaining in the original Guarantee Period.
If you surrender your Annuity under the right to cancel provision, the MVA formula is [(1 + I)/(1 + J)]N/12.
If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed Allocation, the
numbers used in `J' and `N' will be rounded to the next highest integer.
MVA Examples
The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following:
|X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years.
|X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%).
|X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after exactly three (3)
years, therefore 24 months remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of
24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $59,456.20.
Example of Negative MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of
24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $56,687.28.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. Before the Maturity Date, you may choose to
renew the Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that
Fixed Allocation's Account Value to another Fixed Allocation or to one or more Sub-accounts. We will notify you before the end of
the Guarantee Period about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being
offered. The rates being credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you
choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options.
If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, we will then transfer the Account
Value of the Fixed Allocation to the AST Money Market Sub-account. You can then elect to allocate the Account Value to any of the
Sub-accounts or to a new Fixed Allocation.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
Do you provide any guarantees on my investment?
The Annuity provides variable investment options and fixed investment options. Only the fixed investment options provide a
guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity includes a feature at no
additional cost that provides certain benefits if your Account Value has not reached or exceeded a "target value" on its 10th
anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your Account Value has not reached the target value (as
defined below) you can choose either of the following benefits:
|X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit to your Account
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Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of the average of your Annuity's
Account Value for the preceding four complete calendar quarters. This credit is applied to your investment options pro-rata
based on the allocation of your then current Account Value.
OR
|X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity equal to 10% of the
net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all Purchase Payments allocated in the
prior five years. The annuity option you select must initially guarantee payments for not less than seven years.
Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not meet or exceed the
Target Value. We will assume that you have elected to receive the annual credit to your Account Value unless, not less than 30
days prior to the next anniversary of the Annuity, we receive at our home office your election to begin receiving Annuity
payments.
Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase your Annuity as part
of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue.
What is the "Target Value" and how is it calculated?
The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described above. The Target
Value does not impact the Account Value available if you surrender your Annuity or make a partial withdrawal and does not impact
the Death Benefit available to your Beneficiary(ies). The Target Value assumes a rate of return over ten (10) Annuity Years that
will allow your initial investment to double in value, adjusted for any withdrawals and/or additional Purchase Payments you make
during the 10 year period. We calculate the "Target Value" as follows:
1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of the Annuity's
Issue Date; plus
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2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied until the 10th
anniversary of the Annuity's Issue Date; minus
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3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of 7.2% from the
date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We determine each "proportional
reduction" by determining the percentage of your Account Value then withdrawn and reducing the Target Value by that same
percentage. We include any withdrawals under your Annuity in this calculation, as well as the charge we deduct for any
optional benefits you elect under the Annuity, but not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee.
Examples
1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The Target Value on the
10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals are made. This is equal to $10,000
accumulating at an annual rate of 7.2% for the 10-year period.
2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at the end of Year
6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target Value on the 10th
anniversary would be $18,722. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period, minus
the proportional reduction accumulating at an annual interest rate of 7.2%.
Can I restart the 10-year Target Value calculation?
Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of the Issue Date.
If you elect to restart the calculation period, we will treat your Account Value on the restart date as if it was your Purchase
Payment when determining if your Annuity's Account Value meets or exceeds the Target Value on the appropriate tenth (10th)
anniversary. You may elect to restart the calculation more than once, in which case, the 10-year calculation period will begin on
the date of the last restart date. We must receive your election to restart the calculation at our home office not later than 30
days after each anniversary of the Issue Date.
What are Target Value Credits?
Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that your Account Value
will meet or exceed the Target Value. We add Target Value Credits to your Account Value at the time a Purchase Payment is applied
to your Annuity. Only those Purchase Payments made before the first anniversary of the Issue Date of your Annuity are eligible to
receive Target Value Credits. Target Value Credits are separate and distinct from other Credits we apply to all Purchase Payments.
The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits are only payable
on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue Date. If the Annuity is
owned by an entity, the age restriction applies to the age of the Annuitant on the Issue Date. The Target Value Credit is payable
from our general account and is allocated to the investment options in the same ratio that the qualifying Purchase Payment is
allocated.
Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or transfer, in whole
or in part, of an Annuity we issued that has the same or a similar benefit.
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The amount of any Target Value Credits are not immediately vested and can be recovered by American Skandia under the circumstances
and for the time periods shown below. If American Skandia exercises its right to recover the amount of any Target Value Credit,
any investment gain on the Target Value Credit will not be taken back.
1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity.
2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date.
3. If a person on whose life we pay the Death Benefit dies, or if a "contingency event" occurs which triggers a
medically-related surrender:
|X| within 12 months after the date a Target Value Credit was allocated to your Account Value; or
|X| within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on
the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date.
Following completion of the above time periods, the amount of any Target Value Credits are vested in the Owner.
====================================================================================================================================
ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation period you can access your Account Value through Partial Withdrawals, Systematic Withdrawals, and where
required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. We may deduct a portion of
the Account Value being withdrawn or surrendered as a CDSC. If you surrender your Annuity, in addition to any CDSC, we may deduct
the Annual Maintenance Fee, any Tax Charge that applies and the charge for any optional benefits. We may also apply a Market
Value Adjustment to any Fixed Allocations. Certain amounts may be available to you each Annuity Year that are not subject to a
CDSC. These are called "Free Withdrawals." In addition, under certain circumstances, we may waive the CDSC for surrenders made
for qualified medical reasons or for withdrawals made to satisfy Minimum Distribution requirements. Unless you notify us
differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your
withdrawal request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of
your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any
investment gain unless the distribution qualifies as a non-taxable exchange or transfer. If you take a distribution prior to the
taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult
a professional tax advisor for advice before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to
at the time of the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each
annuity payment should be treated as a return of any tax basis you have in the Annuity. Once the tax basis in the Annuity has
been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in the Annuity may be based on the
tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation period.
|X| To meet liquidity needs, you can withdraw a limited amount of your Account Value during each of Annuity Year 1-8 without
a CDSC being applied. We call this the "Free Withdrawal" amount. The Free Withdrawal amount is not available if you
choose to surrender your Annuity. The minimum Free Withdrawal you may request is $100.
|X| You can also make withdrawals in excess of the Free Withdrawal amount. We call this a "Partial Withdrawal." The amount
that you may withdraw will depend on the Annuity's Surrender Value. The Surrender Value is equal to your Account Value
minus any CDSC, the Annual Maintenance Fee, the Tax Charge, any charges for optional benefits and any Market Value
Adjustment that may apply to any Fixed Allocations. After any Partial Withdrawal, your Annuity must have a Surrender
Value of at least $1,000, or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity.
The minimum Partial Withdrawal you may request is $100.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine what, if any,
amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawals or Systematic Withdrawals
of amounts greater than the maximum Free Withdrawal amount will be subject to a CDSC.
Partial Withdrawals may also be available following annuitization but only if you choose certain annuity payment options.
To request the forms necessary to make a withdrawal from your Annuity, contact our Customer Service Team at 1-800-752-6342 or
visit our Internet Website at www.americanskandia.com.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 10% of Purchase Payments that, as of the date of the withdrawal, have been invested for less than the CDSC period (with
your Annuity, eight (8) years). The 10% amount is not cumulative.
"Growth" equals the current Account Value less all Purchase Payments that have been invested for less than the CDSC period and
have not been previously withdrawn. "Growth" does not include any additional amounts we applied to your Annuity based on your
Purchase Payments (see "How Do I Receive Credits" and "What Are Target Value Credits").
NOTE: Free withdrawals do not reduce the amount of any CDSC that would apply upon a partial withdrawal or subsequent surrender.
The minimum Free Withdrawal you may request is $100.
We may reduce or eliminate the amount available as a Free Withdrawal if your Annuity is used in connection with certain plans that
receive special tax treatment under the Code. As of the date of this Prospectus, the Free Withdrawal privilege has been
eliminated for Annuities purchased as funding vehicles for retirement plans under Section 401 or 403(b) of the Code.
Examples
Assume you make an initial Purchase Payment of $10,000 and make no additional Purchase Payments. Assume that in Annuity Year 2,
due to positive investment performance, your Account Value is $12,500. The maximum Free Withdrawal amount would be the greater of
Growth (Account Value minus Purchase Payments = $2,500) or 10% of Purchase Payments ($1,000). Your maximum Free Withdrawal amount
would therefore be $2,500.
Further assume that in your third Annuity Year, you choose to surrender your Annuity. Assume that after taking your $2,500 Free
Withdrawal in Year 2, your Account Value has increased to $11,000 due to positive investment performance. Upon surrender, we will
deduct a CDSC of 8.5% based on the number of years that your Purchase Payment has been invested times the amount of your Purchase
Payment that has not been previously withdrawn (8.5% of $10,000 = $850). The amount of the previous Free Withdrawal was not
subject to a CDSC when withdrawn. Therefore, upon surrender, the amount of the entire Purchase Payment is subject to the CDSC.
You would receive $10,150 minus the Annual Maintenance Fee and any Target Value Credits.
These examples do not reflect the effect of any Credits or Target Value Credits. These amounts are not available as a free
withdrawal.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine what, if any,
amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawal or Systematic Withdrawal of
amounts greater than the maximum Free Withdrawal amount will be subject to a CDSC.
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
A CDSC may be assessed against a Partial Withdrawal during the accumulation period. Whether a CDSC applies and the amount to be
charged depends on whether the Partial Withdrawal exceeds any Free Withdrawal amount and, if so, the number of years that have
elapsed since the Purchase Payment being withdrawn has been invested in the Annuity.
1. If you request a Partial Withdrawal we determine if the amount you requested is available as a Free Withdrawal (in which
case it would not be subject to a CDSC);
2. If the amount requested exceeds the available Free Withdrawal amount:
|X| First, we withdraw the amount from Purchase Payments that have been invested for longer than the CDSC period, if any
(with your Annuity, eight (8) years);
|X| Second, we withdraw the remaining amount from the Purchase Payments that are still subject to a CDSC. We withdraw the
"oldest" of your Purchase Payments first so that the lowest CDSC will apply to the amount withdrawn.
Any CDSC will only apply to the amount withdrawn that exceeds the Free Withdrawal amount.
3. If the amount requested exceeds the amounts available under Item#2 above, we withdraw the remaining amount from any other
Account Value (including Account Value due to Credits and Target Value Credits).
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal plus earnings or
a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine whether a CDSC applies and the amount
in the same way as we would for a Partial Withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed Allocations.
Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic
Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on
a monthly, quarterly, semi-annual or annual basis. The Surrender Value of your Annuity must be at least $20,000 before we will
allow you to begin a program of Systematic Withdrawals.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100, we may
postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic
Withdrawal.
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE?
Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections
401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made
prior to age 59 1/2if you elect to receive distributions as a series of "substantially equal periodic payments". Distributions
received under this provision in any Annuity Year that exceed the maximum amount available as a free withdrawal will be subject to
a CDSC. To request a program that complies with Section 72(t), you must provide us with certain required information in writing
on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender
Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t).
The minimum amount for any such withdrawal is $100.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means
of receiving income payments before age 59 1/2that are not subject to the 10% penalty.
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?
(See "Tax Considerations" for a further discussion of Minimum Distributions.)
Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or
408 of the Code. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we
will allow you to make Systematic Withdrawals in amounts that satisfy the minimum distribution rules under the Code. We do not
assess a CDSC on Minimum Distributions from your Annuity if you are required by law to take such Minimum Distributions from your
Annuity at the time it is taken. However, a CDSC may be assessed on that portion of a Systematic Withdrawal that is taken to
satisfy the minimum distribution requirements in relation to other savings or investment plans under other qualified retirement
plans not maintained with American Skandia.
The amount of the required Minimum Distribution for your particular situation may depend on other annuities, savings or
investments. We will only calculate the amount of your required Minimum Distribution based on the value of your Annuity. We
require three (3) days advance written notice to calculate and process the amount of your payments. We may charge you for
calculating required Minimum Distributions. You may elect to have Minimum Distributions paid out monthly, quarterly,
semi-annually or annually. The $100 minimum that applies to Systematic Withdrawals does not apply to Minimum Distributions.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means
of receiving income payments and satisfying the Minimum Distribution requirements under the Code.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender
Value. Upon surrender of your Annuity, you will no longer have any rights under the Annuity.
Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value.
To request the forms necessary to surrender your Annuity, contact our Customer Service Team at 1-800-752-6342 or visit our
Internet Website at www.americanskandia.com.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity prior to the Annuity Date without application of any CDSC upon
occurrence of a medically-related "Contingency Event". The amount payable will be your Account Value minus: (a) the amount of any
Credits applied within 12 months of the applicable "Contingency Event" as defined below; (b) the amount of any Credits added in
conjunction with any Purchase Payments received after our receipt of your request for a medically-related surrender (i.e. Purchase
Payments received at such time pursuant to a salary reduction program; and (c) the amount of any Target Value Credits under
certain circumstances.
This waiver of any applicable CDSC is subject to our rules, including but not limited to the following:
|X| the Annuitant must be named or any change of Annuitant must be accepted by us, prior to the "Contingency Event" described
below;
|X| the Annuitant must be alive as of the date we pay the proceeds of such surrender request;
|X| if the Owner is one or more natural persons, all such Owners must also be alive at such time;
|X| we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal Illness in writing
on a form satisfactory to us; and
|X| this benefit is not available if the total Purchase Payments received exceed $500,000 for all annuities issued by us with
this benefit where the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
|X| first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at least 90 days in a
row; or
|X| first diagnosed as having a "Fatal Illness" while your Annuity is in force.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are provided in your
Annuity. Specific details and definitions in relation to this benefit may differ in certain jurisdictions.
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?
We currently make annuity options available that provide fixed annuity payments, variable payments or adjustable payments. Fixed
options provide the same amount with each payment. Variable options generally provide a payment which may increase or decrease
depending on the investment performance of the Sub-accounts. However, currently, we also make a variable payment option that has
a guarantee feature. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates.
We do not guarantee to make any Annuity Payment Options available in the future.
When you purchase an Annuity, or at a later date, you may choose an Annuity Date, an annuity option and the frequency of annuity
payments. You may change your choices up to 30 days before the Annuity Date. A maximum Annuity Date may be required by law. Any
change to these options must be in writing. The Annuity Date may depend on the annuity option you choose. Certain annuity
options may not be available depending on the age of the Annuitant.
Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit proceeds as a series of
payments instead of a lump sum payment.
Option 1
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Payments for Life: Under this option, income is payable periodically until the death of the "key life". The "key life" (as used
in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made
after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of
periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of
the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. This
Option is currently available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 2
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Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and
thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum
number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the
key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. This Option
is currently available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 3
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Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life. However, if the
key life dies before the end of the period selected (5, 10, 15, or 20 years), the remaining payments are paid to the Beneficiary
until the end of such period. This Option is currently available on a fixed or variable basis. If you elect to receive payments
on a variable basis under this option, you can request partial or full surrender of the annuity and receive its then current cash
value (if any) subject to our rules.
Option 4
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Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the
payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such
period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of
the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting
this option. Under this option, you cannot make a partial or full surrender of the annuity.
Option 5
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Variable Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. The
number of years cannot be less than 5 or more than 50. Payments may increase or decrease depending on the investment performance
of the Sub-Accounts. If the payee dies before the end of the specified number of years, the remaining payments are paid to the
Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life
expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations
provides no benefit to an Owner selecting this option. If this option is selected, full surrenders may be made from the Annuity
prior to the last guaranteed Payment Date. No partial surrenders are permitted if this option is selected.
Option 6
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Variable Payments for Life with a Cash Value: Under this option, benefits are payable periodically until the death of the key
life. Benefits may increase or decrease depending on the investment performance of the Sub-accounts. This option has a cash
value that also varies with the investment performance of the Sub-account. The cash value provides a "cushion" from volatile
investment performance so that negative investment performance does not automatically result in a decrease in the annuity payment
each month, and positive investment performance does not automatically result in an increase in the annuity payment each month.
The cushion generally "stabilizes" monthly annuity payments. Any cash value remaining on the death of the key life is paid to the
Beneficiary in a lump sum or as periodic payments. Under this option, you can request partial or full surrender of the annuity
and receive its then current cash value (if any) subject to our rules.
Option 7
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Variable Payments for Life with a Cash Value and Guarantee: Under this option, benefits are payable as described in Option 6;
except that, while the key life is alive, the annuity payment will not be less than a guaranteed amount, which generally is equal
- ------
to the first annuity payment. We charge an additional amount for this guarantee. Under this option, any cash value remaining on
the death of the key life is paid to the Beneficiary in a lump sum or as periodic payments. Under this option, you can request
partial or full surrender of the annuity and receive its then current cash value (if any) subject to our rules.
We may make additional annuity payment options available in the future.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of at least 5 years
if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Therefore, making a purchase payment within eight
years of the Annuity Date limits your annuity payment options. Certain annuity payment options may not be available if your
Annuity Date occurs during the period that a CDSC would apply.
If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then:
|X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th birthday or the
fifth anniversary of our receipt of your request to purchase an Annuity; and
|X| the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments for Life with 10
years certain.
HOW ARE ANNUITY PAYMENTS CALCULATED?
Fixed Annuity Payments (Options 1-4)
If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select.
The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally,
the first annuity payment is determined by multiplying the Account Value, minus any state premium taxes that may apply, by the
factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the
frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are
derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or
regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates
will differ according to the gender of the key life.
Variable Annuity Payments
We offer three different types of variable annuity payment options. The first annuity payment will be calculated based upon the
assumed investment return ("AIR"). You select the AIR before we start to make Annuity Payments. The remaining annuity payments
will fluctuate based on the performance of the Portfolios relative to the AIR, as well as, other factors described below. The
greater the AIR, the greater the first annuity payment. A higher AIR may result in smaller potential growth in the annuity
payments. A lower AIR results in a lower initial annuity payment.
|X| Variable Payments (Options 1-3 & 5)
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We calculate each annuity payment amount by multiplying the number of units scheduled to be redeemed under a schedule of
units for each Sub-account by the Unit Value of each Sub-Account on the annuity payment date. We determine the schedule
of units based on your Account Value (minus any premium tax that applies) at the time you elect to begin receiving
annuity payments. The schedule of units will vary based on the annuity payment option selected, the length of any
certain period (if applicable), the Annuitant's age and gender (if annuity payments are due for the life of the
Annuitant) and the Unit Value of the Sub-Accounts you initially selected on the Issue Date. The calculation is performed
for each Sub-Account, and the sum of the Sub-Account calculations equals the amount of your annuity payment. Other than
to fund annuity payments, the number of units allocated to each Sub-Account will not change unless you transfer among the
Sub-Accounts or make a withdrawal (if allowed). You can select one of three AIRs for these options: 3%, 5% or 7%.
|X| Stabilized Variable Payments (Option 6)
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This option provides guaranteed payments for life, a cash value for the Annuitant (while alive) and a variable period of
time during which annuity payments will be made whether or not the Annuitant is still alive. We calculate the initial
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annuity payment amount by multiplying the number of units scheduled to be redeemed under a schedule of units by the Unit
Values determined on the annuitization date. The schedule of units is established for each Sub-account you choose on the
annuitization date based on the applicable benchmark rate and the annuity factors. The annuity factors reflect our
assumptions regarding the costs we expect to bear in guaranteeing payments for the lives of the Annuitant and will depend
on the benchmark rate, the annuitant's attained age and gender (where permitted). Unlike variable payments (described
above) where each payment can vary based on Sub-account performance, this payment option cushions the immediate impact of
Sub-account performance by adjusting the length of the time during which annuity payments will be made whether or not the
Annuitant is alive while generally maintaining a level annuity payment amount. Sub-account performance that exceeds a
benchmark rate will generally extend this time period, while Sub-account performance that is less than a benchmark rate
will generally shorten the period. If the period reaches zero and the Annuitant is still alive, Annuity Payments
continue, however, the annuity payment amount will vary depending on Sub-account performance, similar to conventional
variable payments. The AIR for this option is 4%.
|X|
Stabilized Variable Payments with a Guaranteed Minimum (Option7)
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This option provides guaranteed payments for life in the same manner as Stabilized Variable Payments (described above).
In addition to the stabilization feature, this option also guarantees that variable annuity payments will not be less
than the initial annuity payment amount regardless of Sub-account performance. The AIR for this option is 3%.
Adjustable Annuity Payments
We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity
payments except that on every fifth (5th) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward
or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount
does not affect the duration of remaining annuity payments, only the amount of each payment.
DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
The Annuity provides a Death Benefit during its accumulation period. If the Annuity is owned by one or more natural persons, the
Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an entity, the Death Benefit is payable
upon the Annuitant's death, if there is no Contingent Annuitant. If a Contingent Annuitant was designated before the Annuitant's
death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that
time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent."
The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct from Account Value allocated
to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic Death Benefit guarantee under the
Annuity. The Annuity also offers two different optional Death Benefits. Either benefit can be purchased for an additional
charge. The additional charge is deducted to compensate American Skandia for providing increased insurance protection under the
optional Death Benefits. Notwithstanding the additional protection provided under the optional Death Benefits, the additional
cost has the impact of reducing the net performance of the investment options. Under certain circumstances, your Death Benefit
may be reduced by the amount of any Credits or Target Value Credits we applied to your Purchase Payments (see "How are Credits
Applied to My Account Value" and "Recovery of Target Value Credits").
Basic Death Benefit
The basic Death Benefit depends on the decedent's age on the date of death:
If death occurs during the first ten (10) Annuity Years: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit is your Account Value.
OPTIONAL DEATH BENEFITS
You can purchase either of two optional Death Benefits with your Annuity to provide an enhanced level of protection for your
beneficiaries. We do not currently offer the Annuity with both optional Death Benefits.
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Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We may, at a later
date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to our rules and any changes or
restrictions in the benefits. Certain terms and conditions may differ if you purchase your Annuity as part of an exchange,
replacement or transfer, in whole or in part, from any other Annuity we issue.
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Enhanced Beneficiary Protection Optional Death Benefit
The Enhanced Beneficiary Protection Optional Death Benefit can provide additional amounts to your Beneficiary that may be used to
offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Whether this benefit is
appropriate for you may depend on your particular circumstances, including other financial resources that may be available to your
Beneficiary to pay taxes on your Annuity should you die during the accumulation period. No benefit is payable if death occurs on
or after the Annuity Date.
The Enhanced Beneficiary Protection Optional Death Benefit provides a benefit that is payable in addition to the basic Death
Benefit. If the Annuity has one Owner, the Owner must be age 75 or less at the time the benefit is purchased. If the Annuity has
joint Owners, the oldest Owner must be age 75 or less. If the Annuity is owned by an entity, the Annuitant must be age 75 or less.
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The Enhanced Beneficiary Protection Optional Death Benefit is being offered in those jurisdictions where we have received
regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The benefit is currently only
offered to Owners who purchase the Annuity as a "non-qualified" investment. We may make the benefit available to Owners who
purchase the Annuity as an IRA or other "qualified" investment at a later date. Please refer to the section entitled "Tax
Considerations" for a discussion of special tax considerations for purchasers of this benefit.
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Calculation of Enhanced Beneficiary Protection Optional Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as follows:
1. the basic Death Benefit described above
PLUS
2. 50% of the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Death Benefit Amount includes your Account Value and any amounts added to your Account Value under the basic Death Benefit when
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the Death Benefit is calculated. Under the basic Death Benefit, amounts are added to your Account Value when the Account Value is
less than Purchase Payments minus proportional withdrawals.
The amount calculated in Items 1 & 2 above may be reduced by any Credits or Target Value Credits under certain circumstances.
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The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 50% of all Purchase Payments applied to the
Annuity at least 12 months prior to the death of the decedent that triggers the payment of the Death Benefit.
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See Appendix C for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated.
Guaranteed Minimum Death Benefit
If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is purchased. If the
Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the Annuitant must be
age 80 or less.
Key Terms Used with the Guaranteed Minimum Death Benefit
|X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest
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of either joint Owner or the Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the
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Owner's date of death and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all Purchase Payments
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on or after such anniversary less the sum of all "Proportional Reductions" since such anniversary.
|X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of
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the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is
$10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by
Purchase Payments increasing at the appropriate interest rate by 20%.
Calculation of Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit depends on whether death occurs before or after the Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of:
1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the date we receive
in writing "due proof of death"; and
2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily until the Owner's
date of death at a rate of 5.0%, subject to a limit of 200% of the difference between the sum of all Purchase
Payments and the sum of all withdrawals as of the Owner's date of death; and
3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death.
The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death
and decreased by any Proportional Reductions since such date. The amount calculated in Items 1 & 3 above may be reduced
by any Credits or Target Value Credits under certain circumstances.
If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of:
1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to amounts in any
Fixed Allocations); and
2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of
all Proportional Reductions since the Death Benefit Target Date.
The amount calculated in Item 1 above may be reduced by any Credits or Target Value Credits under certain circumstances.
Annuities with joint Owners
For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest of the Joint
Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly, we will pay the
Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to
assume ownership of the Annuity and continue the contract instead of receiving the Death Benefit.
Annuities owned by entities
For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the Annuitant is used to
determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent
Annuitant, if applicable).
Can I terminate the optional Death Benefits? Do the optional Death Benefits terminate under other circumstances?
You can terminate the Enhanced Beneficiary Protection Optional Death Benefit at any time. Upon termination, you will be required
to pay a pro-rata portion of the annual charge for the benefit. The Guaranteed Minimum Death Benefit cannot be terminated once it
is elected. Both optional Death Benefits will terminate automatically on the Annuity Date. We may also terminate the optional
Death Benefit if necessary to comply with our interpretation of the Code and applicable regulations.
How much do you charge for the optional Death Benefit?
We deduct a charge from your Account Value if you elect to purchase either optional Death Benefit. No charge applies after the
Annuity Date. We deduct the charge:
1. on each anniversary of the Issue Date;
2. when Account Value is transferred to our general account prior to the Annuity Date;
3. if you surrender your Annuity; and
4. if you choose to terminate the benefit (Enhanced Beneficiary Protection Optional Death Benefit only)
If you surrender the Annuity, elect to begin receiving annuity payments or terminate the benefit on a date other than an
anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date, the charge will be
prorated from the Issue Date. In all subsequent years, it would be prorated from the last anniversary of the Issue Date.
We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We only deduct the
charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in the variable investment options to
pay the charge. If your Annuity's Account Value is insufficient to pay the charge, we may deduct your remaining Account Value and
terminate your Annuity. We will notify you if your Account Value is insufficient to pay the charge and allow you to submit an
additional Purchase Payment to continue your Annuity.
Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the optional Death Benefit.
AMERICAN SKANDIA'S ANNUITY REWARDS
What is the Annuity Rewards benefit?
The Annuity Rewards benefit offers Owners the ability to capture any market gains since the Issue Date of their Annuity as an
enhancement to their current Death Benefit so their Beneficiaries will not receive less than the Annuity's value as of the date
the Owner elects the benefit.
Under the Annuity Rewards benefit, American Skandia guarantees that the Death Benefit on or before the cut-off date applicable to
the minimum death benefit under the Annuity, will not be less than:
your Account Value in the variable investment options plus the Interim Value in any Fixed Allocations as of the effective
date of the Owner's election
MINUS any proportional withdrawals* following the date of election
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PLUS any additional Purchase Payments applied to the Annuity following the date of election.
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* "Proportional withdrawals" are determined by calculating the percentage of the Account Value that each withdrawal represented
when withdrawn. For example, a withdrawal of 50% of your Account Value would be treated as a 50% reduction in the amount
payable under the Death Benefit.
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If you elect the Annuity Rewards benefit, the cut-off date under the basic Death Benefit is amended and will depend on the
decedent's age on the date of death.
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If death occurs before the decedent's age 90: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
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|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations.
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If death occurs after the decedent's age 90: The Death Benefit is your Account Value.
The Annuity Rewards Death Benefit enhancement does not affect any Optional Death Benefits available under the Annuity. If the
Death Benefit amount payable under your Annuity's basic Death Benefit or any Optional Death Benefits you purchase is greater than
the enhanced Death Benefit under the Annuity Rewards benefit on the date the Death Benefit is calculated, your Beneficiary will
receive the higher amount. If your Annuity includes the Enhanced Beneficiary Protection Optional Death Benefit, the enhanced
Death Benefit under the Annuity Rewards program will be considered when calculating the amount due under the Enhanced Beneficiary
Protection Optional Death Benefit.
Who is eligible for the Annuity Rewards benefit?
Owners can elect the Annuity Rewards Death Benefit enhancement following the eighth (8th) anniversary of the Annuity's Issue
Date. However, the election is subject to the requirement that their Account Value on the election date is greater than the
amount that would be payable to their Beneficiary under the Death Benefit provided under the Annuity as of the election date
(including any Optional Death Benefits other than the Enhanced Beneficiary Protection Optional Death Benefit). If an Owner is
ineligible when he or she applies for the optional benefit, the Owner can elect the Annuity Rewards Death Benefit enhancement on
any subsequent date if they otherwise qualify. The election must occur before the cut-off date applicable to the minimum death
benefit under the Annuity and before annuity payments begin. An Owner can only elect the Annuity Rewards Death Benefit
enhancement once. There is no additional charge for electing the Annuity Rewards Death Benefit enhancement.
PAYMENT OF DEATH BENEFITS
Payment of Death Benefit to Beneficiary
Except in the case of a spousal Beneficiary, in the event of your death, the death benefit must be distributed:
|X| as a lump sum amount at any time within five (5) years of the date of death; or
|X| as a series of annuity payments not extending beyond the life expectancy of the Beneficiary or over the life of the
Beneficiary. Payments under this option must begin within one year of the date of death.
Unless you have made an election prior to death benefit proceeds becoming due, a Beneficiary can elect to receive the Death
Benefit proceeds as a series of fixed annuity payments (Annuity Payment Option 1-4) or as a series of variable annuity payments
(Annuity Payment Option 1-3 or 5-7). See the section entitled "What Types of Annuity Options are Available."
Spousal Beneficiary - Assumption of Annuity
You may name your spouse as your Beneficiary. If you and your spouse own the Annuity jointly, we assume that the sole primary
Beneficiary will be the surviving spouse unless you elect an alternative Beneficiary designation. Unless you elect an alternative
Beneficiary designation, the spouse Beneficiary may elect to assume ownership of the Annuity instead of taking the Death Benefit
payment. Any Death Benefit (including any optional Death Benefits) that would have been payable to the Beneficiary will become
the new Account Value as of the date we receive due proof of death and any required proof of a spousal relationship. As of the
date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the
Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the surviving
spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value.
However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of
the Annuity.
See the section entitled "Managing Your Annuity - Spousal Contingent Annuitant" for a discussion of the treatment of a spousal
Contingent Annuitant in the case of the death of the Annuitant in an entity owned Annuity.
Inherited IRA Death Benefit Payout
The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or other "qualified
investment" that requires Minimum Distributions. The available payment options will depend on whether the Owner died on or before
the date he or she was required to begin receiving Minimum Distributions under the Code and whether the Beneficiary is the
surviving spouse.
|X| If death occurs before the date Minimum Distributions must begin under the Code, the Death Benefit can be paid out in
either a lump sum, within five years from the date of death, or over the life or life expectancy of the designated
Beneficiary (as long as payments begin by December 31st of the year following the year of death). However, if the spouse
is the Beneficiary, the Death Benefit can be paid out over the life or life expectancy of the spouse with such payments
beginning no earlier than December 31 of the year following the year of death or December 31st of the year in which the
deceased would have reached age 70 1/2, which ever is later.
|X| If death occurs after the date Minimum Distributions must begin under the Code, the Death Benefit must be paid out at
least as rapidly as under the method then in effect.
A Beneficiary has the flexibility to take out more each year than required under the Minimum Distribution rules. Until withdrawn,
amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts withdrawn each year, including
amounts that are required to be withdrawn under the Minimum Distribution rules, are subject to tax. You may wish to consult a
professional tax advisor for tax advice as to your particular situation. See the section entitled "How are Distributions From
Qualified Contracts Taxed? - Minimum Distributions after age 70 1/2."
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if
the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or Annuitant due to the prior
Owner's or Annuitant's death. Any minimum Death Benefit that applies will be suspended for a two-year period from the date he or
she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this
person had been an Owner or Annuitant on the Issue Date.
When do you determine the Death Benefit?
We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written representations
we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a
certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of
death or other satisfactory proof of death. Upon our receipt of "due proof of death" we automatically transfer the Death Benefit
to the AST Money Market Sub-Account until we further determine the universe of eligible Beneficiaries. Once the universe of
eligible Beneficiaries has been determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit
to the Sub-Accounts according to our rules.
Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit. Absent an
election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may require written
acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period from the date of death until we
receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations.
VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for each Sub-account
allocation and for each Fixed Allocation. The Account Value is the sum of the values of each Sub-account allocation and the value
of each Fixed Allocation. The Account Value does not reflect any CDSC that may apply to a withdrawal or surrender. The Account
Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your
Annuity. When determining the Account Value on any day other than a Fixed Allocation's Maturity Date, the Account Value may
include any Market Value Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value
is equal to your Account Value minus any CDSC, the Annual Maintenance Fee, the charge for any optional Death Benefit and any
additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The
Surrender Value will also include any Market Value Adjustment that may apply.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account invests
exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market fluctuations of the
Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge.
Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for
determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any
transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000
buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that
Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original
Sub-account has increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477
Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the
new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal
to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the date calculated.
The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from a
Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before
they were withdrawn. To determine the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply
the Account Value of the Fixed Allocation times the Market Value Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) days
after we receive all of our requirements to issue the Annuity. If we do not have all the required information to allow us to
issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our
requirements. If we are unable to obtain all of our required information within five (5) days, we are required to return the
Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the
required information. Once we obtain the required information, we will invest the Purchase Payment and issue the Annuity within
two (2) days. During any period that we are trying to obtain the required information, your money is not invested.
Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase
Payment with satisfactory instructions.
Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing, or asset
allocation program, Systematic Withdrawals, Minimum Distributions or annuity payments. Scheduled transactions are processed and
valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be
processed and valued on Valuation Day prior to the scheduled transaction date.
Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial
Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we
receive the request at our Office in good order.
Medically-related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims require our review
and evaluation before processing. We price such transactions as of the date we receive at our Office all materials we require for
such transaction and that are satisfactory to us.
Transactions in Rydex and ProFunds VP Sub-accounts: Generally, purchase or redemption orders or transfer requests must be received
by us by no later than the close of the New York Stock Exchange to be processed on the current Valuation Day. However, any
purchase or redemption order or transfer request involving the Rydex or ProFunds VP Sub-accounts must be received by us no later
than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be
processed on the current Valuation Day. The "cut-off" time for such financial transactions involving a Rydex or ProFunds VP
Sub-account will be extended to1/2hour prior to any announced closing (generally, 3:30 p.m. Eastern time) for transactions
submitted electronically through American Skandia's Internet website (www.americanskandia.com). You cannot request a transaction
involving the purchase, redemption or transfer of Units in one of the Rydex or ProFunds VP Sub-accounts between the applicable
"cut-off" time and 4:00 p.m. Transactions received after 4:00 p.m. will be treated as received by us on the next Valuation Day.
TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?
Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since the tax laws are
complex and tax consequences are affected by your individual circumstances, this summary of our interpretation of the relevant tax
laws is not intended to be fully comprehensive nor is it intended as tax advice. Therefore, you may wish to consult a
professional tax advisor for tax advice as to your particular situation.
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?
The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance company under Part I,
subchapter L of the Code. No taxes are due on interest, dividends and short-term or long-term capital gains earned by the
Separate Accounts with respect to the Annuities.
IN GENERAL, HOW ARE ANNUITIES TAXED?
Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in large part on:
1. whether the Annuity is used by:
|X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for special treatment
under the Code (for purposes of this discussion, a "Qualified Contract"); or
|X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and
2. whether the Owner is:
|X| an individual person or persons; or
|X| an entity including a corporation, trust or partnership.
Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed on any increase
in the value of the Annuity until an amount is received (a "distribution"). This is commonly referred to as "tax deferral". A
distribution can be in the form of a lump sum payment including payment of a Death Benefit, or in annuity payments under one of
the annuity payment options. Certain other transactions may qualify as a distribution and be subject to taxation.
Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of the Annuity must
currently include any increase in the value of the Annuity during a tax year in its gross income. An exception from current
taxation applies for annuities held by an employer with respect to a terminated tax-qualified retirement plan, a trust holding an
annuity as an agent for a natural person, or by a decedent's estate by reason of the death of the decedent. A tax-exempt entity
for Federal tax purposes will not be subject to income tax as a result of this provision.
HOW ARE DISTRIBUTIONS TAXED?
Distributions from an Annuity are taxed as ordinary income and not as capital gains.
Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as coming first
from "income on the contract" and then as a return of the "investment in the contract". The amount of any distribution that is
treated as receipt of "income on the contract" is includible in the taxpayer's gross income and taxable in the year it is
received. The amount of any distribution treated as a return of the "investment in the contract" is not includible in gross
income.
|X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from the aggregate
value of all "related contracts" (discussed below).
|X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any previous
distributions or portions of such distributions from such "related contracts" that were not includible in gross income.
"Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a
tax-free exchange of life insurance, endowment, or annuity contracts under Section 1035 of the Code. The "investment in the
contract" for a Qualified Contract will be considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will generally be
taxable. The taxable portion of each annuity payment is determined by a formula which establishes the ratio that the "investment
in the contract" bears to the total value of annuity payments to be made. This is called the "exclusion ratio." The investment
in the contract is excluded from gross income. Any portion of an annuity payment received that exceeds the exclusion ratio will
be entirely includible in gross income. The formula for determining the exclusion ratio differs between fixed and variable
annuity payments. When annuity payments cease because of the death of the person upon whose life payments are based and, as of
the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the
"investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by the beneficiary in
the tax year of such death.
Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a Qualified Contract
(Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount includible in gross income. This
penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 591/2;
|X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death of the annuitant;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a series of substantially equal periodic payments for the life (or life expectancy) of
the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary);
|X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14, 1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the
employer until the employee separates from service.
Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner within the same
calendar year (other than certain contracts owned in connection with a tax-qualified retirement arrangement) are to be treated as
one annuity contract when determining the taxation of distributions before annuitization. We refer to these contracts as "related
contracts." In situations involving related contracts we believe that the values under such contracts and the investment in the
contracts will be added together to determine the proper taxation of a distribution from any one contract described under the
section "Distributions before Annuitization." Generally, distributions will be treated as coming first from income on the
contract until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the
contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view related contracts when
one or more contracts are immediate annuities or are contracts that have been annuitized. The Internal Revenue Service has not
issued guidance clarifying this issue as of the date of this Prospectus. You are particularly cautioned to seek advice from your
own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)" distributions) Any
modification to a program of distributions which are part of a series of substantially equal periodic payments that occur before
the later of the taxpayer reaching age 59 1/2or five (5) years from the first of such payments will result in the requirement to pay
the 10% premature distribution penalty that would have been due had the payments been treated as subject to the 10% premature
distribution penalty in the years received, plus interest. This does not apply when the modification is by reason of death or
disability. American Skandia does not currently support a section 72(q) program.
Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the immediate annuity exception to the
10% penalty described above under "Penalty Tax on Distributions" for "non-qualified" immediate annuities as defined under the Code
may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant
to an exchange of a contract if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed
more than one year prior to the annuity starting date under the immediate annuity; and (b) the annuity payments under the
immediate annuity do not meet the requirements of any other exception to the 10% penalty.
Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain tax-free exchanges of
a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased through a tax-free exchange of a life
insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any distributions other than as annuity
payments will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into the annuity;
|X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to August 14, 1982
(including income on such original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982.
Therefore, to the extent a distribution is equal to or less than the remaining investment in the contract made prior to August 14,
1982, such amounts are not included in taxable income. Further, distributions received that are considered to be a return of
investment on the contract from purchase payments made prior to August 14, 1982, such distributions are not subject to the 10% tax
penalty. In all other respects, the general provisions of the Code apply to distributions from annuities obtained as part of such
an exchange.
Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current
taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2withdrawals. The IRS has reserved the
right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. We do not know
what transactions may be considered abusive. For example, we do not know how the IRS may view early withdrawals or annuitizations
after a partial exchange. As of the date of this prospectus, we will treat a partial surrender of this type involving a
non-qualified annuity contract as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a
reporting and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some insurance
companies may not recognize these partial surrenders as tax-free exchanges and may report them as taxable distributions to the
extent of any gain distributed as well as subjecting the taxable portion of the distribution to the 10% IRS early distribution
penalty. We strongly urge you to discuss any transaction of this type with your tax advisor before proceeding with the
transaction.
There is no guidance from the Internal Revenue Service as to whether a partial exchange from a life insurance contract is eligible
for non-recognition treatment under Section 1035 of the Code. We will continue to report a partial surrender of a life insurance
policy as subject to current taxation to the extent of any gain. In addition, please be cautioned that no specific guidance has
been provided as to the impact of such a transaction for the remaining life insurance policy, particularly as to the subsequent
methods to be used to test for compliance under the Code for both the definition of life insurance and the definition of a
modified endowment contract.
Special Considerations for Purchasers of the Enhanced Beneficiary Protection Optional Death Benefit: As of the date of this
Prospectus, it is our understanding that the charges related to the optional Death Benefit are not subject to current taxation and
we will not report them as such. However, the IRS could take the position that these charges should be treated as partial
withdrawals subject to current taxation to the extent of any gain and, if applicable, the 10% tax penalty. We reserve the right
to report charges for the optional Death Benefit as partial withdrawals if we, as a reporting and withholding agent, believe that
we would be expected to report them as such.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have provided summaries
of the types of tax-qualified retirement plans with which we may issue an Annuity. These summaries provide general information
about the tax rules and are not intended to be complete discussions. The tax rules regarding qualified plans are complex. These
rules may include limitations on contributions and restrictions on distributions, including additional taxation of distributions
and additional penalties. The terms and conditions of the tax-qualified retirement plan may impose other limitations and
restrictions that are in addition to the terms of the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice, both as to the
tax treatment and suitability of such an investment. American Skandia does not offer all of its annuities to all of these types of
tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate pension and
profit-sharing plans established by corporate employers under Section 401(a) of the Code including 401(k) plans. Contributions
to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations
on the amount that may be contributed and the timing of distributions. The tax treatment of distributions is subject to special
provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to
participation, nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for
themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of
the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations
and requirements may differ from those for corporate plans.
Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into which contributions
may be made by certain qualifying employers such as public schools and certain charitable, educational and scientific
organizations specified in Section 501(c)(3) for the benefit of their employees. Such contributions are not taxable to the
employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions.
Nondiscrimination requirements also apply.
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Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made pursuant to a
salary reduction agreement unless the distribution is made:
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|X| After the participating employee attains age 59 1/2;
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|X| Upon separation from service, death or disability; or
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|X| In the case of financial hardship (subject to restrictions).
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Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and certain other tax
exempt employers for their employees may invest in annuity contracts. The Code limits contributions and distributions, and
imposes eligibility requirements as well. Contributions are not taxable to employees until distributed from the plan. However,
plan assets remain the property of the employer and are subject to the claims of the employer's general creditors until such
assets are made available to participants or their beneficiaries.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an individual retirement
account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the amount that may be contributed, the
contributions that may be deducted from taxable income, the persons who may be eligible to establish an IRA and the time when
distributions must commence. Further, an Annuity may be established with "roll-over" distributions from certain tax-qualified
retirement plans and maintain the tax-deferred status of these amounts.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax deductible. However,
distributions from a Roth IRA are free from Federal income taxes and are not subject to the 10% penalty tax if five (5) tax years
have passed since the first contribution was made or any conversion from a traditional IRA was made and the distribution is made
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(a) once the taxpayer is age 59 1/2or older, (b) upon the death or disability of the taxpayer, or (c) for qualified first-time home
buyer expenses, subject to certain limitations. Distributions from a Roth IRA that are not "qualified" as described above may be
subject to Federal income and penalty taxes.
Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on eligibility,
contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and
qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis and the conditions under which distributions
from traditional IRAs may be rolled over to, or the traditional IRA itself may be converted into, a Roth IRA.
SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP IRAs. Employer
contributions that may be made to employee SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be
deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a portion of each
distribution may be excludable from income. The excludable amount is the proportion of a distribution representing after-tax
contributions. Generally, a 10% penalty tax applies to the taxable portion of a distribution from a Qualified Contract made prior
to age 59 1/2. However, the 10% penalty tax does not apply when the distribution:
|X| is part of a properly executed transfer to another IRA or another eligible qualified account;
|X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7)
of the Code);
|X| is part of a series of substantially equal periodic payments to be paid not less frequently than annually for the
taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary;
|X| is subsequent to a separation from service after the taxpayer attains age 55*;
|X| does not exceed the employee's allowable deduction in that tax year for medical care*;
|X| is made to an alternate payee pursuant to a qualified domestic relations order*; and
|X| is made pursuant to an IRS levy.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be available.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be distributed, or begin to
be distributed, by the "required beginning date". This is April 1st of the calendar year following the later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the employer sponsoring the plan. The retirement
option is not available to IRAs.
The IRS has released proposed Treasury regulations containing new Minimum Distribution rules. Under the new rules, the Minimum
Distribution amount will be lower for the vast majority of individuals. The new rules are available, at the option of the
individual, for Minimum Distributions required in the year 2001. For Minimum Distributions required in 2002 and beyond, the
individual must utilize the new Minimum Distribution rules.
Under existing Minimum Distribution rules, the participant's entire interest must be distributed beginning no later than the
required beginning date over a period which may not extend beyond a maximum of the life or life expectancy of the participant (or
the life expectancies of the owner and a designated beneficiary). Each annual distribution must equal or exceed a "minimum
distribution amount" which is determined by dividing the account value by the applicable life expectancy or pursuant to an annuity
payout. If the account balance is used, it generally is based upon the Account Value as of the close of business on the last day
of the previous calendar year.
If the participant dies before reaching his or her "required beginning date", his or her entire interest must generally be
distributed within five (5) years of death. However, this rule will be deemed satisfied if distributions begin before the close
of the calendar year following death to a designated beneficiary (or over a period not extending beyond the life expectancy of the
beneficiary). If the Beneficiary is the individual's surviving spouse, distributions may be delayed until the deceased owner would
have attained age 701/2. A surviving spouse would also have the option to assume the IRA as his or her own if he or she is the
sole designated beneficiary. If a participant dies after reaching his or her required beginning date or after distributions have
commenced, the individual's interest must generally be distributed at least as rapidly as under the method of distribution in
effect at the time of the individual's death.
If the amount distributed is less than the minimum required distribution for the year, the participant is subject to a 50% tax on
the amount that was not properly distributed.
Under the new Minimum Distribution rules, a uniform life expectancy table will be utilized by all participants except those with a
spouse who is more than ten (10) years younger than the participant. In that case, the new rules permit the participant to
utilize the actual life expectancies of the participant and the spouse. In addition, the designated beneficiary under the new
rules is not determined until December 31 of the year following the year of the participant's death. In most cases, the
beneficiary may be changed during the participant's lifetime with no affect on the Minimum Distributions. At death, the
designated Beneficiary may take Minimum Distributions over his/her life expectancy or in a lump sum. In the absence of a
designated beneficiary, the beneficiary may take a lump sum or distributions over five (5) years.
It is important to note that the new Minimum Distribution rules may not apply to certain qualified retirement plans (at this
time), but currently generally apply to IRA's and 403(b)'s.
GENERAL TAX CONSIDERATIONS
Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an annuity, must
have an "adequately diversified" segregated asset account (including investments in a mutual fund by the segregated asset account
of insurance companies). If the diversification requirements under the Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain in the contract. The Treasury Department's regulations
prescribe the diversification requirements for variable annuity contracts. We believe the underlying mutual fund portfolios should
comply with the terms of these regulations.
Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The Treasury Department
may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with
ownership rights have excessive control over the investments underlying such variable annuity. Such guidelines may or may not
address the number of investment options or the number of transfers between investment options offered under a variable annuity.
It is not known whether such guidelines, if in fact promulgated, would have retroactive effect. It is also not known what effect,
if any, such guidelines may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus.
We will take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such guidelines if
promulgated.
Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the portion of a
distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the
distribution. However, under most circumstances a recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by filing a completed election form with us.
Certain distributions, known as eligible rollover distributions, from Qualified Contracts, are subject to automatic 20%
withholding for Federal income taxes. The following distributions are not eligible rollover distributions and not subject to 20%
withholding::
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual retirement annuity;
|X| distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the
retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan;
|X| distributions that are part of a series of substantial periodic payments pursuant to Section 72(q) or 72(t) of the Code;
and
|X| certain other distributions where automatic 20% withholding may not apply.
Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or pledge of any
portion of the value of, an annuity before annuity payments have begun are treated as a distribution subject to taxation under the
distribution rules set forth above. Any gain in an annuity on or after the assignment or pledge of an entire annuity and while
such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For
annuities not issued as Qualified Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge
includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by
payment of any interest thereon.
Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a divorce) is treated,
for income tax purposes, as a distribution.
Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and state estate and
gift tax consequences flowing from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is transferred to, or a
death benefit is paid to, an individual two or more generations younger than the contract holder. These generation-skipping
transfers generally include those subject to federal estate or gift tax rules. There is an aggregate $1 million exemption from
taxes for all such transfers. We may be required to determine whether a transaction is a direct skip as defined in the Code and
the amount of the resulting tax. We will deduct from your Annuity or from any applicable payment treated as a direct skip any
amount of tax we are required to pay.
Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant succeeds an annuitant
when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred treatment under certain sections of
the Code. In general, the Code is designed to prevent indefinite deferral of tax. Continuing the benefit of tax deferral by
naming one or more contingent annuitants when the Annuity is owned by a non-qualified trust might be deemed an attempt to extend
the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as
contingent annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a
contingent annuitant if you expect to use an Annuity in such a fashion.
GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to you at your last known address of record. You
should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to
your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by
applicable law or regulation to you through our Internet Website at http://www.americanskandia.com or any other electronic means,
including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value,
such as making additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing the
activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge
up to $50 for each such additional report. Instead of immediately confirming transactions made pursuant to some type of periodic
transfer program (such as a dollar cost averaging program) or a periodic Purchase Payment program, such as a salary reduction
arrangement, we may confirm such transactions in quarterly statements. You should review the information in these statements
carefully.
All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to your Annuity.
For transactions that are confirmed immediately, we assume all transactions are accurate unless you notify us otherwise within 10
days from the date you receive the confirmation. For transactions that are only confirmed on the quarterly statement, we assume
all transactions are accurate unless you notify us within 10 days from the date you receive the quarterly statement. All
transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 10-day period. We may
also send an annual report and a semi-annual report containing applicable financial statements, as of December 31 and June 30,
respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or
other electronic means.
WHO IS AMERICAN SKANDIA?
American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in Connecticut with
licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned subsidiary of American Skandia, Inc.,
formerly known as American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a
Swedish company. American Skandia markets its products to broker-dealers and financial planners through an internal field
marketing staff. In addition, American Skandia markets through and in conjunction with financial institutions such as banks that
are permitted directly, or through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American Skandia currently
offers the following products: (a) flexible premium deferred annuities and single premium fixed deferred annuities that are
registered with the SEC; (b) certain other fixed deferred annuities that are not registered with the SEC; (c) certain group
variable annuities that are exempt from registration with the SEC that serve as funding vehicles for various types of qualified
pension and profit sharing plans; (d) a single premium variable life insurance policy that is registered with the SEC; and (e) a
flexible premium life insurance policy that is registered with the SEC.
WHAT ARE SEPARATE ACCOUNTS?
The assets supporting our obligations under the Annuities may be held in various accounts, depending on the obligation being
supported. In the accumulation period, assets supporting Account Values are held in separate accounts established under the laws
of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout phase, assets supporting
fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Income, gains and
losses from assets allocated to these separate accounts are credited to or charged against each such separate account without
regard to other income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be
charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance Corporation. The amount
of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts.
However, the obligations themselves are our general corporate obligations.
Separate Account B
During the accumulation period, the assets supporting obligations based on allocations to the variable investment options are held
in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account
B". Separate Account B consists of multiple Sub-accounts. The name of each Sub-account generally corresponds to the name of the
underlying Portfolio. The names of each Sub-account are shown in the Statement of Additional Information. Separate Account B was
established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values
and benefits that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to this
Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate Account B has a different
level of charges assessed against such Sub-accounts. You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds.
Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit
investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the investment
policies, management or practices of Separate Account B. Each Sub-account invests only in a single mutual fund or mutual fund
portfolio.
We reserve the right to make changes to the Sub-accounts available under the Annuity as we determine appropriate. We may offer
new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may also close Sub-accounts to
additional Purchase Payments on existing Annuity contracts or close Sub-accounts for Annuities purchased on or after specified
dates. We may also substitute an underlying mutual fund or portfolio of an underlying mutual fund for another underlying mutual
fund or portfolio of an underlying mutual fund, subject to our receipt of any exemptive relief that we are required to obtain
under the Investment Company Act of 1940. We will notify Owners of changes we make to the Sub-accounts available under the
Annuity.
Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual
funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value
allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk.
Separate Account D
During the accumulation period, assets supporting our obligations based on Fixed Allocations are held in American Skandia Life
Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations are based on the fixed
interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment
performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law.
There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who
allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets
maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in
Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate
Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we
will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to
our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in
Separate Account D supporting a number of annuities we offer.
We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account D. Each manager
we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional
investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or
continue to employ any investment manager(s).
We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other
state insurance laws.
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares
of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and
variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules,
you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio
requests a vote of shareholders, we will vote our shares in the manner directed by Owners with Account Value allocated to that
Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not
receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the
shares for which we have received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account
whose underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their
instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental
investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying
mutual fund that require a vote of shareholders.
American Skandia Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its
investment adviser, American Skandia Investment Services, Incorporated ("ASISI"), subject to approval by the Board of Trustees of
the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder
approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized
in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by ASISI
and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders
following these types of changes.
Material Conflicts
It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their
respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur
surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts
that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would
take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance
policies against persons with voting rights under other insurance companies' variable insurance products. If a "material
conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would
take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to
differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or
different companies. We monitor any potential conflicts that may exist.
Service Fees Payable by Underlying Funds
American Skandia or our affiliates have entered into agreements with the investment adviser or distributor of many of the
underlying Portfolios. Under the terms of these agreements, American Skandia provides administrative and support services to the
Portfolios for which a fee is paid that is generally based on a percentage of the average assets allocated to the Portfolios under
the Annuity. Any fees payable will be consistent with the services rendered or the expected cost savings resulting from the
arrangement. These agreements may be different for each underlying mutual fund whose portfolios are offered as Sub-accounts.
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the distributor and
principal underwriter of the securities offered through this prospectus. ASM acts as the distributor of a number of annuity and
life insurance products we offer and both American Skandia Trust and American Skandia Advisor Funds, Inc., a family of retail
mutual funds. ASM also acts as an introducing broker-dealer through which it receives a portion of brokerage commissions in
connection with purchases and sales of securities held by portfolios of American Skandia Trust which are offered as underlying
investment options under the Annuity.
ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer under the
Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent broker-dealers who are
registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration. Applications for
the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance
agents under state insurance law. In addition, ASM may offer the Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual representative will
receive a portion of the compensation, depending on the practice of the firm. Compensation is generally based on a percentage of
Purchase Payments made, up to a maximum of 7.0%. Alternative compensation schedules are available that provide a lower initial
commission plus ongoing annual compensation based on all or a portion of Account Value. We may also provide compensation for
providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity
do not result in any additional charge to you or to the Separate Account. No compensation is payable on Annuities purchased by a
member of the designated class of Owners (see "Credits Applied to Purchase Payments for Designated Class of Annuity Owner").
In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel,
marketing or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain
firms. These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules
and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or
other compensation.
Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we
calculate performance for the Sub-accounts are found in the Statement of Additional Information, including how we account for
Credits in these performance measures. This information may help you review the performance of the investment options and provide
a basis for comparison with other annuities. This information's usefulness may be limited because of the Credits, since, as of
the date of this Prospectus, we were not aware of many annuities with variable and/or market value adjusted fixed investment
options that included this type of feature. This information also may be less useful when comparing the performance of the
investment options with other savings or investment vehicles. Such other investments may not provide some of the benefits of
annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment vehicles may not be
receive the beneficial tax treatment given to annuities under the Code.
We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and "Non-standard" Total
Returns. "Standard Total Return" figures assume that all charges and fees are applicable, including any contingent deferred sales
charge that may apply for the period shown but it does not take into consideration any Credits. "Non-standard Total Return"
figures may be used that do not reflect all fees and charges and may assume Credits of 1.5%, 3.0%, 4.0% or 5.0%, respectively,
depending on the cumulative amount of Purchase Payments being illustrated. The amount of credits illustrated may be more or less
than the Credits applicable to your Annuity (see "What are Credits and how do I Receive Them?"). Non-standard Total Returns are
calculated in the same manner as standardized returns except that the calculations may assume no redemption at the end of the
applicable periods. These figures may not take into consideration the Annuity's contingent deferred sales charge. Standard and
Non-standard Total returns will not reflect charges that apply to either Optional Death Benefit. Non-standard Total Returns must
be accompanied by Standard Total Returns. Any performance advertisements will not reflect the impact of any Target Value Credits.
Performance information on the Sub-accounts is based on past performance only and is not an indication or representation of future
performance. Performance of the Sub-accounts is not fixed. Actual performance will depend on the type, quality and, for some of
the Sub-accounts, the maturities of the investments held by the underlying mutual funds or portfolios and upon prevailing market
conditions and the response of the underlying mutual funds to such conditions. Actual performance will also depend on changes in
the expenses of the underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest
in such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account will affect
performance.
Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance quoted in
advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in existence but prior to the
initial offering of the Annuities, or periods during which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical historical performance is calculated using the same assumptions employed in calculating
actual performance since inception of the Sub-accounts. Hypothetical historical performance of the underlying mutual fund
portfolios prior to the existence of the Sub-accounts may only be presented as Non-Standard Total Returns.
The information we may advertise regarding the Fixed Allocations may include the then current interest rates we are crediting to
new Fixed Allocations. Information on current rates will be as of the date specified in such advertisement. Rates will be
included in advertisements to the extent permitted by law. Given that the actual rates applicable to any Fixed Allocation are as
of the date of any such Fixed Allocation's Guarantee Period begins, the rate credited to a Fixed Allocation may be more or less
than those quoted in an advertisement.
Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged market indices,
including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, the Shearson Lehman Bond
Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital International Index of Europe, Asia and Far East
Funds, and the Morgan Stanley Capital International World Index; and/or (b) other management investment companies with investment
objectives similar to the mutual fund or portfolio underlying the Sub-accounts being compared. This may include the performance
ranking assigned by various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's,
Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual Funds Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund Sourcebook and
the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial ratings services.
Such rankings may help you in evaluating our ability to meet our obligations in relation to Fixed Allocations, pay minimum death
benefits, pay annuity payments or administer Annuities. Such rankings and ratings do not reflect or relate to the performance of
Separate Account B.
AVAILABLE INFORMATION
A Statement of Additional Information is available from us without charge upon your request. This Prospectus is part of the
registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available
in those registration statements and the exhibits thereto. You may obtain copies of these materials at the prescribed rates from
the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those registration
statements and exhibits thereto at the SEC's public reference facilities at the above address, Room 1024, and at the SEC's
Regional Offices, 7 World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, IL. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified
or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or
superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 2000 previously filed
by the Company with the SEC under the Exchange Act is incorporated by reference in this Prospectus.
We will furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including
any exhibits to such documents which have been specifically incorporated by reference. We will do so upon receipt of your written
or oral request.
HOW TO CONTACT US
You can contact us by:
|X| calling our Customer Service Team at 1-800-752-6342 or our automated telephone access and response system (STARS) at
1-800-766-4530
|X| writing to us at American Skandia Life Assurance Corporation, Attention: Customer Service, P.O. Box 7038, Bridgeport,
Connecticut 06601-7038
|X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at www.americanskandia.com
|X| accessing information about your Annuity through our Internet Website at www.americanskandia.com
You can obtain account information through our automated telephone access and response system (STARS) and at
www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during business hours to
provide you with information about your account. You can request certain transactions through our telephone voice response
system, our Internet Website or through a customer service representative. You can provide authorization for a third party,
including your attorney-in-fact acting pursuant to a power of attorney or a financial professional, to access your account
information and perform certain transactions on your account. You will need to complete a form provided by us which identifies
those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party
to perform any such transactions. We require that you or your representative provide proper identification before performing
transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that
will be provided to you upon issue of your Annuity or you may establish or change your PIN through our automated telephone access
and response system (STARS) and at www.americanskandia.com, our Internet Website. Any third party that you authorize to perform
financial transactions on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims,
loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such
transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of
electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such
procedures.
American Skandia does not guarantee access to telephonic and electronic information or that we will be able to accept transaction
instructions via the telephone or electronic means at all times. American Skandia reserves the right to limit, restrict or
terminate telephonic and electronic transaction privileges at any time.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed
that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary course of business,
and know of no material claims.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and certain significant employees, their ages, positions with us and principal occupations are
indicated below. The immediately preceding work experience is provided for officers that have not been employed by us or an
affiliate for at least five years as of the date of this Prospectus.
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Patricia J. Abram Senior Vice President Senior Vice President:
49 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer with Mutual
Service Corporation. Ms. Abram was employed there since 1982.
Lori Allen Vice President Vice President:
31 American Skandia
Marketing, Incorporated
Robert M. Arena Vice President Vice President:
32 American Skandia Life
Assurance Corporation
Gordon C. Boronow Deputy Chief Executive Officer Deputy Chief Executive Officer:
48 and Director (since July, 1991) American Skandia Life
Assurance Corporation
Robert W. Brinkman Senior Vice President Senior Vice President:
36 American Skandia
Marketing, Incorporated
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
45 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Carl Cavaliere Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc. since 1989.
Y.K. Chan Senior Vice President Senior Vice President
43 and Director (since September, 2000) and Chief Information Officer:
American Skandia Information
Services and Technology Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg Pincus from January
1995 until April 1999 and the position of Vice President, Client Server Application Development with Scudder, Stevens and Clark
from January 1991 until January 1995.
Lucinda C. Ciccarello Vice President Vice President:
42 American Skandia
Marketing, Incorporated
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff & Phelps since
1984.
Lincoln R. Collins Senior Vice President Senior Vice President:
40 Director (since February, 1996) American Skandia Life
Assurance Corporation
Tim Cronin Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle Investors since
1995.
Harold Darak Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche since 1998 and
the positions of Second Vice President with The Guardian since 1996 and The Travelers from October, 1982 until December, 1995.
Wade A. Dokken President and Chief Executive Officer President and
41 and Chairman of the Board Chief Executive Officer:
American Skandia, Inc.
Elaine C. Forsyth Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance:
54 American Skandia Life
Assurance Corporation
Maureen Gulick Director, Business Operations Director, Business Operations:
38 American Skandia Life
Assurance Corporation
Ian Kennedy Senior Vice President Senior Vice President:
53 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice President, Customer
Service with SunLife of Canada from September, 1968 to August, 1995.
N. David Kuperstock Vice President Vice President:
49 American Skandia Life
Assurance Corporation
Robert K. Leach Vice President and Vice President,
46 Chief Actuary Chief Actuary:
American Skandia Life
Assurance Corporation
Mr. Robert K. Leach joined us in 2000. He previously was employed in the U.S. Retirement Products and Services Division of Sun
Life of Canada and held the position of Vice President, Finance and Product.
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
48 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,
46 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
39 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Michael A. Murray Senior Vice President Senior Vice President:
32 American Skandia
Marketing, Incorporated
Polly Rae Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Rebecca Ray Vice President Senior Vice President:
45 American Skandia
Marketing, Incorporated
Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities since 1997 and
Vice President with Merrill Lynch since 1995.
Rodney D. Runestad Vice President Vice President:
51 American Skandia Life
Assurance Corporation
Hayward L. Sawyer Senior Vice President Senior Vice President:
56 American Skandia
Marketing, Incorporated
Lisa Shambelan Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Karen Stockla Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with Citizens Utilities
Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since 1993.
William H. Strong Vice President Vice President:
57 American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems from June 1994 to
October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June 1994.
Guy Sullivan Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Sullivan joined us in 2000. He previously held the positions of Managing Director, Wholesale Distribution with Allmerica
Financial Services since 1999 and Managing Director and Member of the Executive Committee with Putnam Investments since 1995.
Leslie S. Sutherland Vice President Vice President:
47 American Skandia
Marketing, Incorporated
Amanda C. Sutyak Vice President Vice President:
43 Director (since July, 1991) American Skandia Life
Assurance Corporation
Christian W. Thwaites Senior Vice President Senior Vice President:
43 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mary Toumpas Vice President Vice President and
49 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb Life/Chubb Securities
since 1973.
Bayard F. Tracy Senior Vice President and Senior Vice President:
53 Director (since September, 1994) American Skandia
Marketing, Incorporated
Deborah G. Ullman Senior Vice President Senior Vice President:
46 and Director (since September, 2000) American Skandia Life
Assurance Corporation
Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977.
Jeffrey M. Ulness Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Kirk Wickman General Counsel General Counsel:
44 American Skandia Life
Assurance Corporation
Mr. Wickman joined us in 2001. He previously held the position of Senior Vice President and General Counsel with Aetna Financial
Services since 1992.
Brett M. Winson Senior Vice President and Senior Vice President:
45 Director (since March 2000) American Skandia, Inc.
Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd. since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about American Skandia
|X| American Skandia Life Assurance Corporation
|X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
|X| American Skandia Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated
How Performance Data is Calculated
|X| Current and Effective Yield
|X| Total Return
How the Unit Price is Determined
Additional Information on Fixed Allocations
|X| How We Calculate the Market Value Adjustment
General Information
|X| Voting Rights
|X| Modification
|X| Deferral of Transactions
|X| Misstatement of Age or Sex
|X| Ending the Offer
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
- ----------------------------
Revenues:
Annuity and life insurance charges and fees* $424,578 $289,989 $186,211 $121,158 $69,780
Fee income
130,610 83,243 50,839 27,593 16,420
Net investment income
11,656 10,441 11,130 8,181 1,586
Premium income and other revenues
4,778 3,688 1,360 1,082 265
----- ----- ----- ----- ---
Total revenues $ 571,622 $ 387,361 $ 249,540 $ 158,014 $ 88,051
====== ========= ======= ========= ============
Benefits and Expenses:
Annuity and life insurance benefits $ 751 $ 612 $ 558 $ 2,033 $ 613
Change in annuity and life insurance 45,018 3,078 1,053 37 635
policy reserves
Cost of minimum death benefit reinsurance - 2,945 5,144 4,545 2,867
Return credited to contractowners
9,046 (1,639) (8,930) (2,018) 673
Underwriting, acquisition and other insurance
expenses
335,213 206,350 167,790 90,496 49,887
Interest expense 85,998 69,502 41,004 24,895 10,791
--------- --------- --------- --------- ------------
Total benefits and expenses $ 476,026 $ 280,848 $ 206,619 $ 119,988 $ 65,466
====== ============= ============= ============= ===========
Income tax expense (benefit) $ 30,779 $ 30,344 $ 8,154 $ 10,478 $ (4,038)
======== ============== ========== ============== =
Net income $ 64,817 $ 76,169 $ 34,767 $ 27,548 $ 26,623
======== ======== ======== ============== ===========
STATEMENT OF FINANCIAL CONDITION DATA
- -------------------------------------
Total Assets $31,702,705 $30,881,579 $18,848,273 $12,894,290 $8,268,696
=========== =========== =========== =========== ==========
Future fees payable to parent $ 934,410 $ 576,034 $ 368,978 $ 233,034 $ 47,112
====== ============= ============= ============= ============
Surplus Notes $ 159,000 $ 179,000 $ 193,000 $ 213,000 $ 213,000
========== ============= ========== ============= ===========
Shareholder's Equity $ 496,911 $ 359,434 $ 250,417 $ 184,421 $ 126,345
====== ============= ====== ============= ===========
* On annuity and life insurance sales of $8,216,167, $6,862,968, $4,159,662, $3,697,990, and $2,795,114 during the
years ended December 31, 2000, 1999, 1998, 1997, and 1996, respectively, with contractowner assets under management
of $29,751,822, $29,396,693, $17,854,761, $12,119,191, and $7,764,891 as of December 31, 2000, 1999, 1998, 1997 and
1996, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the consolidated financial statements and the notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking
statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ
materially due to factors not currently known. These factors include significant changes in financial markets and
other economic and business conditions, state and federal legislation and regulation, ownership and competition.
Results of Operations
---------------------
Annuity and life insurance sales increased 20% in 2000 to $8,216,167,000 as compared to 65% in 1999. Overall sales
growth in 2000 was driven by significant sales volume in the first quarter of 2000 due to the strong equity market
performance. However, the decline in the equity markets during the remainder of the year negatively impacted sales as
the first quarter growth rate was not sustained. The Company continues to focus on increasing sales through innovative
product development activities, the recruitment and retention of top producers, high quality customer service and
improvements in web-based technology. All three major distribution channels achieved sales growth in 2000.
Average assets under management totaled $31,413,809,000 in 2000 and $21,984,759,000 in 1999, representing an increase
of 43%. As a result of the growth in sales and average assets under management, annuity and life insurance charges and
fees increased 46% in 2000 and 56% in 1999. Fee income generated from transfer agency-type and investment support
activities increased 57% in 2000 and 64% in 1999.
Net investment income increased 12% in 2000 compared to 1999 and decreased 6% in 1999 compared to 1998. The increase
in 2000 is primarily due to a higher level of investments, partially offset by $6,939,000 of amortization of premiums
paid on derivative instruments. The decrease in 1999 was primarily the result of $1,036,000 of amortization of the
premium paid on a derivative instrument purchased during 1999. See Note 2D to the consolidated financial statements
for information related to derivative instruments used to hedge the guaranteed minimum death benefit ("GMDB") reserve
fluctuations. Excluding the derivative amortization, net investment income increased 62% in 2000 and increased 3% in
1999 as a result of increased bond holdings that support the Company's risk-based capital objectives.
Premium income represents premiums earned on the sale of ancillary contracts such as immediate annuities with life
contingencies, supplementary contracts with life contingencies and certain life insurance products. Increased sales of
these products led to an increase in premium income in 2000. The increase in 2000 and 1999 was primarily due to higher
sales of supplementary contracts. Management expects supplementary contracts to grow over time with the maturing of
core business lines.
Net realized investment losses totaled $688,000 in 2000, compared to gains of $578,000 in 1999 and $99,000 in 1998.
The change from 1999 to 2000 is primarily due to realized losses on sales of securities in the fixed maturity
portfolio. These losses were partially offset by realized gains on sales of fixed maturities and mutual funds. The
increase in realized gains in 1999 compared to 1998 is due to higher gains on sales of mutual fund investments.
The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as
well as the Company's GMDB liability. In 2000, equity markets declined and the underlying fund performance was lower
than the prior year. In contrast, the equity markets and underlying fund performance were up significantly in 1999
compared to 1998. The combination of these events resulted in an increase in GMDB reserves of $39,866,000 in 2000.
This compares to an increase in GMDB reserves of $2,323,000 in 1999.
In 1999, the Company began to develop a program utilizing equity put options to manage the risks embedded in the GMDB
in annuity contracts that would result from significant declines in the equity markets. Prior to the implementation of
the hedge strategies utilizing equity put options, the Company had reinsured substantially all of its exposure on the
GMDB liability. The reinsurance was terminated during the second quarter of 1999 as the reinsurer had exited this
market.
Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and changes in reserves required on this business. Market value
adjusted annuity activity has the largest impact on this benefit. In 2000 and 1999, the Separate Account investment
returns on the market value adjusted annuities were less than the expected returns as calculated in the reserves,
contributing to the significant increase in the return credited to contractholders benefit. In addition, this benefit
increased as a result of the amortization of unearned Performance Advantage target value credits, which increased
$6,826,000 in 2000 over 1999. Other significant contributors to the change from 1999 to 2000 include guaranteed
minimum death benefit payments on variable annuities which were driven up due to the market declines in 2000 as well as
increased costs associated with processing of backdated financial transactions. These increased costs were partially
offset by a 2000 experience refund on certain reinsurance treaties in the amount of $4,339,000.
Underwriting, acquisition and other insurance expenses for 2000, 1999 and 1998 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Commissions and purchase credits $ 393,494 $ 358,279 $ 201,008
General operating expenses 252,206 214,269 141,586
Acquisition costs deferred during the year (495,103) (450,059) (261,432)
Acquisition costs amortized during the year 184,616 83,861 86,628
------- - ------ - ------
Net capitalization of deferred acquisition costs (310,487) (366,198) (174,804)
- --------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 335,213 $ 206,350 $ 167,790
========= ========= =========
Underwriting, acquisition and other insurance expenses increased 62% and 23% in 2000 and 1999, respectively.
Increased commissions and purchase credits reflect the increase in sales in both 2000 and 1999. Significant
investments in new product development and internet-based technology contributed to general operating expense
increases in both 2000 and 1999. The amortization of acquisition costs increased substantially in 2000 compared to
1999 as the associated costs from record sales in late 1999 and early 2000 were recognized in accordance with
accounting principles generally accepted in the United States profit and expense recognition models.
Interest expense increased $16,496,000 in 2000 and $28,498,000 in 1999 as a result of additional securitized financing
transactions, which consist of the transfer of rights to receive future fees to the Parent ("securitization
transactions"). In addition, the Company retired surplus notes on December 10, 2000 and December 31, 1999 of
$20,000,000 and $14,000,000, respectively. Surplus notes outstanding as of December 31, 2000 and 1999 totaled
$159,000,000 and $179,000,000, respectively.
The effective income tax rates for the years ended December 31, 2000, 1999 and 1998 were 32%, 28% and 19%,
respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most
significant item being the dividend received deduction. Management believes that based on the taxable income produced
in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable
income in future years to realize its deferred tax assets.
The Company generated net income after tax of $64,817,000, $76,169,000 and $34,767,000 in 2000, 1999 and 1998,
respectively. Revenue increases in 2000 were more than offset by higher benefits and expenses driven primarily from
the increase in the reserve requirement related to the GMDB as a result of the decline in the equity markets.
Investments in new product development and technology also contributed to the increase in expenses. These factors
resulted in the 15% decline in net income. Net income increased 119% in 1999 due to strong sales growth and favorable
market conditions which led to higher asset-based revenue. The Company considers Mexico an emerging market and has
invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. The Company expects to transfer ownership of Skandia Vida to an
upstream affiliate during 2001.
On March 22, 2001, the Company announced that it will begin an aggressive operating expense reduction program to better
align its operating infrastructure with the current investment environment. The planned moves include a reduction of
approximately 150 positions, representing 13% of the Company's workforce, reductions in the compensation and benefit
programs and the curtailment of certain discretionary expenses.
Total assets grew 3% in 2000 partially as a result of the modest increase in separate account assets reflecting the
impact of strong sales which were almost entirely offset by the decline in equity markets. Increased deferred
acquisition costs also contributed to the increase in assets. Liabilities grew 2% in 2000 due to higher reserves
required to support the increase in annuity and life insurance business, and increased financing activity related to
the transfer of rights to receive future fees and charges.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from
ASI and the securitization transactions with ASI.
The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products that
carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the
proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the
acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by
insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions,
securitization transactions and modified coinsurance reinsurance arrangements:
o During 2000 and 1999, the Company received $69,000,000 and $34,800,000, respectively, from ASI to support the
capital needs and anticipated growth in business of its U.S. operations. In addition, the Company received
$2,450,000 and $1,690,000 from ASI in 2000 and 1999, respectively, to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to $476,288,000 in 2000 and $265,710,000 in 1999
(see Note 8 to the consolidated financial statements).
o During 2000 and 1999, the Company extended its reinsurance agreements. The Company also entered into an
agreement with SICL in 2000. The reinsurance agreements are modified coinsurance arrangements where the reinsurer
shares in the experience of a specific book of business.
The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain
anticipated from the acquisition costs on the coming years' sales volume.
As of December 31, 2000 and 1999, shareholder's equity totaled $496,911,000 and $359,434,000, respectively. The
increases were driven by the previously mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI.
The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information
regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance
regulators to identify companies that may need regulatory attention. The RBC model law requires that insurance
companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula
includes components for asset risk, insurance risk, interest rate risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital.
Effects of Inflation
--------------------
The rate of inflation has not had a significant effect on the Company's financial statements.
Outlook
- -------
The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial
products for long-term savings and retirement purposes as well as to address the economic impact of premature death,
estate and business planning concerns and supplemental retirement needs. The Company continues to focus on offering
innovative long-term savings and income products and providing superior customer service in order to gain market share
and improve profitability in an increasingly competitive market.
The Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) permits affiliation among banks,
securities firms and insurance companies. This legislative change has created opportunities for continued
consolidation in the financial services industry and increased competition as large companies offer a wide array of
financial products and services.
Various other legislative initiatives could impact the Company such as pension reform, capital gains and estate tax
changes, privacy standards and internet regulation. Pension reform may change current tax deferral rules and allow
increased contributions to retirement plans, which may lead to higher investments in tax-deferred products and create
growth opportunities for the Company. A capital gains tax reduction may cause tax-deferred products to be less
attractive to consumers, which could adversely impact the Company. New privacy standards and internet regulation may
impact the Company's strategic initiatives especially related to potential partnerships with web-based technology
providers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and
liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices.
The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and
describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market
risks and is not intended to be a complete discussion of all of the risks to which the Company is exposed.
Interest Rate Risk
------------------
Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97%
of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not
significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets, the
interest rate risk from contracts that carry interest rate exposure is managed through an asset/liability matching
program which takes into account the risk variables of the insurance liabilities supported by the assets.
At December 31, 2000, the Company held fixed maturity investments in its general account that are sensitive to changes
in interest rates. These securities are held in support of the Company's fixed immediate annuities, supplementary
contracts, the fixed components of variable life insurance contracts, and in support of the Company's target solvency
capital. The Company has a conservative investment philosophy with regard to these investments. All investments are
investment grade corporate securities, government agency or U.S. government securities.
The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period
options available range from one to ten years. Withdrawal of funds before the end of the guarantee period subjects the
contractowner to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed
maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining
interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should
substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the
default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of
failing to maintain the asset/liability matching program with respect to duration and convexity.
Liabilities held in the Company's general account and guaranteed separate account as of December 31, 2000 totaled
$1,095,100,000. Fixed income investments supporting those liabilities had a fair value of $1,098,500,000. The Company
performed a sensitivity analysis on these interest-sensitive liabilities and assets at December 31, 2000. The analysis
showed that an immediate decrease of 100 basis points in interest rates would result in a net increase in liabilities
and the corresponding assets of approximately $37,300,000 and $41,500,000, respectively. An analysis of a 100 basis
point decline in interest rates at December 31, 1999 showed a net increase in interest-sensitive liabilities and the
corresponding assets of approximately $10,200,000 and $24,800,000, respectively.
Equity Market Exposure
----------------------
The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products
sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of
assets under management. In a market decline, this income would be reduced. This could be further compounded by
customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option
discussed above. A 10% decline in the market value of the assets under management at December 31, 2000, sustained
throughout 2001, would result in an approximate drop in related annual fee income of $54,000,000. This result was not
materially different than the result obtained from the analysis performed as of December 31, 1999.
Another equity market risk exposure of the Company relates to the guaranteed minimum death benefit liability. Declines
in equity markets and correspondingly the performance of the underlying mutual funds, increases the guaranteed minimum
death benefit liabilities. As discussed in Note 2D of the consolidated financial statements, the Company utilizes
derivative instruments to hedge against the risk of significant decreases in equity markets. Prior to the
implementation of this program the Company utilized reinsurance to transfer this risk.
The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred
compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio
would decline, however the accrued benefits payable under the related deferred compensation program would decline by a
corresponding amount.
Estimates of interest rate risk and equity price risk were obtained using computer models that take into consideration
various assumptions about the future. Given the uncertainty of future interest rate movements, volatility in the
equity markets and consumer behavior, actual results may vary from those predicted by the Company's models.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the
"Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholder's equity and cash flows for the three year period ended
December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of American Skandia Life Assurance Corporation at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young
February 2, 2001
Hartford, Connecticut
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
See notes to consolidated financial statements.
As of December 31,
2000 1999
--------------- ----------------
ASSETS
- ------
Investments:
Fixed maturities - at fair value 285,708 $ 198,165 $
Fixed maturities - at amortized cost 3,360
-
Equity securities - at fair value 20,402 16,404
Derivative instruments
3,015 189
Policy loans 3,746 1,270
-------------- --------------
-------------- --------------
Total investments 312,871 219,388
Cash and cash equivalents 76,499 89,212
Accrued investment income 5,209 4,054
Deferred acquisition costs 1,398,192 1,087,705
Reinsurance receivable 3,642 4,062
Receivable from affiliates 3,327
-
Income tax receivable
34,620 -
Income tax receivable - deferred 51,726
-
State insurance licenses 4,113 4,263
Fixed assets 10,737 3,305
Other assets 96,403 36,698
Separate account assets 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total assets $ 31,702,705 $ 30,881,579
=============== ================
=============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities:
Reserves for future insurance policy and contract benefits 135,545 $ 73,292 $
Drafts outstanding 63,758 51,059
Accounts payable and accrued expenses 137,040 158,590
Income tax payable 24,268
-
Income tax payable - deferred
8,949 -
Payable to affiliates
- 68,736
Future fees payable to parent 934,410
576,034
Short-term borrowing 10,000 10,000
Surplus notes 159,000 179,000
Separate account liabilities 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total liabilities 31,205,794 30,522,145
--------------- ----------------
--------------- ----------------
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 287,329 215,879
Retained earnings 205,979 141,162
Accumulated other comprehensive income (loss) 1,103 (107)
--------------- ----------------
--------------- ----------------
Total shareholder's equity 496,911 359,434
--------------- ----------------
--------------- ----------------
Total liabilities and shareholder's equity 31,702,705 $ 30,881,579 $
=============== ================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
---------------- --------------- ---------------
---------------- --------------- ---------------
REVENUES
- --------
Annuity and life insurance charges and fees $ $ $
424,578 289,989 186,211
Fee income 130,610 83,243 50,839
Net investment income 11,656 10,441 11,130
Premium income 3,118 1,278 874
Net realized capital (losses) gains (688) 578 99
Other 2,348 1,832 387
---------------- --------------- ---------------
---------------- --------------- ---------------
Total revenues 571,622 387,361 249,540
---------------- --------------- ---------------
---------------- --------------- ---------------
EXPENSES
- --------
Benefits:
Annuity and life insurance benefits 751 612 558
Change in annuity and life insurance policy reserves 45,018 3,078 1,053
Cost of minimum death benefit reinsurance
- 2,945 5,144
Return credited to contractowners 9,046 (1,639) (8,930)
---------------- --------------- ---------------
---------------- --------------- ---------------
54,815 4,996 (2,175)
Expenses:
Underwriting, acquisition and other insurance
expenses 335,213 206,350 167,790
Interest expense 85,998 69,502 41,004
---------------- --------------- ---------------
---------------- --------------- ---------------
421,211 275,852 208,794
---------------- --------------- ---------------
---------------- --------------- ---------------
Total benefits and expenses 476,026 280,848 206,619
---------------- --------------- ---------------
---------------- --------------- ---------------
Income from operations before income tax 95,596 106,513 42,921
Income tax expense
30,779 30,344 8,154
---------------- --------------- ---------------
---------------- --------------- ---------------
Net income $ $ $
64,817 76,169 34,767
================ =============== ===============
================ =============== ===============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Common stock:
Beginning balance $ $ $
2,500 2,000 2,000
Increase in par value
- 500 -
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
2,500 2,500 2,000
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Additional paid in capital:
Beginning balance 215,879 179,889 151,527
Transferred to common stock
- (500) -
Additional contributions 71,450 36,490 28,362
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 287,329 215,879 179,889
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Retained earnings:
Beginning balance 141,162 64,993 30,226
Net income 64,817 76,169 34,767
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 205,979 141,162 64,993
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Accumulated other comprehensive income (loss):
Beginning balance
(107) 3,535 668
Other comprehensive income (loss)
1,210 (3,642) 2,867
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
1,103 (107) 3,535
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Total shareholder's equity $ $ $
496,911 359,434 250,417
=============== ================= =================
=============== ================= =================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flow
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
------------- -------------- -------------
Cash flow from operating activities:
Net income $ $ $
64,817 76,169 34,767
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation
7,565 1,495 251
Deferred tax expense
60,023 (10,903) (14,242)
Change in unrealized losses on derivatives
(2,935) 3,749 -
Increase in policy reserves
50,892 4,367 1,130
(Decrease) increase in payable to affiliates
(72,063) 69,897 166
Change in income tax payable/receivable
(58,888) 17,611 7,704
Increase in other assets
(59,987) (32,954) (1,173)
Increase in accrued investment income
(1,155) (1,174) (438)
Decrease in reinsurance receivable
420 129 2,152
Net increase in deferred acquisition costs
(310,487) (366,198) (174,804)
(Decrease) increase in accounts payable and accrued
expenses (21,550) 66,763 20,637
Increase in drafts outstanding
12,699 22,118 9,663
Change in foreign currency translation, net
(101) 701 (22)
Net realized capital gain on expiration of derivatives
(500) - -
Net realized capital losses (gains)
688 (578) (99)
------------- -------------- -------------
Net cash used in operating activities (330,562) (148,808) (114,308)
------------- -------------- -------------
Cash flow from investing activites:
Purchase of fixed maturity investments
(380,737) (99,250) (31,828)
Proceeds from sale and maturity of fixed
maturity investments
303,736 36,226 4,049
Purchase of derivatives
(6,722) (4,974) -
Purchase of shares in mutual funds
(18,136) (17,703) (7,158)
Proceeds from sale of shares in mutual funds
8,345 14,657 6,086
Purchase of fixed assets
(7,348) (3,178) (18)
Increase in policy loans
(2,476) (701) 118
------------- -------------- -------------
Net cash used in investing activities
(103,338) (17,703) (28,751)
------------- -------------- -------------
Cash flow from financing activities:
Capital contribution from parent
51,450 22,490 8,362
Increase in future fees payable to parent, net
358,376 207,056 135,944
Net deposits to (withdrawals from) contractowner
accounts 11,361 5,872 (5,696)
- -------------------------------------------------------------------------- -------------- -------------
Net cash provided by financing activities
421,187 235,418 138,610
------------- -------------- -------------
Net (decrease) increase in cash and cash
equivalents
(12,713) 11,687 (4,449)
Cash and cash equivalents at beginning of period
89,212 77,525 81,974
------------- -------------- -------------
Cash and cash equivalents at end of period $ $ $
76,499 89,212 77,525
============= ============== =============
Income taxes paid $ $ $
29,644 23,637 14,651
============= ============== =============
Interest paid $ $ $
85,551 69,697 35,588
============= ============== =============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia,
Inc. ("ASI") whose ultimate parent is Skandia Insurance Company Ltd., ("SICL") a Swedish Corporation.
The Company develops long-term savings and retirement products which are distributed through its affiliated
broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable
and term life insurance and variable, fixed, market value adjusted and immediate annuities for individuals,
groups and qualified pension plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance
company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,402,000 and $4,592,000 as of
December 31, 2000, and 1999, respectively. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
------------------
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. 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 Standard
-----------------------
The FASB has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138 (collectively, "SFAS 133").
SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000;
accordingly, the Company adopted SFAS 133 on January 1, 2001. This statement establishes accounting
and reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 requires that all derivative financial
instruments be measured at fair value and recognized in the statement of condition as either assets or
liabilities. Changes in the fair value of the derivative financial instruments will be reported in
either earnings or comprehensive income, depending on the use of the derivative and whether or not it
qualifies for hedge accounting.
Special hedge accounting treatment is permitted only if specific criteria are met, including that the
hedging relationship be highly effective both at inception and on an ongoing basis. Accounting for
hedges varies based on the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive income for cash flow
hedges. Ineffective portions of hedges are recognized immediately in earnings.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The derivative instruments held by the Company in 2000 and 1999 consisted of equity put options
utilized to manage the market risk and reserve fluctuations associated with the guaranteed minimum
death benefit ("GMDB"). The adoption of SFAS No. 133 did not have a material effect on the Company's
financial statements.
C. Investments
The Company has classified its fixed maturity investments as either held-to-maturity or
available-for-sale. Investments classified as held-to-maturity are investments that the Company has
the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those
investments which are classified as available-for-sale are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
The Company has classified its mutual fund investments held in support of a deferred compensation plan
(see Note 13) as available-for-sale. Such investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined by the specific identification
method and are included in revenues.
D. Derivative Instruments
----------------------
The Company uses derivative instruments which consist of equity option contracts for risk management
purposes, and not for trading or speculation. The Company hedges the market value fluctuations of the
GMDB exposure embedded in its policy reserves. Premiums paid on option contracts are amortized into
net investment income over the terms of the contracts. The options are carried at amortized cost plus
intrinsic value, if any, at the valuation date. An option has intrinsic value if it is
"in-the-money." For a put option to be "in-the-money," the exercise price must be greater than the
value of the underlying index. Changes in intrinsic value are recorded as a component of the change
in annuity and life insurance policy reserves consistent with changes in the GMDB reserve.
E. Cash Equivalents
----------------
The Company considers all highly liquid time deposits, commercial paper and money market mutual funds
purchased with a maturity at date of acquisition of three months or less to be cash equivalents.
F. Fair Values of Financial Instruments
------------------------------------
The methods and assumptions used to determine the fair value of financial instruments are as follows:
Fair values of fixed maturities with active markets are based on quoted market prices. For fixed
maturities that trade in less active markets, fair values are obtained from an independent pricing
service.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair values of investments in mutual funds are based on quoted market prices.
The intrinsic value portion of the derivative instrument is determined based on the current value of
the underlying index.
The carrying value of cash and cash equivalents (cost) approximates fair value due to the short-term
nature of these investments.
The carrying value of short-term borrowings (cost) approximates fair value due to the short-term
nature of these liabilities.
Fair values of certain financial instruments, such as future fees payable to parent and surplus notes
are not readily determinable and are excluded from fair value disclosure requirements.
G. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized and reflected at the purchase price of
$6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a
straight-line basis over 40 years.
H. Software Capitalization
-----------------------
The Company capitalizes certain costs associated with internal use software in accordance with the
American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which was
adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the
Company expensed all internal use software related costs as incurred. Details of the capitalized
software costs, which are included in fixed assets, and related amortization for the years ended
December 31, are as follows:
(in thousands) 2000 1999
---- ----
Balance at beginning of year $2,920 $ -
------ ----
Software costs capitalized during the year 4,804 3,035
Software costs amortized during the year (512) (115)
----- -----
4,292 2,920
----- -----
Balance at end of year $7,212 $2,920
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Income Taxes
------------
The Company is included in the consolidated federal income tax return and combined state income tax
return of an upstream company, Skandia AFS Development Holding Corporation and certain of its
subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax
provisions are computed on a separate return basis as adjusted for consolidated items such as net
operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
J. Recognition of Revenue and Contract Benefits
--------------------------------------------
Revenues for variable deferred 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 variable immediate annuity contracts with and without life contingencies consist of
certain charges against contractowner account values including mortality and expense risks and
administration fees. Benefit reserves for variable immediate annuity contracts represent the account
value of the contracts and are included in the separate account liabilities.
Revenues for market value adjusted fixed annuity contracts consist of separate account investment
income reduced by benefit payments and changes in reserves in support of contractowner obligations,
all of which are included in return credited to contractowners. Benefit reserves for these contracts
represent the account value of the contracts, and are included in the general account reserve for
future contractowner benefits to the extent in excess of the separate account assets.
Revenues for immediate annuity contracts without life contingencies consist of net investment income.
Revenues for immediate annuity contracts with life contingencies consist of single premium payments
recognized as annuity considerations when received. Benefit reserves for these contracts are based on
the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed
interest rates ranged from 6.25% to 8.25% at December 31, 2000 and 1999.
Revenues for variable life insurance contracts consist of charges against contractowner account values
for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium taxes. Benefit reserves for
variable life insurance contracts represent the account value of the contracts and are included in the
separate account liabilities.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are primarily related to the production of
new business, are being deferred, net of reinsurance. These costs include commissions, costs of
contract issuance, and certain selling expenses that vary with production. These costs are being
amortized generally in proportion to expected gross profits from surrender charges, policy and asset
based fees and mortality and expense margins. This amortization is adjusted retrospectively and
prospectively when estimates of current and future gross profits to be realized from a group of
products are revised.
Details of the deferred acquisition costs and related amortization for the years ended December 31,
are as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Balance at beginning of year $1,087,705 $721,507 $546,703
---------- -------- --------
Acquisition costs deferred during the year 495,103 450,059 261,432
Acquisition costs amortized during the year (184,616) (83,861) (86,628)
--------- ------------ ---------
310,487 366,198 174,804
---- ------- ------- --------
Balance at end of year $1,398,192 $1,087,705 $721,507
========== ========== ========
L. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance
arrangements provide additional capacity for growth in supporting the cash flow strain from the
Company's variable annuity and variable life insurance business. The reinsurance is effected under
quota share contracts.
The Company reinsured its exposure to market fluctuations associated with its GMDB liability
in the first half of 1999 and in 1998. Under this reinsurance agreement, the Company ceded premiums
of $2,945,000 and $5,144,000; received claim reimbursements of $242,000 and $9,000; and, recorded
increases/(decreases) in reserves of ($2,763,000) and $323,000 in 1999 and 1998, respectively.
At December 31, 2000 and 1999, in accordance with the provisions of modified coinsurance agreements, the Company
accrued $4,339,000 and $41,000, respectively, for amounts receivable from favorable reinsurance experience on certain
blocks of variable annuity business.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
M. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of Skandia Vida are measured using local currency as
the functional currency. Assets and liabilities are translated at the exchange rate in effect at each
year-end. Statements of income and shareholder's equity accounts are translated at the average rate
prevailing during the year. Translation adjustments arising from the use of differing exchange rates
from period to period are reported as a component of other comprehensive income.
N. Separate Accounts
-----------------
Assets and liabilities in Separate Accounts are included as separate captions in the consolidated
statements of financial condition. Separate Account assets consist principally of long term bonds,
investments in mutual funds, short-term securities and cash and cash equivalents, all of which are
carried at fair value. The investments are managed predominately through the Company's investment
advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are managed by independent investment firms. The
contractowner has the option of directing funds to a wide variety of mutual funds. The investment
risk on the variable portion of a contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The Company is responsible for the credit risk
associated with these investments.
Included in Separate Account liabilities are reserves of $1,059,987,000 and $896,205,000 at December
31, 2000 and 1999, respectively, relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of $1,059,987,000 and $896,205,000 at
December 31, 2000 and 1999, respectively, consisting of long term bonds, short-term securities,
transfers due from the general account and cash and cash equivalents are held in support of these
annuity contracts, pursuant to state regulation.
O. Estimates
---------
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires that management make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The more significant estimates and assumptions are
related to deferred acquisition costs and involve policy lapses, investment return and maintenance
expenses. Actual results could differ from those estimates.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Net income $64,817 $76,169 $34,767
Other comprehensive income:
Unrealized investment (losses) gains on
available for sale securities (1,681) (3,438) 2,801
Reclassification adjustment for realized losses (gains)
included in investment income 2,957 (660) 88
--------- ----- ----- ----------
Net unrealized gains (losses) on securities 1,276 (4,098) 2,889
Foreign currency translation (66) 456 (22)
------- ---------- -----------
Other comprehensive income (loss) 1,210 (3,642) 2,867
--------- ------- ------
Comprehensive income $66,027 $72,527 $37,634
======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31 were as follows:
(in thousands) 2000 1999
---- ----
Unrealized investment gains (losses) $1,021 ($255)
Foreign currency translation 82 148
------ ------
Accumulated other comprehensive income (loss) $1,103 ($107)
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and
held-to-maturity fixed maturities and investments in mutual funds as of December 31, 2000 and 1999 are shown
below. All securities held at December 31, 2000 and 1999 were publicly traded.
Investments in fixed maturities as of December 31, 2000 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $206,041 $4,445 $ (11) $210,475
Foreign government obligations 2,791 195 - 2,986
Obligations of state and political
subdivisions 253 1 - 254
Corporate securities 72,237 1,565 (1,809) 71,993
------ ----- ------- ------
Totals $281,322 $6,206 $(1,820) $285,708
======== ====== ======== ========
The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 2000 are shown
below.
(in thousands) Available-for-Sale
------------------
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 7,005 $ 7,018
Due after one through five years 157,111 158,344
Due after five through ten years 107,729 110,469
Due after ten years 9,477 9,877
-------- ---------
Total $281,322 $285,708
======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $ 81,183 $ - $(678) $ 80,505
Obligations of state and political
subdivisions 253 - (3) 250
Corporate securities 121,859 - (4,449) 117,410
------- ------- -------
Totals $203,295 $ - $(5,130) $198,165
======== === ======== ========
(in thousands) Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
------- -- ---- ------
Totals $3,360 $ - $(16) $3,344
====== === ===== ======
Proceeds from sales of fixed maturities during 2000, 1999 and 1998 were $302,632,000, $32,196,000, and
$999,000, respectively. Proceeds from maturities during 2000, 1999 and 1998 were $1,104,000, $4,030,000, and
$3,050,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 2000 and 1999 are shown
below:
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2000 $23,218 $ 372 $(3,188) $20,402
======= ===== ======== =======
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
Net realized investment gains (losses) were as follows for the years ended December 31:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities:
Gross gains $1,002 $ 253 $ -
Gross losses (3,450) (228) (1)
Investment in mutual funds:
Gross gains 1,913 990 281
Gross losses (153) (437) (181)
--- ----- -- ----- -----
Totals $ (688) $ 578 $ 99
======= ===== ====
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities $13,502 $ 9,461 $ 8,534
Cash and cash equivalents 5,154 2,159 1,717
Investment in mutual funds 99 32 1,013
Policy loans 97 31 45
Derivative instruments (6,939) (1,036) -
------- -------
Total investment income 11,913 10,647 11,309
Investment expenses 257 206 179
------ ------ ------
Net investment income $11,656 $10,441 $11,130
======= ======= =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Current tax (benefit) expense ($29,244) $41,248 $22,384
Deferred tax expense (benefit) 60,023 (10,904) (14,230)
------- -------- -------
Total income tax expense $30,779 $30,344 $8,154
======= ======= ======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 2000 and
1999 are as follows:
(in thousands) 2000 1999
---- ----
Deferred tax liabilities:
Deferred acquisition costs ($411,417) ($321,873)
Payable to reinsurers (29,985) (26,733)
Future contractowner benefits (11,526)
-
Internal use software (2,524)
(1,022)
Policy fees (1,551) (1,146)
Net unrealized gains (550)
-
Foreign exchange translation (45) (80)
--------- ---- --------- ----
Total (457,598) (350,854)
--------- ---------
Deferred tax assets:
Net separate account liabilities
421,662 333,521
Future contractowner benefits
- 3,925
Other reserve differences
2,675 39,645
Deferred compensation
17,869 18,844
Surplus notes interest
5,536 5,030
Net unrealized losses
- 137
Other
907 1,478
-------- --- -----
Total
-
448,649 402,580
------- -------
Income tax (payable) receivable - deferred ($ 8,949) $51,726
=========== =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35%
to pre-tax income from continuing operations as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Income (loss) before taxes
Domestic $98,136 $109,036 $45,435
Foreign (2,540) (2,523) (2,514)
------- --- ------- -------
Total 95,596 106,513 42,921
Income tax rate 35% 35% 35%
------- ------ --------
Tax expense at federal statutory income tax rate 33,459 37,280 15,022
Tax effect of:
Dividend received deduction (7,350) (9,572) (9,085)
Losses of foreign subsidiary 889 883 880
Meals and entertainment 841 664 487
State income taxes (524) 1,071 673
Other 3,464 18 177
-------- ---------- ---------
Income tax expense $ 30,779 $ 30,344 $ 8,154
======== ======== =======
7. COST ALLOCATION AGREEMENTS WITH AFFILIATES
Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been
charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"),
an affiliated company. The Company has also charged operating costs to ASISI. The total cost to the Company
for these items was $13,974,000, $11,136,000, and $7,722,000 for the years ended December 31, 2000, 1999 and
1998, respectively. Income received for these items was $11,186,000, $3,919,000 and $1,355,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the
sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed were $5,842,000 and $1,441,000 for the years ended December 31, 2000 and
1999. As of December 31, 2000 and 1999, amounts receivable under this agreement were $492,000 and $245,000,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, the Company transferred certain rights to receive future fees and
contract charges expected to be realized on variable portions of designated blocks of deferred annuity
contracts.
The proceeds from the transfers 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 Company did not transfer
the right to receive future fees and charges after the expiration of the surrender charge period.
In connection with these transactions, ASI issued collateralized notes in private placements, 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 transferred provide for ASI to receive a percentage
(60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender
charge period of the designated contracts (6 to 8 years).
Payments representing fees and charges in the aggregate amount of $219,454,000, $131,420,000 and $69,226,000
were made by the Company to the Parent for the years ended December 31, 2000, 1999 and 1998, respectively.
Related interest expense of $70,667,000, $52,840,000 and $22,978,000 has been included in the statement of
income for the years ended December 31, 2000, 1999 and 1998, respectively.
The Commissioner of the State of Connecticut has approved the transfer 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.
The present values of the transactions as of the respective effective date were as follows:
Closing Effective Contract Issue Discount Present
Transaction Date Date Period Rate Value
----------- ---- ---- ------ ---- -----
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 7.5% $50,221
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 7.5% 58,767
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 7.5% 77,552
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 7.5% 58,193
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 7.5% 61,180
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 7.0% 68,573
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 7.0% 40,128
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 7.5% 120,632
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99 7.5% 145,078
2000-1 3/22/00 2/1/00 8/1/99 - 1/31/00 7.5% 169,459
2000-2 7/18/00 6/1/00 2/1/00 - 4/30/00 7.25% 92,399
2000-3 12/28/00 12/1/00 5/1/00 - 10/31/00 7.25% 107,291
2000-4 12/28/00 12/1/00 1/1/98 - 10/31/00 7.25% 107,139
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 2000 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ------
2001 $164,892
2002 169,511
2003 165,626
2004 151,516
2005 128,053
2006 and thereafter 154,812
-- -------
Total $934,410
========
9. LEASES
The Company leases office space under a lease agreement established in 1989 with ASIST. The Company entered
into a lease agreement for office space in Westminster, Colorado, effective January 1, 2001. Lease expense for
2000, 1999 and 1998 was $6,593,000, $5,003,000 and $3,588,000 respectively. Future minimum lease payments per
year and in aggregate as of December 31, 2000 are as follows:
(in thousands) 2001 $6,487
2002 8,032
2003 8,098
2004 8,209
2005 8,756
2006 and thereafter 51,922
-----------
Total $91,504
===========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes
on deposit with various states. The carrying value of these deposits amounted to $4,636,000 and $4,868,000 as
of December 31, 2000, and 1999, respectively. These deposits are required to be maintained for the protection
of contractowners within the individual states.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $342,804,000 and $286,385,000 at December 31, 2000 and 1999,
respectively.
The statutory basis net income for the year ended December 31, 2000 was $11,550,000, as compared to losses of
$17,672,000 and $13,152,000 for the years ended December 31, 1999 and 1998, respectively.
Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without
prior approval of the state insurance department is subject to restrictions relating to statutory surplus and
net gain from operations. At December 31, 2000, no amounts may be distributed without prior approval.
On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital
stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the
California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and
contributed surplus of $500,000 and had no effect on capital and surplus.
12. STATUTORY ACCOUNTING PRACTICES
The National Association of Insurance Commissioners ("NAIC") revised the Accounting Practices and Procedures
Manual in a process referred to as Codification. The State of Connecticut has adopted the provisions of the
revised manual, which is effective January 1, 2001. The revised manual has changed, to some extent, prescribed
statutory accounting practices and will result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The adoption of the revised accounting practices is not
expected to have a material adverse effect on the Company's statutory-basis capital and surplus.
13. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company
contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up
to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants
were $3,734,000, $3,164,000 and $2,115,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company has a deferred compensation plan, which is available to the internal field marketing staff and
certain officers. Company contributions to this plan on behalf of the participants were $399,000, $193,000 and
$342,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company and certain affiliates cooperatively have a long-term incentive program under which units are
awarded to executive officers and other personnel. The Company and certain affiliates also have a profit
sharing program which benefits all employees below the officer level. These programs consist of multiple plans
with new plans instituted each year. Generally, participants must remain employed by the Company or its
affiliates at the time such units are payable in order to receive any payments under the programs. The accrued
liability representing the value of these units was $31,632,000 and $42,619,000 as of December 31, 2000 and
1999, respectively. Payments under these programs were $13,542,000, $4,079,000 and $2,407,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. REINSURANCE
The effect of reinsurance for the years ended December 31, 2000, 1999 and 1998 is as follows:
(in thousands) 2000
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $477,802 $45,784 $13,607
Ceded (53,224) (766) (4,561)
-------- ------ -------
Net $424,578 $45,018 $ 9,046
======== ======= =======
1999
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $326,670 $4,151 ($1,382)
Ceded (36,681) (1,073) (257)
-------- ------- -----
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- --- ---------
Net $186,211 $1,053 ($8,930)
======== ====== ========
In December 2000, the Company entered into a modified coinsurance agreement with SICL effective January 1996.
During 2000, ceded premiums received net of commission expenses and reserve adjustments were $10,360,000. At
December 31, 2000, $6,109,000 was payable to SICL under this agreement.
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains
liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its
obligations assumed under the reinsurance agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 2000
and 1999 were as follows:
(in thousands)
Interest for the
---------------------------------
Interest 2000 1999 Years Ended December 31,
---------------------------------
Issue Date Rate Amount Amount 2000 1999 1998
---------- ---- ------ ------ ---- ---- ----
---------------------------------
---------------------------------
December 29, 1993 6.84% - - - - 1,387
---------------------------------
February 18, 1994 7.28% 10,000 732 738 738
-
---------------------------------
March 28, 1994 7.90% 10,000 794 801 801
-
---------------------------------
September 30, 1994 9.13% 15,000 15,000 1,392 1,389 1,389
---------------------------------
December 28, 1994 9.78% - - 1,308 1,388
-
---------------------------------
December 19, 1995 7.52% 10,000 10,000 765 762 762
---------------------------------
December 20, 1995 7.49% 15,000 15,000 1,142 1,139 1,139
---------------------------------
December 22, 1995 7.47% 9,000 9,000 684 682 682
---------------------------------
June 28, 1996 8.41% 40,000 40,000 3,420 3,411 3,411
---------------------------------
December 30, 1996 8.03% 70,000 70,000 5,715 5,698 5,699
--- ------ --- ------ --- ----- --- ----- --- -----
---------------------------------
Total $159,000 $179,000 $14,644 $15,928 $17,396
======== ======== ======= ======= =======
---------------------------------
Surplus notes for $10,000,000 dated February 18, 1994 and $10,000,000 dated March 28, 1994 were converted to
additional paid-in capital on December 27, 2000. A surplus note for $14,000,000 dated December 28, 1994 was
converted to additional paid-in capital on December 10, 1999. All surplus notes mature seven years from the
issue date.
Payment of interest and repayment of principal for these notes is subject to certain conditions and require
approval by the Insurance Commissioner of the State of Connecticut. At December 31, 2000 and 1999, $15,816,000
and $14,372,000, respectively, of accrued interest on surplus notes was not approved for payment under these
criteria.
16. SHORT-TERM BORROWING
The Company had a $10,000,000 short-term loan payable to ASI at December 31, 2000 and 1999 as part of a
revolving loan agreement. The loan has an interest rate of 7.13% and matures on March 12, 2001. The total
interest expense to the Company was $687,000, $585,000 and $622,000 and for the years ended December 31, 2000,
1999 and 1998, respectively. Accrued interest payable was $222,000 and $197,000 as of December 31, 2000 and
1999, respectively.
17. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by
contractowners at market value or with market value adjustment. Separate account assets which are carried at
fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from
10% to 1% for contracts held less than 10 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. SEGMENT REPORTING
In recent years, in order to complete the array of products offered by the Company and its affiliates to meet a
wide variety of financial planning, the Company developed the variable life insurance and qualified retirement
plan annuity products. Assets under management and sales for the products other than variable annuities have
not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information."
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2000
Premiums and other insurance
revenues $137,255 $139,317 $147,923 $136,159
Net investment income 2,876 3,628 4,186 966
Net realized capital gains (losses) 729 (1,436) (858) 877
------- ------- ----- -------
Total revenues 140,860 141,509 151,251 138,002
Benefits and expenses 106,641 121,356 137,514 110,515
------- -------- -------- -------
Pre-tax net income 34,219 20,153 13,737 27,487
Income taxes 10,038 5,225 3,167 12,349
------ --------- ------ ------
Net income $24,181 $14,928 $10,570 $15,138
======= ======= ======= =======
1999
Premiums and other insurance
revenues $78,509 $88,435 $97,955 $111,443
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
------- --------- ------- ---------
Total revenues 81,458 91,302 100,896 113,705
Benefits and expenses 64,204 67,803 71,597 77,244
------ --------- ------- ------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
------ ------ ---------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $ 25,001
======== ======== ======== ========
1998
Premiums and other insurance
revenues $50,593 $57,946 $62,445 $67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
------- -------- ------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
------ ------ ------- -------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
----- ----- ------ -------
Net income $6,072 $13,975 $14,174 $ 546
====== ======= ======= ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2001 are shown below. All
or some of these Sub-accounts were available during the periods shown as investment options for other variable annuities we offer
pursuant to different prospectuses. The Insurance Charge assessed against the Sub-accounts under the terms of those other
variable annuities are the same as the charges assessed against such Sub-accounts under the Annuity offered pursuant to this
Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates shown, for Units in
each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to January 1, 2001 and are being offered
pursuant to this Prospectus or which we offer pursuant to certain other prospectuses; and (b) the number of Units outstanding in
each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in
parentheses. The portfolios in which a particular Sub-account invests may or may not have commenced operations prior to the date
such Sub-account commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- -----------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Founders
Passport (1)
(1994)
Unit Price $16.12 23.45 12.54 11.46 11.39 10.23 - - - -
Number of Units 16,245,805 8,818,599 9,207,623 9,988,104 9,922,698 2,601,283 - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Scudder Japan (2)
(2000)
Unit Price $8.25 - - - - - - - - -
Number of Units 84,394 - - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST AIM
International Equity
(3)
(1989) $31.88 43.99 27.18 22.95 19.70 18.23 16.80 16.60 12.37 13.69
Unit Price 19,112,622 16,903,883 17,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464 1,948,773 1,092,902
Number of Units
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Overseas
Growth
(1997)
Unit Price $17.96 24.16 13.41 11.70 - - - - - -
Number of Units 57,327,711 61,117,418 43,711,763 21,405,891 - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International Growth
(1997)
Unit Price $17.92 21.66 13.30 11.35 - - - - - -
Number of Units 17,007,352 6,855,601 5,670,336 2,857,188 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International
Growth II (4)
(1994)
Unit Price $13.93 17.10 13.14 11.69 11.70 10.39 9.49 - - -
Number of Units 26,340,548 28,704,924 34,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST MFS Global
Equity
(1999)
Unit Price $10.08 11.01 - - - - - - - -
Number of Units 2,803,013 116,756 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Small-Cap
Growth (5)
(1994)
Unit Price $21.51 42.08 17.64 17.28 16.54 13.97 10.69 - - -
Number of Units 25,535,093 32,134,969 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - -
- ------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Scudder Small-
Cap Growth (6)
(1999)
Unit Price $11.98 15.37 - - - - - - - -
Number of Units 63,621,279 53,349,003 - - - - - - - -
---------
- ------------------------------------------------------------------------------------------------------------------------------
AST Federated
Aggressive Growth (2)
(2000)
Unit Price $9.08 - - - - - - - - -
Number of Units 196,575 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Goldman Sachs
Small-Cap Value (7)
(1998)
Unit Price $13.95 10.57 9.85 - - - - - - -
Number of Units 15,193,053 6,597,544 4,081,870 - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Gabelli Small-Cap
Value (8)
(1997)
Unit Price $13.35 11.11 11.20 12.70 - - - - - -
Number of Units 23,298,524 21,340,168 24,700,211 14,612,510 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Mid-Cap
Growth (9)
(2000)
Unit Price $6.58 - - - - - - - - -
Number of Units 9,426,102 - - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger
Berman
Mid-Cap Growth (10)
(1994)
Unit Price $25.90 28.58 19.15 16.10 13.99 12.20 9.94 - - -
Number of Units 26,517,850 13,460,525 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger
Berman
Mid-Cap Value (11)
(1993)
Unit Price $21.09 16.78 16.10 16.72 13.41 12.20 9.81 10.69 - -
Number of Units 44,558,699 37,864,586 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Alger All-Cap
Growth
(2000)
Unit Price $6.74 - - - - - - - - -
Number of Units 28,229,631 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Gabelli All-Cap
Value (2)
(2000)
Unit Price $10.06 - - - - - - - - -
Number of Units 1,273,094 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Kinetics
Internet (2)
(2000)
Unit Price $8.01 - - - - - - - - -
Number of Units 116,363 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Natural Resources
(1995)
Unit Price $19.86 15.88 12.57 14.46 14.19 11.01 - - - -
Number of Units 6,520,983 6,201,327 5,697,453 7,550,076 6,061,852 808,605 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Alliance
Growth (12)
(1996)
Unit Price $17.38 20.44 15.48 12.33 10.89 - - - - -
Number of Units 25,796,792 17,059,819 19,009,242 18,736,994 4,324,161 - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST MFS Growth
(1999)
Unit Price $10.38 11.27 - - - - - - - -
Number of Units 7,515,486 409,467 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Marsico Capital
Growth
(1997)
Unit Price $17.81 21.06 14.00 10.03 - - - - - -
Number of Units 94,627,691 78,684,943 40,757,449 714,309 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST JanCap Growth
(1992)
Unit Price $41.14 60.44 39.54 23.83 18.79 14.85 10.91 11.59 10.51 -
Number of Units 99,250,773 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Strategic
Value (2)
(2000)
Unit Price $9.82 - - - - - - - - -
Number of Units 586,058 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Cohen & Steers
Realty
(1998)
Unit Price $10.39 8.35 8.28 - - - - - - -
Number of Units 11,891,188 6,224,365 3,771,461 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Sanford Bernstein
Managed Index 500 (13)
(1998)
Unit Price $13.55 15.08 12.61 - - - - - - -
Number of Units 48,835,089 39,825,951 22,421,754 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
AST American Century
Income & Growth (14)
(1997)
Unit Price $14.24 16.19 13.35 12.06 - - - - - -
Number of Units 32,388,202 21,361,995 13,845,190 9,523,815 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Alliance Growth
and Income (15)
(1992)
Unit Price $28.72 27.60 24.11 21.74 17.79 15.22 11.98 11.88 10.60 -
Number of Units 53,536,296 52,766,579 47,979,349 42,197,002 28,937,085 18,411,759 7,479,449 4,058,228 956,949 -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST MFS Growth with
Income
(1999)
Unit Price $10.36 10.49 - - - - - - - -
Number of Units 6,937,627 741,323 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST INVESCO Equity
Income
(1994)
Unit Price $22.01 21.31 19.34 17.31 14.23 12.33 9.61 - - -
Number of Units 50,171,495 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST AIM Balanced (16)
(1993)
Unit Price $19.98 21.19 17.78 15.98 13.70 12.49 10.34 10.47 - -
Number of Units 30,290,413 23,102,272 22,634,344 22,109,373 20,691,852 20,163,848 13,986,604 8,743,758 - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST American Century
Strategic Balanced
(1997)
Unit Price $14.23 14.90 13.37 11.18 - - - - - -
Number of Units 14,498,180 13,944,535 6,714,065 2,560,866 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Asset Allocation
(1994)
Unit Price $19.33 19.70 18.12 15.53 13.30 11.92 9.80 - - -
Number of Units 19,704,198 22,002,028 18,469,315 13,524,781 8,863,840 4,868,956 2,320,063 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Global Bond (17)
(1994)
Unit Price $10.49 10.69 11.82 10.45 10.98 10.51 9.59 - - -
Number of Units 11,219,503 12,533,037 12,007,692 12,089,872 8,667,712 4,186,695 1,562,364 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Federated High
Yield
(1994)
Unit Price $12.80 14.38 14.30 14.13 12.62 11.27 9.56 - - -
Number of Units 36,914,825 41,588,401 40,170,144 29,663,242 15,460,522 6,915,158 2,106,791 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Lord Abbett
Bond-Debenture (2)
(2000)
Unit Price $10.12 - - - - - - - - -
Number of Units 650,253 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Total
Return Bond
(1994)
Unit Price $14.40 13.09 13.43 12.44 11.48 11.26 9.61 - - -
Number of Units 82,545,240 73,530,507 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Limited
Maturity Bond
(1995)
Unit Price $12.79 11.96 11.73 11.26 10.62 10.37 - - - -
Number of Units 31,046,956 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Money Market
(1992)
Unit Price $12.94 12.38 12.00 11.57 11.16 10.77 10.35 10.12 10.01 -
Number of Units 172,493,206 187,609,708 75,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783 457,872 -
The Montgomery
Variable Series - MV
Emerging Markets
(1996)
Unit Price $7.09 10.06 6.19 10.05 10.25 - - - - -
Number of Units 12,899,472 12,060,036 10,534,383 10,371,104 2,360,940 - - - - -
Wells Fargo Variable
Trust - Equity Income
(1999)
Unit Price $10.05 9.96 - - - - - - - -
Number of Units 502,986 136,006 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Equity Value
(1998)
Unit Price $9.56 9.17 9.53 - - - - - - -
Number of Units 4,442,888 2,826,839 1,148,849 - - - - - - -
Rydex Variable Trust
- -
Nova
(1999) $8.50 10.82 - - - - - - - -
Unit Price 14,799,352 5,474,129 - - - - - - - -
Number of Units
- ---------------------------------------------------------------------------------------------------------------------------------------
Rydex Variable Trust
- -
Ursa
(1999) $10.62 9.28 - - - - - - - -
Unit Price 2,269,599 1,803,669 - - - - - - - -
Number of Units
- ---------------------------------------------------------------------------------------------------------------------------------------
Rydex Variable Trust
- -
OTC
(1999) $10.40 17.07 - - - - - - - -
Unit Price 32,179,793 18,520,440 - - - - - - - -
Number of Units
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Technology
(1999)
Unit Price $12.48 16.52 - - - - - - - -
Number of Units 29,491,113 4,622,242 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Health Sciences
(1999)
Unit Price $14.59 11.34 - - - - - - - -
Number of Units 19,381,405 786,518 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Financial Services
(1999)
Unit Price $14.04 11.41 - - - - - - - -
Number of Units 14,091,636 759,104 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Telecommunications
(1999)
Unit Price $11.05 15.17 - - - - - - - -
Number of Units 17,856,118 4,184,526 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Dynamics
(1999)
Unit Price $13.23 13.91 - - - - - - - -
Number of Units 11,409,827 2,022,585 - - - - - - - -
Evergreen VA - Global
Leaders
(1999)
Unit Price $10.55 11.72 - - - - - - - -
Number of Units 887,758 23,101 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Omega
(2000)
Unit Price $7.98 - - - - - - - - -
Number of Units 1,637,475 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Special Equity
(1999)
Unit Price $11.01 12.19 - - - - - - - -
Number of Units 1,731,145 152,342 - - - - - - - -
ProFund VP -
Europe 30
(1999)
Unit Price $10.52 12.24 - - - - - - - -
Number of Units 2,327,562 273,963 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraSmall-Cap (18)
(1999)
Unit Price $9.18 11.96 - - - - - - - -
Number of Units 3,258,574 813,904 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraOTC
(1999)
Unit Price $6.19 23.58 - - - - - - - -
Number of Units 17,597,528 2,906,024 - - - - - - - -
First Trust(R)10
Uncommon Values (19)
(2000)
Unit Price $7.43 - - - - - - - - -
Number of Units 2,690,435 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
1. Effective October 15, 1996, Founders Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to October 15,
1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Small Cap
Portfolio."
2. These Portfolios were first offered as Sub-accounts on October 23, 2000.
3. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and
May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam International
Equity." Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman
Henderson International Equity Portfolio."
4. Effective May 1, 2000, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1,
2000, Rowe Price-Fleming International, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price
International Equity Portfolio."
5. Effective December 31, 1998, Janus Capital Corporation became Sub-advisor of the Portfolio. Prior to December 31, 1998,
Founders Asset Management, LLC served as Sub-advisor of the Portfolio, then named "Founders Capital Appreciation Portfolio."
6. Effective May 1, 2001, the name of the portfolio changed to the "AST Scudder Small-Cap Growth Portfolio". Prior to May
1, 2001 the Portfolio was named "AST Kemper Small-Cap Growth Portfolio."
7. Effective May 1, 2001, Goldman Sachs Asset Management became Sub-advisor of the Portfolio. Prior to May 1, 2001, Lord,
Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Small Cap Value."
8. Effective October 23, 2000, GAMCO Investors, Inc. became Sub-advisor of the Portfolio. Prior to October 23, 2000, T.
Rowe Price Associates, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price Small Company Value
Portfolio."
9. This Portfolio was first offered as a Sub-account on May 1, 2000.
10. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1998,
Berger Associates, Inc. served as Sub-advisor of the Portfolio, then named "Berger Capital Growth Portfolio."
11. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1998,
Federated Investment Counseling served as Sub-advisor of the Portfolio, then named "Federated Utility Income Portfolio."
12. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Between December 31, 1998
and May 1, 2000, OppenheimerFunds, Inc. served as Sub-advisor of the Portfolio, then named "AST Oppenheimer Large-Cap Growth
Portfolio." Prior to December 31, 1998, Robertson, Stephens & Company Investment Management, L.P. served as Sub-advisor of
the Portfolio, then named "Robertson Stephens Value + Growth Portfolio."
13. Effective May 1, 2000, Sanford C. Bernstein & Co., Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000,
Bankers Trust Company served as Sub-advisor of the Portfolio, then named "AST Bankers Trust Managed Index 500 Portfolio."
14. Effective May 3, 1999, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Between October
15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam
Value Growth & Income."
15. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Prior to May 1, 2000,
Lord, Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Growth and Income Portfolio."
16. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and
May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Balanced."
Prior to October 15, 1996, Phoenix Investment Counsel, Inc. served as Sub-advisor of the Portfolio, then named "AST Phoenix
Balanced Asset Portfolio."
17. Effective August 8, 2000, T. Rowe Price International, Inc. became Sub-advisor of the Portfolio. Effective May 1, 2000,
the name of the Portfolio was changed to the "AST T. Rowe Price Global Bond". Effective May 1, 1996, Rowe Price-Fleming
International, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as
Sub-advisor of the Portfolio, then named "AST Scudder International Bond Portfolio."
18. Prior to May 1, 2000, ProFund VP UltraSmall-Cap was named "ProFund VP Small Cap" and sought daily investment results that
corresponded to the performance of the Russell 2000(R)Index.
19. This Portfolio was first offered as a Sub-account on July 3, 2000.
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS
Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation
The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each example assumes
that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes
that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment
options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American Skandia under certain
circumstances.
Example with market increase
Assume that the Owner's Account Value has been increasing due to positive market performance. On the date we receive due proof of
death, the Account Value is $75,000. The basic Death Benefit is calculated as Purchase Payments minus proportional withdrawals,
or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $75,000. The Enhanced Beneficiary
Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($75,000) PLUS 50% of the "Death
Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $75,000
Basic Death Benefit = $75,000
Death Benefit Amount = $75,000 - $50,000 = $25,000
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $75,000 + $12,500 = $87,500
Examples with market decline
Assume that the Owner's Account Value has been decreasing due to declines in market performance. On the date we receive due proof
of death, the Account Value is $45,000. The basic Death Benefit is calculated as Purchase Payments minus proportional
withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $50,000. The Enhanced
Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($50,000) PLUS 50% of
the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $40,000
Basic Death Benefit = $50,000
Death Benefit Amount = $50,000 - $50,000 = $0
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $50,000 + $0 = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary Protection Optional
Death Benefit.
Examples of Guaranteed Minimum Death Benefit Calculation
The following are examples of how the Guaranteed Minimum Death Benefit is calculated. Each example assumes that a $50,000 initial
Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes that there is one
Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American Skandia under certain
circumstances.
Example of market increase
Assume that the Owner's Account Value has generally been increasing due to positive market performance. On the date we receive
due proof of death, the Account Value is $90,000. The Highest Anniversary Value at the end of any previous period is $72,000. The
Death Benefit would be the Account Value ($90,000) because it is greater than the Highest Anniversary Value ($72,000) or the sum
of prior Purchase Payments increased by 5.0% annually ($73,872.77).
Example of market decrease
Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been decreasing since the
fifth contract anniversary. On the date we receive due proof of death, the Account Value is $48,000. The Highest Anniversary
Value at the end of any previous period is $54,000. The Death Benefit would be the sum of prior Purchase Payments increased by
5.0% annually ($73,872.77) because it is greater than the Highest Anniversary Value ($54,000) or the Account Value ($48,000).
Example of market increase followed by decrease
Assume that the Owner's Account Value increased significantly during the first six years following the Issue Date. On the sixth
anniversary date the Account Value is $90,000. During the seventh Annuity Year, the Account Value increases to as high as
$100,000 but then subsequently falls to $80,000 on the date we receive due proof of death. The Death Benefit would be the Highest
Anniversary Value at the end of any previous period ($90,000), which occurred on the sixth anniversary, although the Account Value
was higher during the subsequent period. The Account Value on the date we receive due proof of death ($80,000) is lower, as is
the sum of all prior Purchase Payments increased by 5.0% annually ($73,872.77).
D-3
APPENDIX D - SALE OF THE CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK
Some of the provisions of the Annuity are different for contracts offered to residents of the State of New York.
GLOSSARY OF TERMS
MVA: The definition for MVA is not applicable.
INVESTMENT OPTIONS
WHAT ARE THE FIXED INVESTMENT OPTIONS?
Fixed investment options are not available to residents of the State of New York. All references to Fixed Allocations are not
applicable.
FEES AND CHARGES
Tax Charges: For New York contracts a charge for taxes may also be assessed against the Sub-accounts.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
Unless you indicated that a prior choice was irrevocable or your Annuity has been endorsed to limit certain changes, you may
request to change Owner, Annuitant and Beneficiary designations by sending a request In Writing. Where allowed by law, such
changes will be subject to our acceptance. For New York contracts, some of the changes we will not accept include, but are not
limited to: (a) a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death; (b) a new Annuitant prior to the Annuity Date if the
Annuity is owned by an entity; and (c) a change in the Beneficiary if the Owner had previously made the designation irrevocable.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
For New York contracts you may exercise your right to return the Annuity within 21 days of receipt of the Annuity. The amount to
be refunded for New York contracts is the Account Value as of the date we receive your request to cancel the Annuity. Notice
received by mail is effective as of the date of the postmark. If the Annuity is returned to the agent, the effective date is the
date the Annuity is received by the agent.
MANAGING YOUR ACCOUNT VALUE
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment. The amount of the Credit is payable
from our general account. The amount of the Credit depends on the cumulative amount of Purchase Payments you have made to your
Annuity, payable as a percentage of each specific Purchase Payment, according to the table below:
-------------------------------------------------------- -------------------
Cumulative Purchase Payments Credit
-------------------------------------------------------- -------------------
-------------------------------------------------------- -------------------
Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
-------------------------------------------------------- -------------------
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
For New York contracts the minimum amount allowed in an investment option is $500. Your transfer request must be In Writing. For
New York contracts, a specific authorization form MUST be completed which authorizes us to accept transfers via phone or through
means such as electronic mail.
The following services which we may offer are not available for New York contracts: (1) authorization of an independent third
---
party to transact transfers on your behalf and (2) market timing program.
Guaranteed Return OptionSM
This benefit is not available to residents of the State of New York.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
This benefit is not available to residents of the State of New York.
ACCESS TO ACCOUNT VALUE
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
The Annuity Date must be the first or the fifteenth day of a calendar month. However, for New York contracts, if the contract's
accumulated value, at the time of annuitization, is less than $2,000, or would provide an income, the initial amount of which is
less than $20 per month, in lieu of commencing the annuity payments, we reserve the right to cancel the Annuity and pay you the
total of the Account Value.
For New York contracts the Annuity Date may not exceed the first day of the calendar month following the Annuitant's 90th birthday.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
This benefit is not available to residents of the State of New York.
DEATH BENEFIT
Basic Death Benefit:
If death occurs during the first ten (10) Annuity Years: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| Your Account Value.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit is your Account Value.
Optional Death Benefits
The Optional Death Benefits described in the Prospectus are not offered in the State of New York. However, effective as of March
12, 2001, the Highest Anniversary Value Optional Death Benefit described below is available to new purchasers of the Annuity who
are residents of the State of New York.
If the Annuity has one Owner, the Owner must be age 80 or less at the time the Highest Anniversary Value Optional Death Benefit is
purchased. If the Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the
Annuitant must be age 80 or less.
Key Terms Used with the Highest Anniversary Value Death Benefit
|X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest
-------------------------
of either joint Owner or the Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the
---------------------------
Owner's date of death and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as each anniversary of the Issue Date plus the sum of all Purchase Payments on
------------------
or after such anniversary less the sum of all "Proportional Reductions" since such anniversary. The Anniversary Value on the
Issue Date is equal to your Purchase Payment.
|X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of
-----------------------
the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is
$10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by
Purchase Payments increasing at the appropriate interest rate by 20%.
Calculation of Highest Anniversary Value Death Benefit
The Highest Anniversary Value Death Benefit depends on whether death occurs before or after the Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of:
4. the Account Value in the Sub-accounts as of the date we receive in writing "due proof of death"; and
5. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death.
The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death
and decreased by any Proportional Reductions since such date.
If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of:
3. the Account Value as of the date we receive in writing "due proof of death"; and
4. the Highest Anniversary Value on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of all
Proportional Reductions since the Death Benefit Target Date.
Charges for Highest Anniversary Value Death Benefit
If you purchase the Highest Anniversary Value Optional Death Benefit, an annual charge of 0.15% is deducted from your Annuity's
Account Value. The charge will be based on the current Death Benefit under the Highest Anniversary Value Optional Death Benefit
as of the date the charge is deducted. The charge is deducted in addition to the Insurance Charge. The charge is deducted in
arrears on each anniversary of the Issue Date of the Annuity or, if you terminate the Optional Death Benefit or surrender your
Annuity, on the date the termination or surrender is effective.
AMERICAN SKANDIA'S ANNUITY REWARDS
This benefit is not available to residents of the State of New York.
TAX CONSIDERATIONS
HOW ARE DISTRIBUTIONS FROM TAX-QUALIFIED RETIREMENT PLANS TAXED?
Minimum Distributions after age 70 1/2: For New York contracts the Minimum Distribution provision is only available for annuities
issued under Section 403(b) of the IRS Code or for IRA's where Minimum Distributions are required. Minimum Distributions are not
available for any other contracts.
Deferral of Transactions: For New York contracts, if we defer a distribution or transfer from any fixed annuity payout for more
than ten days, we pay interest using our then current crediting rate for this purpose, which is not less than 3% per year on the
amount deferred.
Modification: In addition to obtaining prior approval from the insurance department of our state of domicile before making such a
combination, substitution, deletion or addition, we will also obtain prior approval from the Superintendent of Insurance for New
York.
Misstatement of Age or Sex: For New York contracts the following provision (c) is added:
(c) as to any annuity payments, we shall credit or charge interest using our then current crediting rate for this purpose, which
is not greater than 6% interest per year, calculated from the date of any underpayment or overpayment to the date actual payment
is made.
American Skandia Life Assurance Corporation
Attention: Concierge Desk
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
customerservice@americankandia.com
For Requests by Phone:
1-800-752-6342
- -------------------------------------------------------------------------------------------------------------------
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE
AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS ASXT-PROS (05/2001).
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------
(print your name)
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(address)
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(city/state/zip code)
ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
customerservice@americanskandia.com
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.americanskandia.com http://www.americanskandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: 203-926-1888
http://www.americanskandia.com
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes the Evergreen Skandia Harvester XTra Credit Variable Annuity, a flexible premium
deferred annuity (the "Annuity") offered by American Skandia Life Assurance Corporation ("American Skandia",
"we", "our" or "us"). The Annuity may be offered as an individual annuity contract or as an interest in a group
annuity. This Prospectus describes the important features of the Annuity and what you should consider before
purchasing the Annuity. We have also filed a Statement of Additional Information that is available from us,
without charge, upon your request. The contents of the Statement of Additional Information are described on page
52. The Annuity or certain of its investment options and/or features may not be available in all states.
Various rights and benefits may differ between states to meet applicable laws and/or regulations. Certain terms
are capitalized in this prospectus. Those terms are either defined in the Glossary of Terms or in the context of
the particular section.
===================================================================================================================
American Skandia offers several different annuities which your financial professional may be authorized to offer
to you. Each annuity has different features and benefits that may be appropriate for you based on your financial
situation, your age and how you intend to use the annuity. The different features and benefits include
variations in death benefit protection, the ability to access your annuity's account value and the charges that
you will be subject to if you choose to surrender the annuity. The fees and charges may also be different
between each annuity.
===================================================================================================================
If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you
should consider any surrender or penalty charges you may incur when replacing your existing coverage and that
this Annuity may be subject to a contingent deferred sales charge if you elect to surrender the Annuity or take a
partial withdrawal. You should consider your need to access the annuity's account value and whether the
annuity's liquidity features will satisfy that need.
WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY?
This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or 403(b)). It may also be used as an
investment vehicle for "non-qualified" investments. The Annuity allows you to invest your money in a number of
variable investment options as well as in one or more fixed investment options.
When an Annuity is purchased as a "non-qualified" investment, you generally are not taxed on any investment gains
the Annuity earns until you make a withdrawal or begin to receive annuity payments. This feature, referred to as
"tax-deferral", can be beneficial to the growth of your Account Value because money that would otherwise be
needed to pay taxes on investment gains each year remains invested and can earn additional money. However,
because the Annuity is designed for long-term retirement savings, a 10% penalty tax may be applied on withdrawals
you make before you reach age 59 1/2. Annuities purchased as a non-qualified investment are not subject to the
maximum contribution limits that may apply to a qualified investment, and are not subject to required minimum
distributions after age 701/2.
When an Annuity is purchased as a "qualified" investment, you should consider that the Annuity does not provide
any additional tax advantages to the preferential treatment already available through your retirement plan under
the Internal Revenue Code. An Annuity may offer features and benefits in addition to providing tax deferral that
other investment vehicles may not offer, including death benefit protection for your beneficiaries, lifetime
income options, and the ability to make transfers between numerous variable investment options offered under the
Annuity. You should consult with your financial professional as to whether the overall benefits and costs of the
Annuity are appropriate considering your overall financial plan.
- -------------------------------------------------------------------------------------------------------------------
These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, are NOT
insured or guaranteed by First Union Bank, the U.S. government, the Federal Deposit Insurance Corporation (FDIC),
the Federal Reserve Board or any other agency. An investment in this annuity involves certain investment risks,
including possible loss of principal.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS
PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-752-6342.
Prospectus Dated: May 1, 2001 Statement of Additional Information Dated: May 1, 2001
EVAXT - PROS - (05/2001) EVAXTPROS
===================================================================================================================
If you purchase this Annuity, we apply an additional amount (an XTra CreditSM) to your account value with each
purchase payment you make, including your initial purchase payment and any additional purchase payments.
===================================================================================================================
This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities.
However, if you make a withdrawal that exceeds the free withdrawal amount or choose to surrender your
Annuity, the contingent deferred sales charge (CDSC) on this Annuity is higher and is deducted for a longer
period of time as compared to our other variable annuities. As with any annuity that features a CDSC, you
should consider your need to access your account value during the CDSC period and whether the liquidity
provision under the Annuity will satisfy that need.
===================================================================================================================
===================================================================================================================
===================================================================================================================
The XTra CreditSM amount is included in your account value. However, American Skandia may take back the
original XTra CreditSM amount applied to your purchase payment if you die, or elect to withdraw all or a
portion of your account value under the medically-related waiver provision, within 12 months of having
received an XTra CreditSM amount. In either situation, the value of the XTra CreditSM amount could be
substantially reduced. However, any investment gain on the XTra CreditSM amount will not be taken back.
Additional conditions and restrictions apply.
===================================================================================================================
===================================================================================================================
===================================================================================================================
WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
|X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have
considerable flexibility in the timing and amount of premium payments. Generally, investors "defer"
receiving annuity payments until after an accumulation period.
|X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to
variable investment options, the value of your Annuity will vary daily to reflect the investment
performance of the underlying investment options. Fixed investment options of different durations are
offered that are guaranteed by us, but may have a Market Value Adjustment if you withdraw your Account
Value before the Maturity Date.
|X| The Annuity features two distinct phases - the accumulation period and the payout period. During the
accumulation period your Account Value is allocated to one or more underlying investment options. The
variable investment options, each a Class 1 Sub-account of American Skandia Life Assurance Corporation
Variable Account B, invest in an underlying mutual fund portfolio. Currently, portfolios of the following
underlying mutual funds are being offered: Evergreen Variable Annuity Trust, American Skandia Trust,
INVESCO Variable Investment Funds, Inc. and Davis Variable Account Fund, Inc.
|X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1)
for life; (2) for life with a guaranteed minimum number of payments; (3) based on joint lives; or (4) for a
guaranteed number of payments. We currently make annuity payments available on a fixed or variable basis.
|X| This Annuity offers two different types of Credits. We add a Credit to your Annuity with each Purchase
Payment we receive. We also provide an additional 1% credit on Purchase Payments made within the first
year and may provide certain additional benefits if your Account Value has not reached a Target Value on
its 10th anniversary.
|X| This Annuity offers a basic Death Benefit. It also offers optional Death Benefits that provide an
enhanced level of protection for your beneficiary(ies) for an additional charge.
|X| You are allowed to withdraw a limited amount of money from your Annuity on an annual basis without any
charges. Other product features allow you to access your Account Value as necessary, although a charge may
apply.
|X| Transfers between investment options are tax-free. Currently, you may make twenty transfers each year
free of charge. We also offer several programs that enable you to manage your Account Value as your
financial needs and investment performance change.
HOW DO I PURCHASE THIS ANNUITY?
We sell the Annuity through licensed, registered financial professionals. You must complete an application and
submit a minimum initial purchase payment of $1,000. We may allow you to make a lower initial purchase payment
provided you establish a bank drafting program under which purchase payments received in the first Annuity Year
total at least $1,000. If the Annuity is owned by an individual or individuals, the oldest of those persons must
be age 80 or under. If the Annuity is owned by an entity, the annuitant must be age 80 or under.
Mailing Addresses:
New Business/Additional Purchase Payments: Exchange Paperwork:
American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7040 P.O. Box 7039
Bridgeport, CT 06601-7040 Bridgeport, CT 06601-7039
All other correspondence: Express/Overnight Mail:
American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7038 Three Corporate Drive
Bridgeport, CT 06601-7038 Shelton, CT 06484
TABLE OF CONTENTS
GLOSSARY OF TERMS..................................................................................................................6
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................7
EXPENSE EXAMPLES...................................................................................................................9
INVESTMENT OPTIONS................................................................................................................11
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................11
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................14
FEES AND CHARGES..................................................................................................................14
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................14
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................15
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?...................................................................................15
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................16
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................16
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES......................................................................................16
PURCHASING YOUR ANNUITY...........................................................................................................16
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................16
MANAGING YOUR ANNUITY.............................................................................................................17
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................17
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................17
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................18
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................18
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................18
MANAGING YOUR ACCOUNT VALUE.......................................................................................................18
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................18
HOW DO I RECEIVE CREDITS?......................................................................................................19
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?...................................................................................19
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................21
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................21
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................22
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?............................................22
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?................................................................24
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................24
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................24
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................25
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................26
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................26
ACCESS TO ACCOUNT VALUE...........................................................................................................27
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................27
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................28
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................28
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................28
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................29
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................29
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................29
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................30
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................30
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................30
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?...................................................................................31
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................32
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................32
DEATH BENEFIT.....................................................................................................................33
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................33
OPTIONAL DEATH BENEFITS........................................................................................................33
PAYMENT OF DEATH BENEFITS......................................................................................................36
VALUING YOUR INVESTMENT...........................................................................................................37
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................37
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................37
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................37
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................37
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................37
TAX CONSIDERATIONS................................................................................................................38
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................38
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................38
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................38
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................38
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED
CONTRACTS?...................................................................................................................40
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................41
GENERAL TAX CONSIDERATIONS.....................................................................................................42
GENERAL INFORMATION...............................................................................................................43
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................43
WHO IS AMERICAN SKANDIA?.......................................................................................................44
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................44
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................45
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................46
AVAILABLE INFORMATION..........................................................................................................47
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................47
HOW TO CONTACT US..............................................................................................................47
INDEMNIFICATION................................................................................................................48
LEGAL PROCEEDINGS..............................................................................................................48
EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................48
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................52
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS................................................................................1
GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where they appear. The description of those
terms are not repeated in this Glossary of Terms.
Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date,
plus any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we
assess any applicable Contingent Deferred Sales Charge ("CDSC") and/or any Annual Maintenance Fee. The Account
Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon
surrender of your Annuity. The Account Value is determined separately for each Sub-account and for each Fixed
Allocation, and then totaled to determine Account Value for your entire Annuity. The Account Value of each Fixed
Allocation on other than its Maturity Date may be calculated using a market value adjustment.
Annuitization: The application of Account Value to one of the available annuity options to begin receiving
periodic payments for life, for a guaranteed minimum number of payments or for life with a guaranteed minimum
number of payments.
Annuity Date: The date you choose for annuity payments to commence. A maximum Annuity Date may apply.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period
thereafter.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified
Guarantee Period during the accumulation period.
Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a
Fixed Allocation.
Interim Value: The value of the Fixed Allocation on any date other than the Maturity Date. The Interim Value is
equal to the initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation
as of the date calculated, less any transfers or withdrawals from the Fixed Allocation.
Issue Date: The effective date of your Annuity.
MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on any day
other than the Maturity Date of such Fixed Allocation.
Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or
person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate
under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits
designated as to the "Participant" in the certificate.
Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the
Account Value as of the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, Tax
Charge, the charge for any optional benefits and any additional amounts we applied to your Purchase Payments that
we are entitled to recover upon surrender of your Annuity.
Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and
Exchange Commission requires mutual funds or unit investment trusts to be valued.
SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your
Annuity while others are assessed against assets allocated to the variable investment options. The charges that
are assessed against the Annuity include the Contingent Deferred Sales Charge, Annual Maintenance Fee, Transfer
Fee and the Tax Charge. The charge that is assessed against the variable investment options is the Insurance
Charge, which is the combination of a mortality and expense risk charge and a charge for administration of the
Annuity. Each underlying mutual fund portfolio assesses a charge for investment management and for other
expenses. The prospectus for each underlying mutual fund provides more detailed information about the expenses
for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and
expenses are described in more detail within this Prospectus.
- ----------------------------------------------------------------------------------------------------------------------------------------
YOUR TRANSACTION EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
Amount Deducted/
Fee/Expense Description Of Charge When Deducted
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr.
9+ Upon Surrender or
Contingent Deferred Sales Partial Withdrawal
Charge
- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
8.5% 8.5% 8.5% 8.5% 7.5% 5.5% 3.5% 1.5% 0.0%
- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------
- ------------------------------- -----------------------------------------------------------------
The charge is a percentage of each applicable purchase
payment. The period is measured from the date each purchase
payment is allocated.
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's
anniversary date or upon surrender
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
- -------------------------------
Transfer Fee $10.00 After the 20th transfer each annuity
year
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
Tax Charge Depends on the requirements of the applicable jurisdiction Various
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
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ANNUAL EXPENSES OF THE SUB-ACCOUNTS
(as a percentage of the average daily net assets of the Sub-accounts)
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
Mortality & Expense Risk
Charge 1.25%
Daily
Administration Charge 0.15%
Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment
Sub-accounts* Options only
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
* The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the
"Insurance Charge" elsewhere in this prospectus.
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OPTIONAL BENEFITS
- ----------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- --------------------------------
GUARANTEED RETURN OPTION
We offer a program that guarantees a "return of premium" at a future date, while allowing you to 0.25% of Account Value
allocate all or a portion of your Account Value to the Sub-accounts of your choice. Please refer to
the discussion of the Guaranteed Return Option for a description of restrictions under the program. (Amounts are deducted in
arrears each Annuity Year)
- ------------------------------------------------------------------------------------------------------- --------------------------------
- ------------------------------------------------------------------------------------------------------- --------------------------------
ENHANCED BENEFICIARY PROTECTION DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.25% of Account Value
beneficiary(ies) by providing additional amounts that can be used to offset federal and state taxes
payable on any taxable gains in your Annuity at the time of your death. (Amounts are deducted in
arrears each Annuity Year)
- ------------------------------------------------------------------------------------------------------- --------------------------------
- ------------------------------------------------------------------------------------------------------- --------------------------------
GUARANTEED MINIMUM DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.30% of the current Death
beneficiary(ies) by providing the greater of the current Account Value, a 5.0% annual increase on Benefit
Purchase Payments minus proportional withdrawals or the Highest Anniversary Value. (Amounts are deducted in
arrears each Annuity Year)
- ------------------------------------------------------------------------------------------------------- --------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
Please refer to the section entitled "Death Benefit" for a complete discussion of the optional Death Benefits, including restrictions
on the age of the Owner/ Annuitant and limits on the amount payable.
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
- ----------------------------------------------------------------------------------------------------------------------------------------
Below are the investment management fees, other expenses, and the total annual expenses for each underlying
Portfolio as of December 31, 2000, except as noted. The total annual expenses are the sum of the investment
management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying
Portfolio's average daily net assets. For certain of the underlying Portfolios, a portion of the management fee
is being waived and/or other expenses are being partially reimbursed. "N/A" indicates that no portion of the
management fee and/or other expenses is being waived and/or reimbursed. Any footnotes about expenses appear
after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios of
American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual
funds and has not been independently verified by us. See the prospectuses or statements of additional
information of the underlying Portfolios for further details. The current prospectus and statement of additional
information for the underlying Portfolios can be obtained by calling 1-800-752-6342.
- ---------------------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Fees Total Annual Fee Net
UNDERLYING PORTFOLIO Fees Expenses Portfolio Waivers Annual
Operating and Fund
Expenses Expense Operating
Reimburse- Expenses
ment (1)
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen Variable Annuity Trust:
Omega 0.52% 0.16% 0.00% 0.68% N/A 0.68%
Equity Index 0.32% 0.22% 0.00% 0.54% 0.23% 0.31%
Foundation 0.75% 0.17% 0.00% 0.92% N/A 0.92%
Global Leaders 0.87% 0.29% 0.00% 1.16% 0.15% 1.01%
Small Cap Value 0.87% 0.27% 0.00% 1.14% 0.12% 1.02%
Special Equity 0.92% 0.25% 0.00% 1.17% 0.13% 1.04%
Strategic Income 0.55% 0.29% 0.00% 0.84% N/A 0.84%
Capital Growth 0.80% 0.32% 0.00% 1.12% 0.09% 1.03%
Blue Chip 0.61% 0.64% 0.00% 1.25% 0.24% 1.01%
American Skandia Trust: (2)
AST AIM International Equity 0.86% 0.24% 0.06% 1.16% N/A 1.16%
AST MFS Growth 0.90% 0.30% 0.00% 1.20% N/A 1.20%
AST JanCap Growth 0.90% 0.13% 0.01% 1.04% 0.04% 1.00%
AST MFS Growth with Income 0.90% 0.33% 0.00% 1.23% N/A 1.23%
AST Federated High Yield 0.75% 0.21% 0.00% 0.96% N/A 0.96%
AST Money Market 0.50% 0.15% 0.00% 0.65% 0.05% 0.60%
INVESCO Variable Investment Funds, Inc.:
Dynamics 0.75% 0.34% 0.00% 1.09% N/A 1.09%
Technology 0.72% 0.30% 0.00% 1.02% N/A 1.02%
Davis Variable Account Fund, Inc:
Davis Value 0.75% 0.26% 0.00% 1.01% 0.01% 1.00%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
1 The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain
Portfolios until at least April 30, 2002. The caption "Total Annual Fund Operating Expenses" reflects the
Portfolios' fees and expenses before such waivers and reimbursements, while the caption "Net Annual Fund
Operating Expenses" reflects the effect of such waivers and reimbursements.
2 American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule
12b-1 of the Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to
receive brokerage commissions in connection with purchases and sales of securities held by Portfolios of the
Trust, and to use these commissions to promote the sale of shares of such Portfolios. While the brokerage
commission rates and amounts paid by the various Portfolios are not expected to increase as a result of the
Distribution Plan, the staff of the Securities and Exchange Commission takes the position that commission
amounts received under the Distribution Plan should be reflected as distribution expenses of the
Portfolios. The Distribution Fee estimates are derived and annualized from data regarding commission
amounts directed to the affiliate under the Distribution Plan for the fiscal year ended December 31, 2000.
Although there are no maximum amounts allowable, actual commission amounts directed under the Distribution
Plan will vary and the amounts directed during the first full fiscal year of the Plan's operations may
differ substantially from the annualized amounts listed in the above chart.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various costs and expenses you will incur with the
Annuity over certain periods of time based on specific assumptions. The examples reflect expenses of our
Sub-accounts, as well as those of the underlying mutual fund portfolios. The Securities and Exchange Commission
("SEC") requires these examples.
The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) the Insurance
Charge is assessed as 1.40% per year; (c) the Annual Maintenance Fee is reflected as a charge equal to 0.05%
based on an assumed average contract size; (d) you make no withdrawals of Account Value during the period shown;
(e) you make no transfers, withdrawals, surrender or other transactions that we charge a fee during the period
shown; (f) no tax charge applies; (g) the expenses throughout the period for the underlying mutual fund
portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled "Underlying
Mutual Fund Portfolio Annual Expenses"; and (h) the Credit applicable to your Annuity is 3% of Purchase
Payments. The Credit may be less when total Purchase Payments are less then $10,000 and may be more when total
Purchase Payments are at least $1,000,000 (see "How do I Receive Credits?"). The examples do not reflect the
impact of any Target Value Credits that may be applied to Purchase Payments within the first Annuity Year.
These examples do not reflect the charge for either optional Death Benefit that is offered under the Annuity or
the Guaranteed Return Option. If you purchase the Annuity with either optional Death Benefit or the Guaranteed
Return Option, this charge is deducted on an annual basis in arrears in addition to the amounts shown below.
Please see the example of how we charge for the optional Death Benefits and the Guaranteed Return Option
following these tables.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF
THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- -----------------------------------------------------------------------------------------------------------------------------------------
Expense Examples
(amounts shown are rounded to the nearest dollar)
- -----------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------- ------- -----------------------------------------
If you surrender your Annuity at the end If you do not surrender your Annuity at
of the applicable time period, you would the end of the applicable time period
pay the following expenses on a $1,000 or begin taking annuity payments at
investment, assuming 5% annual return on such time, you would pay the following
assets: expenses on a $1,000 investment,
assuming 5% annual return on assets:
-------------------------------------------- ------- -----------------------------------------
After: After:
- ----------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
EVA Omega 107 154 193 254 22 69 118 254
EVA Equity Index 104 143 174 214 19 58 99 214
EVA Foundation 110 162 207 280 25 77 132 280
EVA Global Leaders 111 165 212 290 26 80 137 290
EVA Small Cap Value 111 165 212 290 26 80 137 290
EVA Special Equity 111 166 213 293 26 81 138 293
EVA Strategic Income 109 159 202 271 24 74 127 271
EVA Capital Growth 111 165 212 291 26 80 137 291
EVA Blue Chip 111 165 212 290 26 80 137 290
AST AIM International Equity 113 170 219 305 28 85 144 305
AST MFS Growth 113 171 221 309 28 86 146 309
AST JanCap Growth 111 164 210 288 26 79 135 288
AST MFS Growth with Income 113 172 223 312 28 87 148 312
AST Federated High Yield 110 163 208 284 25 78 133 284
AST Money Market 107 152 189 246 22 67 114 246
INVESCO VIF Dynamics 112 167 215 297 27 82 140 297
INVESCO VIF Technology 111 165 212 290 26 80 137 290
Davis Value 111 164 210 288 26 79 135 288
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Expenses For Optional Benefits
Guaranteed Return Option
If you elect to participate in the Guaranteed Return Option program, an annual charge of 0.25% is deducted from
your Annuity's Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed
Allocations as of the date the charge is deducted. Below is an example of how the charge for the Optional Death
Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Enhanced Beneficiary Protection Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, an annual charge of 0.25% is deducted
from your Annuity's Account Value. The charge will be based on the Account Value of the Sub-accounts and any
Fixed Allocations as of the date the charge is deducted. Below is an example of how the charge for the Optional
Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Since charges for the Optional Death Benefit are determined based on a percentage of Account Value, you will pay
more for this benefit if your Account Value increases. The value of the Optional Death Benefit will also
increase as the Account Value increases. However, the Optional Death Benefit is also subject to a maximum
benefit. See the section entitled "Optional Death Benefits" for a description of the Enhanced Beneficiary
Protection Optional Death Benefit.
Guaranteed Minimum Death Benefit
If you purchase the Guaranteed Minimum Death Benefit, an annual charge of 0.30% is deducted from your Annuity's
Account Value. The charge will be based on the current Death Benefit under the Guaranteed Minimum Death Benefit
as of the date the charge is deducted. Below is an example of how the charge for the Guaranteed Minimum Death
Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Current Death Benefit: $13,000
Cost of Optional Death Benefit 0.30% X Current Death Benefit = $39.00 per year
The charge for optional Death Benefits is deducted in addition to the Insurance Charge which is deducted on a
daily basis from the Account Value allocated to the Sub-accounts. The charge for the optional Death Benefits is
deducted in arrears on each anniversary of the Issue Date of the Annuity or, if you terminate the optional Death
Benefit or surrender your Annuity, on the date the termination or surrender is effective.
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable
Account B (see "What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively
in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The
following chart classifies each of the Portfolios based on our assessment of their investment style (as of the
date of this Prospectus). The chart also provides a description of each Portfolio's investment objective (in
italics) and a short, summary description of their key policies to assist you in determining which Portfolios may
be of interest to you. There is no guarantee that any underlying mutual fund portfolio will meet its investment
objective.
The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose
name includes the prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is
American Skandia Investment Services, Incorporated ("ASISI"), an affiliated company of American Skandia.
However, a sub-advisor, as noted below, is engaged to conduct day-to-day investment decisions.
Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or
sub-advisor as a retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception.
Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and
policies of the funds may be substantially similar, the actual investments made by the funds will differ to
varying degrees. Differences in the performance of the funds can be expected, and in some cases could be
substantial. Details about the investment objectives, policies, risks, costs and management of the Portfolios
are found in the prospectuses for the underlying mutual funds.
Please refer to Appendix B for certain required financial information related to the historical performance of
the Sub-accounts.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Money Market: seeks to maximize current income and maintain high levels of liquidity. The
MONEY MARKET Portfolio attempts to accomplish its objective by maintaining a dollar-weighted average J. P. Morgan
maturity of not more than 90 days and by investing in securities which have effective Investment Management
maturities of not more than 397 days. Inc.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Federated High Yield: seeks high current income by investing primarily in a diversified
portfolio of fixed income securities. The Portfolio will invest at least 65% of its assets in
HIGH YIELD BOND lower-rated corporate fixed income securities ("junk bonds"). These fixed income securities
may include preferred stocks, convertible securities, bonds, debentures, notes, equipment Federated Investment
lease certificates and equipment trust certificates. A fund that invests primarily in Counseling
lower-rated fixed income securities will be subject to greater risk and share price
fluctuation than a typical fixed income fund, and may be subject to an amount of risk that is
comparable to or greater than many equity funds.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Strategic Income: seeks high current income from interest on debt securities.
Secondarily, the Portfolio considers potential for growth of capital in selecting securities.
The Portfolio intends to allocate its assets principally between domestic high-yield, Evergreen Investment
INTER-NATIONAL high-risk bonds and debt securities (which may be denominated in U.S. dollars or in non-U.S. Management Company,
BOND currencies) of foreign governments and foreign corporations. In addition, the Portfolio will, LLC
from time to time, allocate a portion of its assets to U.S. government securities, including (f/k/a Evergreen
zero-coupon U.S. Treasury securities, mortgage-backed securities and money market Investment Management
instruments. This allocation will be made on the basis of the investment advisor's assessment Company)
of global opportunities for high income and high investment return. From time to time, the
Portfolio may invest 100% of its assets in U.S. or foreign securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Foundation: seeks, in order of priority, reasonable income, conservation of
capital and capital appreciation. The Portfolio invests principally in a combination of
common stocks, securities convertible into or exchangeable for common stocks and fixed income Evergreen Investment
securities. Common stocks are selected based on a combination of financial strength and Management Company,
BALANCED estimated growth potential. Fixed income securities are selected based on the investment LLC
adviser's projections of interests rates, varying amounts and maturities in order to achieve (f/k/a Evergreen
capital protection and, when possible, capital appreciation. Under normal circumstances, the Asset Management
Portfolio anticipates that at least 25% of its net assets will consist of debt securities and Corp.)
the remainder in equity securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST MFS Growth with Income: seeks reasonable current income and long-term capital growth and
income. Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks and related securities, such as preferred stocks, convertible
GROWTH & INCOME securities and depositary receipts. The stocks in which the Portfolio invests generally will Massachusetts
pay dividends. While the Portfolio may invest in companies of any size, the Portfolio Financial Services
generally focuses on companies with larger market capitalizations that the Sub-advisor Company
believes have sustainable growth prospects and attractive valuations based on current and
expected earnings or cash flow. The Portfolio may invest up to 20% of its net assets in
foreign securities.
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Equity Index: seeks investment results that achieve price and yield performance
similar to the Standards and Poor's 500 Composite Price Index ("S&P 500 Index"). The Evergreen Investment
S&P 500 INDEX Portfolio invests substantially all of its total assets in equity securities that represent a Management Company,
composite of the S&P 500 Index. The correlation between the performance of the Portfolio and LLC
the S&P 500 Index is expected to be, before expenses, 0.98 or higher. The S&P 500 is an (f/k/a First Capital
unmanaged index of 500 common stocks chosen to reflect the industries of the U.S. economy and Group)
is often considered a proxy for the stock market in general.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST JanCap Growth: seeks growth of capital in a manner consistent with the preservation of
capital. Realization of income is not a significant investment consideration and any income
realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's
objective. The Portfolio will pursue its objective by investing primarily in common stocks of Janus Capital
companies that the Sub-advisor believes are experiencing favorable demand for their products Corporation
and services, and which operate in a favorable competitive and regulatory environment. The
Sub-advisor generally takes a "bottom up" approach to choosing investments for the Portfolio.
In other words, the Sub-advisor seeks to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
LARGE CAP EQUITY
------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
AST MFS Growth: seeks long-term capital growth and future income. Under normal market
conditions, the Portfolio invests at least 80% of its total assets in common stocks and
related securities, such as preferred stocks, convertible securities and depositary receipts, Massachusetts
of companies that the Sub-advisor believes offer better than average prospects for long-term Financial Services
growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run Company
and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign
securities.
------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
Davis Value: seeks growth of capital. The Portfolio invests primarily in common stocks of
U.S. companies with market capitalizations of at least $5 billion which the Advisor believes Davis Selected
are of high quality and whose shares are selling at attractive prices. The Advisor selects Advisers, L.P.
stocks with the intention of holding them for the long term.
------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Blue Chip: seeks capital growth with the potential for income. The Portfolio Evergreen Investment
invests primarily in common stocks of well-established, large U.S. companies with a long Management Company,
history of performance, typically recognizable names representing a broad range of LLC
industries. To provide balance, the Portfolio also invests in quality medium-sized (f/k/a Evergreen
companies. The Portfolio's stock selection is based on a diversified style of equity Investment Management
investment management that allows it to invest in both value and growth-oriented equity Company)
securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Capital Growth: seeks to provide long-term appreciation of capital. The
Portfolio invests primarily in common stocks. The Portfolio may also invest in preferred Evergreen Investment
stocks, convertible preferred stocks, convertible debentures, and any other class or type of Management Company,
LARGE CAP EQUITY security which the investment adviser believes offers the potential for capital appreciation. LLC
(Cont.) In selecting investments, the investment adviser attempts to identify securities it believes (f/k/a Mentor
will provide capital appreciation over the intermediate or long term due to changes in the Investment Advisors
financial condition of issuers, changes in financial conditions generally, or other factors. LLC)
------------------------------------------------------------------------------------------------ -----------------------
MID-CAP EQUITY
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Omega: seeks maximum capital growth. The Portfolio invests primarily in common
stocks and securities convertible into common stocks of U.S. companies across all market Evergreen Investment
capitalizations. The Portfolio utilizes the fully-managed investment concept whereby the Management Company,
Portfolio's manager will continuously review the Portfolio's holdings in light of market LLC
conditions, business developments and economic trends. During this review process, the (f/k/a Evergreen
Portfolio's manager seeks to identify and invest in industries that are growing faster than Investment Management
the economy. The Portfolio invests in companies of all sizes. The continuous review may lead Company)
to high portfolio turnover, but that will not limit investment decisions. The Portfolio may
also invest up to 25% of its assets in foreign securities.
------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Dynamics: seek capital appreciation. The Portfolio
invests primarily in common stocks of mid-size U.S. companies - those with market
capitalizations between $2 billion and $15 billion at the time of purchase - but also has the
flexibility to invest in other types of securities, including preferred stocks, convertible
securities and bonds. The core of the Portfolio's portfolio is invested in securities of INVESCO Funds Group,
established companies that are leaders in attractive growth markets with a history of strong Inc.
returns. The remainder of the Portfolio is invested in securities that show accelerating
growth, driven by product cycles, favorable industry or sector conditions and other factors
that will lead to rapid sales and earnings growth.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Special Equity: seeks capital growth. The Portfolio strives to provide a return Evergreen Investment
greater than broad stock market indices such as the Russell 2000 Index by investing Management Company,
principally in a diversified portfolio of common stocks of U.S. companies. The Portfolio's LLC
investment adviser principally chooses companies which it expects will experience growth in (f/k/a Meridian
earnings and price, and which have small market capitalizations (up to $1.5 billion). The Investment Company)
SMALL CAP EQUITY Portfolio may purchase stocks in initial public offerings (IPOs).
------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Small Cap Value: seeks current income and capital growth. The Portfolio seeks to Evergreen Investment
achieve its goal by investing primarily in common stocks and convertible preferred stocks of Management Company,
small companies (less than $1.5 billion in market capitalization). The Portfolio seeks to LLC
limit the investment risk of small company investing by seeking stocks that produce regular (f/k/a Evergreen
income and trade below what the Portfolio's manager considers their intrinsic value. Asset Management
Corp.)
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Global Leaders: seeks to provide investors with long-term capital growth. The
Portfolio normally invests as least 65% of its assets in a diversified portfolio of U.S. and Evergreen Investment
non-U.S. equity securities of companies located in the world's major industrialized Management Company,
GLOBAL EQUITY countries. The Portfolio will invest in no less than three countries, which may include the LLC
U.S., but may invest more than 25% of its total assets in one country. The Portfolio invests (f/k/a Evergreen
only in the best 100 companies, which are selected by the investment advisor based on Asset Management
qualitative and quantitative criteria such as high return on equity, consistent earnings Corp.)
growth and established market presence.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST AIM International Equity: seeks capital growth. The Portfolio seeks to meet its objective
by investing, normally, at least 70% of its assets in marketable equity securities of foreign
INTERNA-TIONAL companies that are listed on a recognized foreign securities exchange or traded in a foreign A I M Capital
EQUITY over-the-counter market. The Portfolio will normally invest in a diversified portfolio that Management, Inc.
includes companies from at least four countries outside the United States, emphasizing
countries of Western Europe and the Pacific Basin.
------------------------------------------------------------------------------------------------ -----------------------
- --------------------------------------------------------------------------------------------------------------------------------------------
Sector funds generally diversify their investments across the particular economic sectors. However, because those investments are limited
to a comparatively narrow segment of the economy, the sector funds are generally not as diversified as most mutual funds. Sector funds
tend to be more volatile than other types of funds. The value of fund shares may go up and down more rapidly than other funds. Each
sector of the economy may also have different regulatory or other risk factors that can cause greater fluctuations in the share price.
Please read the prospectus for the underlying sector fund for further details about the risks of the particular sector of the economy.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Technology: seeks capital appreciation. The Portfolio
invests primarily in the equity securities of companies engaged in technology-related
industries. These include, but are not limited to, communications, computers, electronics,
Internet, IT services and consulting, oceanography, office and factory automation, networking, INVESCO Funds Group,
SECTOR applied technology, biotechnology, robotics and video. A core portion of the Portfolio's Inc.
holdings are invested in market-leading technology companies which the investment advisor
believes will maintain or improve their market share regardless of overall economic
conditions. The remainder of the Portfolio's holdings consist of faster-growing, more
volatile technology companies which the investment advisor believes to be emerging leaders in
their fields.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
WHAT ARE THE FIXED INVESTMENT OPTIONS?
We offer fixed investment options of different durations during the accumulation period. These "Fixed
Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee
Period." In most states, we offer Fixed Allocations with Guarantee Periods from 1 to 10 years. We may also
offer special purpose Fixed Allocations for use with certain optional investment programs. We guarantee the
fixed rate for the entire Guarantee Period. However, if you withdraw or transfer Account Value before the end of
the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a
"Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the
rates that are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the
Market Value Adjustment Work?" for a description of the formula along with examples of how it is calculated. You
may allocate Account Value to more than one Fixed Allocation at a time.
Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
(The Contingent Deferred Sales Charge is often referred to as a "Surrender Charge" or "CDSC".)
Contingent Deferred Sales Charge: We may assess a Contingent Deferred Sales Charge or CDSC if you surrender your
Annuity or when you make a partial withdrawal. The CDSC is calculated as a percentage of your Purchase Payment
being surrendered or withdrawn during the applicable Annuity Year. The amount of the CDSC decreases over time,
measured from the date the Purchase Payment is applied. The CDSC percentages are shown below.
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
YEARS 1 2 3 4 5 6 7 8 9+
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
CHARGE (%) 8.5 8.5 8.5 8.5 7.5 5.5 3.5 1.5 0.0
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Each Purchase Payment has its own CDSC period. When you make a withdrawal, we assume that the oldest Purchase
Payment is being withdrawn first so that the lowest CDSC is deducted from the amount withdrawn. After eight (8)
complete years from the date you make a Purchase Payment, no CDSC will be assessed if you withdraw or surrender
that Purchase Payment.
Under certain circumstances you can withdraw a limited amount of Account Value without paying a CDSC. This is
referred to as a "Free Withdrawal." We may waive the CDSC under certain medically-related circumstances or when
taking a Minimum Distribution from an Annuity purchased as a "qualified" investment. Free Withdrawals,
Medically-Related Waivers and Minimum Distributions are each explained more fully in the section entitled "Access
to Your Account Value".
Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual
Maintenance Fee is $30.00 or 2% of your Account Value invested in the variable investment options, whichever is
less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you
surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. We may increase
the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the
increase.
Optional Benefits: If you elect to purchase either optional Death Benefit, we will deduct the annual charge from
your Account Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date
other than the anniversary date. Under certain circumstances, we may deduct a pro-rata portion of the annual
charge for the optional Death Benefit. Please refer to the section entitled "Death Benefit" for a description of
the charge for each Optional Death Benefit. If you elect to purchase the Guaranteed Return Option, we will
deduct the annual charge from your Account Value on the anniversary of your Annuity's Issue Date. Under certain
circumstances, we may deduct a pro-rata portion of the annual charge for the Guaranteed Return Option. Please
refer to the section entitled "Managing Your Account Value - Do you offer programs designed to guarantee a
"return of premium" at a future date?" for a description of the charge for the Guaranteed Return Option.
Transfer Fee: Currently, you may make twenty (20) free transfers between investment options each Annuity Year.
We will charge $10.00 for each transfer after the twentieth in each Annuity Year. We do not consider transfers
made as part of a dollar cost averaging program when we count the twenty free transfers. Transfers made as part
of a rebalancing, market timing or third party investment advisory service will be subject to the twenty-transfer
limit. However, all transfers made on the same day will be treated as one (1) transfer. Renewals or transfers
of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the Transfer Fee
and are not counted toward the twenty free transfers. We may reduce the number of free transfers allowable each
Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic
means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted
electronically or through other means that reduce our processing costs.
Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will
vary from jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We
generally will deduct the amount of tax payable at the time the tax is imposed, but may also decide to deduct tax
charges from each Purchase Payment at the time of a withdrawal or surrender of your Annuity or at the time you
elect to begin receiving annuity payments. We may assess a charge against the Sub-accounts and the Fixed
Allocations equal to any taxes which may be imposed upon the separate accounts.
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?
Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the
Sub-accounts. The charge is equal to 1.40% on an annual basis. The Insurance Charge is intended to compensate
American Skandia for providing the insurance benefits under the Annuity, including the Annuity's basic death
benefit that provides guaranteed benefits to your beneficiaries even if the market declines and the risk that
persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers
administrative costs associated with providing the Annuity benefits, including preparation of the contract,
confirmation statements, annual account statements and annual reports, legal and accounting fees as well as
various related expenses. Finally, the charge covers the risk that our assumptions about the administrative and
non-mortality expenses under this Annuity are incorrect. We may increase the portion of the Insurance Charge for
administrative costs. However, any increase will only apply to Annuities issued after the date of the increase.
American Skandia may make a profit on the Insurance Charge if, over time, the actual cost of providing the
guaranteed insurance obligations under the Annuity are less than the amount we deduct for the Insurance Charge.
To the extent we make a profit on the Insurance Charge, such profit may be used for any other corporate purpose,
including payment of other expenses that American Skandia incurs in distributing, issuing and administering the
Annuity.
The Insurance Charge is not deducted against assets allocated to a fixed investment option. However, the amount
we credit to Fixed Allocations may also reflect similar assumptions about the insurance guarantees provided to
Contract Owners under the Annuity.
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?
We do not assess any charges directly against the Portfolios. However, each Portfolio charges a total annual fee
comprised of an investment management fee, operating expenses and any distribution and service (12b-1) fees that
may apply. More detailed information about fees and charges can be found in the prospectuses for the
Portfolios. Please also see "Service Fees Payable by Underlying Funds".
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
No specific fee or expenses are deducted when determining the rate we credit to a Fixed Allocation. However, for
some of the same reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts,
we also take into consideration mortality, expense, administration, profit and other factors in determining the
interest rates we credit to Fixed Allocations. Any CDSC or Tax Charge applies to amounts that are taken from the
variable investment options or the Fixed Allocations. A Market Value Adjustment may also apply to transfers,
certain withdrawals, surrender or annuitization from a Fixed Allocation.
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?
In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The
amount payable will depend on the applicable jurisdiction and on the annuity payment option you select. If you
select a fixed payment option, the amount of each fixed payment will depend on the Account Value of your Annuity
when you elected to annuitize. There is no specific charge deducted from these payments; however, the amount of
each annuity payment reflects assumptions about our insurance expenses. If you select a variable payment option
that we may offer, then the amount of your benefits will reflect changes in the value of your Annuity and will
continue to be subject to an insurance charge.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is
deducted. For example, we may reduce the amount of the CDSC or the length of time it applies, reduce or
eliminate the amount of the Annual Maintenance Fee or reduce the portion of the Insurance Charge for
administrative costs. Generally, these types of changes will be based on a reduction to our sales, maintenance
or administrative expenses due to the nature of the individual or group purchasing the Annuity. Some of the
factors we might consider in making such a decision are: (a) the size and type of group; (b) the number of
Annuities purchased by an Owner; (c) the amount of Purchase Payments or likelihood of additional Purchase
Payments; and/or (d) other transactions where sales, maintenance or administrative expenses are likely to be
reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce the portion of the
Insurance Charge attributed to the charge covering administrative costs.
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?
Initial Purchase Payment: You must make a minimum initial Purchase Payment of $1,000. However, if you decide to
make payments under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase
Payment provided that, within the first Annuity Year, you make at least $1,000 in total Purchase Payments.
Where allowed by law, initial Purchase Payments in excess of $1,000,000 require our approval prior to
acceptance. We may apply certain limitations and/or restrictions on the Annuity as a condition of our
acceptance, including limiting the liquidity features or the Death Benefit protection provided under the Annuity,
changing the number of transfers allowable under the Annuity or restricting the Sub-accounts that are available
to the Contract owner. Other limitations and/or restrictions may apply.
Age Restrictions: The Owner must be age 80 or under as of the Issue Date of the Annuity. If the Annuity is owned
jointly, the oldest of the Owners must be age 80 or under on the Issue Date. If the Annuity is owned by an
entity, the Annuitant must be age 80 or under as of the Issue Date. You should consider your need to access the
value in your contract and whether the Annuity's liquidity features will satisfy that need. If you take a
distribution prior to age 591/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any
gain.
Additional Purchase Payments may be made at any time before the Annuity Date as long as the oldest Owner or
Annuitant (if the Annuity is entity owned) is not over age 80.
Special Considerations for Purchasers of Bonus or Credit Products
- -> This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities
and does not charge an additional amount for the XTra CreditSM feature. However, if you make a withdrawal
that exceeds the free withdrawal amount or choose to surrender your Annuity, the contingent deferred sales
charge (CDSC) on this Annuity is higher and is deducted for a longer period of time as compared to our other
variable annuities. If you expect that you will need to access your Account Value during the CDSC period and
the liquidity provisions are insufficient to satisfy that need, then this Annuity may be more expensive than
other variable annuities.
- -> The XTra CreditSM amount is included in your Account Value. However, American Skandia may take back the
original XTra CreditSM amount applied to your Purchase Payment if you die, or elect to withdraw all or a
portion of your Account Value under the medically-related waiver provision, within 12 months of having
received an XTra CreditSM amount. In either situation, the value of the XTra CreditSM amount could be
substantially reduced. However, any investment gain on the XTra CreditSM amount will not be taken back.
Additional conditions and restrictions apply.
Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s),
Annuitant and one or more Beneficiaries for your Annuity.
|X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case
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all ownership rights are held jointly. However, this Annuity does not provide a right of survivorship.
Refer to the Glossary of Terms for a complete description of the term "Owner."
|X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we
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continue to make such payments. You must name an Annuitant who is a natural person. We do not accept a
designation of joint Annuitants during the accumulation period. Where allowed by law, you may name one or
more Contingent Annuitants. A Contingent Annuitant will become the Annuitant if the Annuitant dies before
the Annuity Date. Please refer to the discussion of "Considerations for Contingent Annuitants" in the Tax
Considerations section of the Prospectus.
|X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no
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beneficiary is named the death benefit will be paid to you or your estate.
Your right to make certain designations may be limited if your Annuity is to be used as an IRA or other
"qualified" investment that is given beneficial tax treatment under the Code. You should seek competent tax
advice on the income, estate and gift tax implications of your designations.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where
allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include,
but are not limited to:
|X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death;
|X| a new Annuitant subsequent to the Annuity Date;
|X| for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an
entity; and
|X| a change in Beneficiary if the Owner had previously made the designation irrevocable.
Spousal Owners/Spousal Beneficiaries
If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse
unless you elect an alternative Beneficiary designation. Unless you elect an alternative Beneficiary
designation, upon the death of either spousal Owner, the surviving spouse may elect to assume ownership of the
Annuity instead of taking the Death Benefit payment. The Death Benefit that would have been payable will be the
new Account Value of the Annuity as of the date of due proof of death and any required proof of a spousal
relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and
benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of
determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the
initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional Purchase
Payments applied after the date the assumption is effective will be subject to all provisions of the Annuity.
Spousal Contingent Annuitant
If the Annuity is owned by an entity and the surviving spouse is named as a Contingent Annuitant, upon the death
of the Annuitant, the surviving spouse will become the Annuitant. No Death Benefit is payable upon the death of
the Annuitant. However, the Account Value of the Annuity as of the date of due proof of death of the Annuitant
(and any required proof of the spousal relationship) will reflect the amount that would have been payable had a
Death Benefit been paid.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
(The right to return the Annuity is often referred to as the "free-look" right or "right to cancel.")
If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us
within a certain period of time known as a right to cancel period. Depending on the state in which you purchased
your Annuity and, in some states, if you purchased the Annuity as a replacement for a prior contract, the right
to cancel period may be ten (10) days, twenty-one (21) days or longer, measured from the time that you received
your Annuity. If you return your Annuity during the applicable period, we will refund your current Account Value
plus any tax charge deducted. This amount may be higher or lower than your original Purchase Payment. Where
required by law, we will return your current Account Value or the amount of your initial Purchase Payment,
whichever is greater. The same rules may apply to an Annuity that is purchased as an IRA. In any situation
where we are required to return the greater of your Purchase Payment or Account Value, we may allocate your
Account Value to the AST Money Market Sub-account during the right to cancel period and for a reasonable
additional amount of time to allow for delivery of your Annuity. If you return your Annuity, we will not return
any additional amounts we applied to your Annuity based on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in American
Skandia's Systematic Investment Plan or a periodic purchase payment program. We will allocate any additional
Purchase Payments you make according to your most recent allocation instructions, unless you request new
allocations when you submit a new Purchase Payment. Additional Purchase Payments may be paid at any time before
the Annuity Date as long as the oldest Owner or Annuitant (if the Annuity is entity owned) is not over age 80.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your
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bank account and applying it to your Annuity. This type of program is often called "bank drafting". We call our
bank drafting program "American Skandia's Systematic Investment Plan." Purchase Payments made through bank
drafting may only be allocated to the variable investment options when applied. Bank drafting allows you to
invest in an Annuity with a lower initial Purchase Payment, as long as you authorize payments that will equal at
least $1,000 during the first 12 months of your Annuity. We may suspend or cancel bank drafting privileges if
sufficient funds are not available from the applicable financial institution on any date that a transaction is
scheduled to occur.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of qualified investments. If your employer
sponsors such a program, we may agree to accept periodic Purchase Payments through a salary reduction program as
long as the allocations are made only to variable investment options and the periodic Purchase Payments received
in the first year total at least $1,000.
MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase
Payments.)
Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity.
The net Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. On your
application we ask you to provide us with instructions for allocating your Account Value. You can allocate
Account Value to one or more variable investment options or Fixed Allocations.
In those states where we are required to return your Purchase Payment if you exercise your right to return the
Annuity, we initially allocate all amounts that you choose to allocate to the variable investment options to the
AST Money Market Sub-account. At the end of the right to cancel period we will reallocate your Account Value
according to your most recent allocation instructions. Where permitted by law, we will allocate your Purchase
Payments according to your initial instructions, without temporarily allocating to the AST Money Market
Sub-account. To do this, we will ask that you execute our form called a "return waiver" that authorizes us to
allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the "return waiver" and
then decide to return your Annuity during the right to cancel period, you will receive your current Account Value
which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my
Mind?").
Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your
current allocation instructions. If any rebalancing or asset allocation programs are in effect, the allocation
should conform with such a program. We assume that your current allocation instructions are valid for subsequent
Purchase Payments until you make a change to those allocations or request new allocations when you submit a new
Purchase Payment.
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment. The amount of the
Credit is payable from our general account. The amount of the Credit depends on the cumulative amount of
Purchase Payments you have made to your Annuity, payable as a percentage of each specific Purchase Payment,
according to the table below:
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Cumulative Purchase Payments Credit
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-------------------------------------------------------- -------------------
Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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Credits Applied to Purchase Payments for Designated Class of Annuity Owner
Where allowed by state law, on Annuities owned by a member of the class defined below, the table of Credits we
apply to Purchase Payments is deleted. The Credit applied to all Purchase Payments on such Annuities will be
8.5%.
The designated class of Annuity Owners includes: (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) the child(ren) or other legal dependent under the age of 21 of
any such person noted in (b) through (h); and (j) the siblings of any such persons noted in (b) through (h) above.
All other terms and conditions of the Annuity apply to Owners in the designated class, except that we will not
provide any Additional Amounts for any such contracts (see "Additional Amounts in the Fixed Allocations"). Any
Target Value Credits applied under the Performance Advantage benefit are not affected by an Owner's inclusion in
the designated class of Annuity Owners.
You must notify us at the time you apply for an Annuity if you are a member of the designated class. American
Skandia is not responsible for monitoring whether you qualify as a member of the designated class. Failure to
inform us that you qualify as a member of the designated class may result in your Annuity receiving fewer Credits
than would otherwise be applied to your Annuity.
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?
Each Credit is allocated to your Account Value at the time the Purchase Payment is applied to your Account
Value. The amount of the Credit is allocated to the investment options in the same ratio as the applicable
Purchase Payment is applied.
Examples of Applying Credits
Initial Purchase Payment
Assume you make an initial Purchase Payment of $250,000. We would apply a 3.0% Credit to your Purchase Payment
and allocate the amount of the Credit ($7,500 = $250,000 X .03) to your Account Value in the proportion that your
Account Value is allocated.
Additional Purchase Payment (at same breakpoint)
Assume that you make an additional Purchase Payment of $500,000. Because your cumulative Purchase Payments are
less than the next breakpoint ($1,000,000), we would apply a 3.0% Credit to your Purchase Payment and allocate
the amount of the Credit ($15,000 = $500,000 X .03) to your Account Value.
Additional Purchase Payment (at higher breakpoint)
Assume that you make an additional Purchase Payment of $400,000. Because your cumulative Purchase Payments are
now $1,150,000 (greater than the next breakpoint), we would apply a 4.0% Credit to your Purchase Payment and
allocate the amount of the Credit ($16,000 = $400,000 X .04) to your Account Value.
===================================================================================================================
This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities and does
not charge an additional amount for the XTra CreditSM feature. However, the amount of any Credits applied to
your Account Value can be recovered by American Skandia under certain circumstances:
===================================================================================================================
|X| any Credits applied to your Account Value on Purchase Payments made within the 12 months before the date
of death will be recovered.
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===================================================================================================================
|X| the amount available under the medically-related surrender portion of the Annuity will not include the
amount of any Credits payable on Purchase Payments made within 12 months of the date the Annuitant first
became eligible for the medically-related surrender.
===================================================================================================================
===================================================================================================================
|X| if you elect to "free-look" your Annuity, the amount returned to you will not include the amount of any
Credits.
===================================================================================================================
===================================================================================================================
===================================================================================================================
The value of the XTra CreditSM amount will be substantially reduced if American Skandia recovers the XTra
CreditSM amount under these circumstances. However, any investment gain on the XTra CreditSM amount will not be
taken back.
Examples of Recovering Credits
The following are hypothetical examples of how Credits could be recovered by American Skandia. These examples do
not cover every potential situation.
Recovery from payment of Death Benefits
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional
Purchase of $10,000 in the 6th month after the Issue Date. Both of the Purchase Payments received a 3.0%
Credit, for a total of $1,800. If the Death Benefit becomes payable in the 9th month after the Issue Date,
the amount of the Death Benefit would be reduced by the entire amount of the prior Credits ($1,800).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional
Purchase of $10,000 in the 6th month after the Issue Date. Both of the Purchase Payments received a 3.0%
Credit, for a total of $1,800. If death occurs in the 16th month after the Issue Date, the amount of the
Death Benefit would be reduced but only in the amount of those Credits applied within the previous
12-months. Since the initial Purchase Payment (and the Credits that were applied) occurred more than
12-months before the date of death, the Death Benefit would not be reduced by the amount of the Credits
applied to the initial Purchase Payment. However, the $10,000 additional Purchase Payment was made within
12-months of the date of death. Therefore, the amount of the Death Benefit would be reduced by the amount
of the Credits payable on the additional Purchase Payment ($300).
3. NOTE: If the Death Benefit would otherwise have been equal to the Purchase Payments minus any
withdrawals due to poor investment performance, we will not reduce the amount of the Death Benefit by the
amount of the Credits as shown in Example 2 above.
Recovery from Medically-Related Surrenders
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You receive a Credit of
$1,500 ($50,000 X .03). The Annuitant is diagnosed as terminally ill in the 6th month after the Issue Date
and we grant your request to surrender your Annuity under the medically-related surrender provision.
Assuming the Credits were applied within 12-months of the date of diagnosis of the terminal illness, the
amount that would be payable under the medically-related surrender provision would be reduced by the entire
amount of the Credits ($1,500).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional
Purchase of $10,000 in the 6th month after the Issue Date. Both of the Purchase Payments received a 3.0%
Credit, for a total of $1,800. The Annuitant is diagnosed as terminally ill in the 16th month after the
Issue Date and we grant your request to surrender your Annuity under the medically-related surrender
provision. Since the initial Purchase Payment (and the Credits that were applied) occurred more than
12-months before the diagnosis, the amount that would be payable upon the medically-related surrender
provision would not be reduced by the amount of the Credits applied to the initial Purchase Payment.
However, the $10,000 additional Purchase Payment was made within 12-months of the date of diagnosis.
Therefore, the amount of the Death Benefit would be reduced by the amount of the Credits payable on the
additional Purchase Payment ($300).
Credits applied to estimated Purchase Payments
Under certain circumstances, we may determine the amount of Credits payable on two or more separate Purchase
Payments based on the Credit percentage that would have applied had all such Purchase Payments been made at the
same time. To make use of this procedure, often referred to as a "letter of intent", you must provide evidence
of your intention to submit the cumulative additional Purchase Payments within a 13-month period. A letter of
intent must be provided to us prior to the Issue Date to be effective. Acceptance of a letter of intent is at
our sole discretion and may be subject to restrictions as to the minimum initial Purchase Payment that must be
submitted to receive the next higher breakpoint.
Failure to inform us that you intend to submit two or more Purchase Payments within a 13-month period may result
in your Annuity receiving fewer Credits than would otherwise be added to your Annuity.
If you submit a letter of intent and receive Credits on Purchase Payments at a higher Credit percentage than
would have applied BUT do not submit the required Purchase Payments during the 13-month period as required by
your letter of intent, we may recover the "excess" Credits. "Excess" Credits are Credits in excess of the
Credits that would have been payable without the letter of intent. If we determine that you have received
"excess" Credits, any such amounts will be taken pro-rata from the investment options based on your Account
Values as of the date we act to recover the excess. If the amount of the recovery exceeds your then current
Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
General Information about Credits
|X| We do not consider Credits to be "investment in the contract" for income tax purposes.
|X| You may not withdraw the amount of any Credits under the Free Withdrawal provision without assessment of
the contingent deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
|X| These Credits are separate and distinct from the Target Value Credits discussed below in the section
entitled "American Skandia's Performance Advantage."
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment options. Transfers are not
subject to taxation on any gain. We currently limit the number of Sub-accounts you can invest in at any one time
to twenty (20). However, you can invest in an unlimited number of Fixed Allocations. We may require a minimum
of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you
request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may
transfer the remaining Account Value in the Sub-account pro rata to the other investment options to which you
transferred.
Currently, we charge $10.00 for each transfer after the twentieth (20th) in each Annuity Year, including
transfers made as part of any rebalancing, market timing, asset allocation or similar program which you have
authorized. Transfers made as part of a dollar cost averaging program do not count toward the twenty free
transfer limit. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee
Period are not subject to the transfer charge. We may reduce the number of free transfers allowable each Annuity
Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic means to
transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted
electronically or through other means that reduce our processing costs.
We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We
also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for
an Owner or certain Owners if: (a) we believe that excessive trading or a specific transfer request or group of
transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we
are informed by one or more of the Portfolios that the purchase or redemption of shares must be restricted
because of excessive trading or a specific transfer or group of transfers is deemed to have a detrimental effect
on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where either of
the above could occur would be if the aggregate amount of a trade or trades represented a relatively large
proportion of the total assets of a particular Portfolio. Under such a circumstance, we will process transfers
according to our rules then in effect and provide notice if the transfer request was denied. If a transfer
request is denied, a new transfer request may be required.
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to
systematically transfer an amount each month from one investment option to one or more other investment options.
You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging
allows you to invest regularly each month, regardless of the current unit value (or price) of the Sub-account(s)
you invest in. This enables you to purchase more units when the market price is low and fewer units when the
market price is high. This may result in a lower average cost of units over time. However, there is no
guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. We
do not deduct a charge for participating in a Dollar Cost Averaging program.
You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program.
You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from
Fixed Allocations is subject to a number of rules that include, but are not limited to the following:
|X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years.
|X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus
earnings, the program must be designed to last the entire Guarantee Period for the Fixed Allocation.
|X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment.
NOTE: When a Dollar Cost Averaging program is established from a Fixed Allocation, the fixed rate of interest we
credit to your Account Value is applied to a declining balance due to the transfers of Account Value to the
Sub-accounts during the Guarantee Period. This will reduce the effective rate of return on the Fixed Allocation
over the Guarantee Period.
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?
Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you
choose. You can choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the
appropriate date, your variable investment options are rebalanced to the allocation percentages you request. For
example, over time the performance of the variable investment options will differ, causing your percentage
allocations to shift. With automatic rebalancing, we transfer the appropriate amount from the "overweighted"
Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. If
you request a transfer from or into any variable investment option participating in the automatic rebalancing
program, we will assume that you wish to change your rebalancing percentages as well, and will automatically
adjust the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from
you.
You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing
transfers made on the same day as part of an automatic rebalancing program are considered as one transfer when
counting the number of transfers each year toward the maximum number of free transfers. We do not deduct a
charge for participating in an automatic rebalancing program.
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?
Yes. We offer two different programs for investors who wish to invest in the variable investment options but
also wish to protect their principal, at least as of a specific date in the future. You may not want to use
either of these programs if you expect to begin taking annuity payments before the program would be completed.
Balanced Investment Program
We offer a balanced investment program where a portion of your Account Value is allocated to a Fixed Allocation
and the remaining Account Value is allocated to the variable investment options that you select. When you enroll
in the Balanced Investment program, you choose the duration that you wish the program to last. This determines
the duration of the Guarantee Period for the Fixed Allocation. Based on the fixed rate for the Guarantee Period
chosen, we calculate the portion of your Account Value that must be allocated to the Fixed Allocation to grow to
a specific "principal amount" (such as your initial Purchase Payment). We determine the amount based on the
rates then in effect for the Guarantee Period you choose. If you continue the program until the end of the
Guarantee Period and make no withdrawals or transfers, at the end of the Guarantee Period, the Fixed Allocation
will have grown to equal the "principal amount". Withdrawals or transfers from the Fixed Allocation before the
end of the Guarantee Period will terminate the program and may be subject to a Market Value Adjustment. You can
transfer the Account Value that is not allocated to the Fixed Allocation between any of the Sub-accounts
available under the Annuity. Account Value you allocate to the variable investment options is subject to market
fluctuations and may increase or decrease in value. We do not deduct a charge for participating in the Balanced
Investment Program.
Example
Assume you invest $100,000. You choose a 10-year program and allocate a portion of your Account Value
to a Fixed Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is
5.33%*. Based on the fixed interest rate for the Guarantee Period chosen, the factor is 0.594948 for
determining how much of your Account Value will be allocated to the Fixed Allocation. That means that
$59,495 will be allocated to the Fixed Allocation and the remaining Account Value ($41,505) will be
allocated to the variable investment options. Assuming that you do not make any withdrawals from the
Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we cannot
predict the value of the remaining Account Value that was allocated to the variable investment options.
* The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of
this duration.
Guaranteed Return Option SM
We also offer a seven-year program where we monitor your Account Value daily and systematically transfer amounts
between Fixed Allocations and the variable investment options you choose. American Skandia guarantees that at
the end of the seventh (7th) year from commencement of the program, you will receive no less than the original
amount invested (such as your initial Purchase Payment). Account Value is only transferred to and maintained in
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Fixed Allocations to the extent we, in our sole discretion, deem is necessary to support our guarantee under the
program. This differs from the Balanced Investment program where a set amount is allocated to a Fixed Allocation
regardless of the performance of the underlying Sub-accounts. With the Guaranteed Return Option, your Annuity is
able to participate in the upside potential of the Sub-accounts while only transferring amounts to Fixed
Allocations to protect against significant market downturns.
Each business day we monitor the performance of your Account Value to determine whether it is greater than, equal
to or below our "reallocation trigger", described below. Based on the performance of the Sub-accounts in which
you choose to allocate your Account Value relative to the reallocation trigger, we may transfer some or all of
your Account Value to or from a Fixed Allocation. You have complete discretion over the allocation of your
Account Value that remains allocated in the variable investment options. However, we reserve the right to
restrict certain Portfolios if you participate in the program.
|X| Account Value greater than or equal to reallocation trigger: Account Value in variable investment
options remains allocated according to your most recent instructions. If a portion of Account Value was
previously allocated to a Fixed Allocation, those amounts may be transferred from the Fixed Allocation
and re-allocated to the variable investment options pro-rata according to your current allocations. A
Market Value Adjustment will apply.
|X| Account Value below reallocation trigger: A portion of your Account Value in the variable investment
options is transferred to a new Fixed Allocation. These amounts are transferred on a pro-rata basis
from the variable investment options. The new Fixed Allocation will have a Guarantee Period equal to
the remaining duration in the Guaranteed Return Option. The Account Value applied to the new Fixed
Allocation will be credited with the fixed interest rate then being applied to a new Fixed Allocation of
the next higher yearly duration. The Account Value will remain invested in the Fixed Allocation until
the maturity date of the program unless, at an earlier date, your Account Value is at or above the
reallocation trigger and amounts can be transferred to the variable investment options (as described
above) while maintaining the guarantee protection under the program.
American Skandia uses an allocation mechanism based on assumptions of expected and maximum market volatility to
determine the reallocation trigger. The allocation mechanism is used to determine the allocation of Account
Value between Fixed Allocations and the Sub-accounts you choose. American Skandia reserves the right to change
the allocation mechanism and the reallocation trigger at its discretion.
Program Termination
The Guaranteed Return Option will terminate on its maturity date. You can elect to participate in a new
Guaranteed Return Option or re-allocate your Account Value at that time. Any Account Value allocated to the
Fixed Allocations will be transferred to the AST Money Market Sub-account, unless you provide us with alternative
instructions. On the program maturity date, if your Account Value is below the initial investment, American
Skandia will apply additional amounts to your Account Value so that it is equal to the initial investment in the
program. Any amounts added to your Account Value will be applied to the AST Money Market Sub-account, unless you
provide us with alternative instructions. We will notify you of any amounts added to your Account Value under
the program. We do not consider amounts added to your Account Value to be "investment in the contract" for income
tax purposes.
Special Considerations under the Guaranteed Return Option
This program is subject to certain rules and restrictions, including, but not limited to the following:
|X| You may terminate the Guaranteed Return Option at any time. American Skandia does not provide any
guarantees upon termination of the program.
|X| Withdrawals from your Annuity while the program is in effect will reduce the guaranteed amount under the
program in proportion to the Account Value at the time of the withdrawal. Withdrawals will be subject to
all other provisions of the Annuity, including any Contingent Deferred Sales Charge or Market Value
Adjustment that would apply.
|X| Additional Purchase Payments applied to the Annuity while the program is in effect will only increase
the amount guaranteed; however, all or a portion of any additional Purchase Payments may be allocated to the
Fixed Allocations.
|X| Annuity Owners cannot transfer Account Value to or from a Fixed Allocation while participating in the
program and cannot participate in any dollar cost averaging program that transfers Account Value from a
Fixed Allocation to the variable investment options.
|X| Transfers from Fixed Allocations will be subject to the Market Value Adjustment formula under the
Annuity; however, the 0.10% "cushion" feature of the formula will not apply. A Market Value Adjustment may
be either positive or negative. Transfer amounts will be taken from the most recently applied Fixed
Allocation.
|X| Transfers from the Sub-accounts to Fixed Allocations or from Fixed Allocations to the Sub-accounts under
the program will not count toward the maximum number of free transfers allowable under the Annuity.
|X| The Guaranteed Return Option will terminate: (a) upon the death of the Owner or the Annuitant (in an
entity owned contract); and (b) as of the date Account Value is applied to begin annuity payments.
|X| You can elect to restart the seven (7) year program duration on any anniversary of the Issue Date of the
Annuity. The Account Value on the date the restart is effective will become the new guaranteed amount under
the program. You can only elect the program once per Annuity Year.
Charges under the Program
We charge a fee of 0.25% of Account Value per year to participate in the Guaranteed Return Option. The charge is
deducted to compensate American Skandia for: (a) the risk that your Account Value on the maturity date of the
program is less than the amount guaranteed; and (b) administration of the program. The charge is deducted in
arrears on an annual basis on each anniversary of the Issue Date of the Annuity. If you choose to begin the
program on a date other than the Issue Date of the Annuity or an anniversary of the Issue Date of the Annuity, we
will charge a pro-rata portion of the annual charge for the remaining portion of the Annuity Year. If the
program terminates before completion for any reason other than death or medically-related surrender, we will
assess a pro-rata portion of the annual charge. We will deduct the annual charge for participating in the
program pro-rata from the variable investment options.
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?
Yes. You may authorize your financial professional to direct the allocation of your Account Value and to request
financial transactions between investment options while you are living, subject to our rules. We require that
you provide us with written proof that you have authorized your financial professional to request financial
transactions on your behalf. You must contact us immediately if and when you revoke such authority. We will not
be responsible for acting on instructions from your financial professional if you fail to inform us that such
person's authority has been revoked. We may also suspend or cancel these privileges at any time. We will notify
you if we do.
We or an affiliate of ours may provide administrative support to licensed, registered financial professionals or
investment advisors who you authorize to make financial transactions on your behalf. These financial
professionals may be firms or persons who also are appointed by us as authorized sellers of the Annuity.
However, we do not offer advice about how to allocate your Account Value under any circumstance. Any financial
professionals you engage to provide advice and/or make transfers for you is not acting on our behalf. We are not
responsible for any recommendations such financial professionals make, any market timing or asset allocation
programs they choose to follow or any specific transfers they make on your behalf.
We may require financial professionals or investment advisors, who are authorized by multiple contract owners to
make financial transactions, to enter into an administrative agreement with American Skandia as a condition of
our accepting transactions on your behalf. The administrative agreement may impose limitations on the financial
professional's or investment advisor's ability to request financial transactions on your behalf. These
limitations are intended to minimize the detrimental impact of a financial professional who is in a position to
transfer large amounts of money for multiple clients in a particular Portfolio or type of portfolio or to comply
with specific restrictions or limitations imposed by a Portfolio(s) on American Skandia. The administrative
agreement may limit the available investment options, require advance notice of large transactions, or impose
other trading limitations on your financial professional. Your financial professional will be informed of all
such restrictions on an ongoing basis. We may also require that your financial professional transmit all
financial transactions using the electronic trading functionality available through our Internet website
(www.americanskandia.com). Limitations that we may impose on your financial professional or investment advisor
under the terms of the administrative agreement do not apply to financial transactions requested by an Owner on
their own behalf, except as otherwise described in this Prospectus.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
(Fixed Allocations may not be available in all states and may not be available for certain durations.)
We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee
Period." Fixed Allocations currently are offered with Guarantee Periods from 1 to 10 years. We may make Fixed
Allocations of different durations available in the future, including Fixed Allocations offered exclusively for
use with certain optional investment programs. The interest rate credited to a Fixed Allocation is the rate in
effect when the Guarantee Period begins and does not change during the Guarantee Period. The rates are an
effective annual rate of interest. We determine the interest rates for the various Guarantee Periods. At the
time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your
Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. Any change in
interest rate does not affect Fixed Allocations that were in effect before the date of the change. To inquire as
to the current rates for Fixed Allocations, please call 1-800-766-4530.
A Guarantee Period for a Fixed Allocation begins:
|X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period;
|X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period;
or
|X| when you "renew" a Fixed Allocation by electing a new Guarantee Period.
To the extent permitted by law, we may establish different interest rates for Fixed Allocations offered to a
class of Owners who choose to participate in various optional investment programs we make available. This may
include, but is not limited to, Owners who elect to use Fixed Allocations under a dollar cost averaging program
(see "Do You Offer Dollar Cost Averaging?") or a balanced investment program (see "Do You Offer a Program to
Balance Fixed and Variable Investments?"). The interest rate credited to Fixed Allocations offered to this class
of purchasers may be different than those offered to other purchasers who choose the same Guarantee Period but
who do not participate in an optional investment program. Any such program is at our sole discretion.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the
interest rates we offer for Fixed Allocations will reflect the investment returns available on the types of
investments we make to support our fixed rate guarantees. These investment types may include cash, debt
securities guaranteed by the United States government and its agencies and instrumentalities, money market
instruments, corporate debt obligations of different durations, private placements, asset-backed obligations and
municipal bonds. In determining rates we also consider factors such as the length of the Guarantee Period for
the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we
make, commissions, administrative and investment expenses, our insurance risks in relation to the Fixed
Allocations, general economic trends and competition. Some of these considerations are similar to those we
consider in determining the Insurance Charge that we deduct from Account Value allocated to the Sub-accounts.
We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are
then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same
class.
The interest rate we credit for a Fixed Allocation is subject to a minimum. Please refer to the Statement of
Additional Information.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will
adjust the value of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market
Value Adjustment formula compares the interest rates credited for Fixed Allocations at the time you invested, to
interest rates being credited when you make a transfer or withdrawal. The amount of any Market Value Adjustment
can be either positive or negative, depending on the rates that are currently being credited on Fixed Allocations.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation to determine the Account Value of the Fixed
Allocation on a particular date. The formula is as follows:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the fixed interest rate we guaranteed to credit to the Fixed Allocation
as of its starting date;
J is the fixed interest rate for your class of annuities at the time of the
withdrawal for a new Fixed Allocation with a Guarantee Period equal to the
---
remaining number of years in your original Guarantee Period;
N is the number of months remaining in the original Guarantee Period.
If you surrender your Annuity under the right to cancel provision, the MVA formula is [(1 + I)/(1 + J)]N/12.
If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed
Allocation, the numbers used in `J' and `N' will be rounded to the next highest integer.
MVA Examples
The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the
following:
|X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years.
|X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%).
|X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after
exactly three (3) years, therefore 24 months remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a
Guarantee Period of 24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as
follows:
MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $59,456.20.
Example of Negative MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a
Guarantee Period of 24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as
follows:
MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $56,687.28.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. Before the Maturity Date,
you may choose to renew the Fixed Allocation for a new Guarantee Period of the same or different length or you
may transfer all or part of that Fixed Allocation's Account Value to another Fixed Allocation or to one or more
Sub-accounts. We will notify you before the end of the Guarantee Period about the fixed interest rates that we
are currently crediting to all Fixed Allocations that are being offered. The rates being credited to Fixed
Allocations may change before the Maturity Date. We will not charge a MVA if you choose to renew a Fixed
Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options.
If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, we will then transfer
the Account Value of the Fixed Allocation to the AST Money Market Sub-account. You can then elect to allocate
the Account Value to any of the Sub-accounts or to a new Fixed Allocation.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
Do you provide any guarantees on my investment?
The Annuity provides variable investment options and fixed investment options. Only the fixed investment options
provide a guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity
includes a feature at no additional cost that provides certain benefits if your Account Value has not reached or
exceeded a "target value" on its 10th anniversary. If, on the 10th anniversary of your Annuity's Issue Date,
your Account Value has not reached the target value (as defined below) you can choose either of the following
benefits:
|X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit
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to your Account Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of
the average of your Annuity's Account Value for the preceding four complete calendar quarters. This credit
is applied to your investment options pro-rata based on the allocation of your then current Account Value.
OR
|X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity
equal to 10% of the net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all
Purchase Payments allocated in the prior five years. The annuity option you select must initially guarantee
payments for not less than seven years.
Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not
meet or exceed the Target Value. We will assume that you have elected to receive the annual credit to your
Account Value unless, not less than 30 days prior to the next anniversary of the Annuity, we receive at our home
office your election to begin receiving Annuity payments.
Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase
your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we
issue.
What is the "Target Value" and how is it calculated?
The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described
above. The Target Value does not impact the Account Value available if you surrender your Annuity or make a
partial withdrawal and does not impact the Death Benefit available to your Beneficiary(ies). The Target Value
assumes a rate of return over ten (10) Annuity Years that will allow your initial investment to double in value,
adjusted for any withdrawals and/or additional Purchase Payments you make during the 10 year period. We
calculate the "Target Value" as follows:
1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of
the Annuity's Issue Date; plus
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2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied
until the 10th anniversary of the Annuity's Issue Date; minus
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3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of
7.2% from the date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We
determine each "proportional reduction" by determining the percentage of your Account Value then withdrawn
and reducing the Target Value by that same percentage. We include any withdrawals under your Annuity in
this calculation, as well as the charge we deduct for any optional benefits you elect under the Annuity, but
not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee.
Examples
1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The
Target Value on the 10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals
are made. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period.
2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at
the end of Year 6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500.
The Target Value on the 10th anniversary would be $18,722. This is equal to $10,000 accumulating at an
annual rate of 7.2% for the 10-year period, minus the proportional reduction accumulating at an annual
interest rate of 7.2%.
Can I restart the 10-year Target Value calculation?
Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of
the Issue Date. If you elect to restart the calculation period, we will treat your Account Value on the restart
date as if it was your Purchase Payment when determining if your Annuity's Account Value meets or exceeds the
Target Value on the appropriate tenth (10th) anniversary. You may elect to restart the calculation more than
once, in which case, the 10-year calculation period will begin on the date of the last restart date. We must
receive your election to restart the calculation at our home office not later than 30 days after each anniversary
of the Issue Date.
What are Target Value Credits?
Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that
your Account Value will meet or exceed the Target Value. We add Target Value Credits to your Account Value at
the time a Purchase Payment is applied to your Annuity. Only those Purchase Payments made before the first
anniversary of the Issue Date of your Annuity are eligible to receive Target Value Credits. Target Value Credits
are separate and distinct from other Credits we apply to all Purchase Payments.
The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits
are only payable on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its
Issue Date. If the Annuity is owned by an entity, the age restriction applies to the age of the Annuitant on the
Issue Date. The Target Value Credit is payable from our general account and is allocated to the investment
options in the same ratio that the qualifying Purchase Payment is allocated.
Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or
transfer, in whole or in part, of an Annuity we issued that has the same or a similar benefit.
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The amount of any Target Value Credits are not immediately vested and can be recovered by American Skandia under the circumstances
and for the time periods shown below. If American Skandia exercises its right to recover the amount of any Target Value Credit,
any investment gain on the Target Value Credit will not be taken back.
1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity.
2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date.
3. If a person on whose life we pay the Death Benefit dies, or if a "contingency event" occurs which triggers a
medically-related surrender:
|X| within 12 months after the date a Target Value Credit was allocated to your Account Value; or
|X| within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on
the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date.
Following completion of the above time periods, the amount of any Target Value Credits are vested in the Owner.
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ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation period you can access your Account Value through Partial Withdrawals, Systematic
Withdrawals, and where required for tax purposes, Minimum Distributions. You can also surrender your Annuity at
any time. We may deduct a portion of the Account Value being withdrawn or surrendered as a CDSC. If you
surrender your Annuity, in addition to any CDSC, we may deduct the Annual Maintenance Fee, any Tax Charge that
applies and the charge for any optional benefits. We may also apply a Market Value Adjustment to any Fixed
Allocations. Certain amounts may be available to you each Annuity Year that are not subject to a CDSC. These
are called "Free Withdrawals." In addition, under certain circumstances, we may waive the CDSC for surrenders
made for qualified medical reasons or for withdrawals made to satisfy Minimum Distribution requirements. Unless
you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at
the time we receive your withdrawal request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second
as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary
income taxation on the amount of any investment gain unless the distribution qualifies as a non-taxable exchange
or transfer. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice
before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate
you are subject to at the time of the payment. The Code and regulations have "exclusionary rules" that we use to
determine what portion of each annuity payment should be treated as a return of any tax basis you have in the
Annuity. Once the tax basis in the Annuity has been distributed, the remaining annuity payments are taxable as
ordinary income. The tax basis in the Annuity may be based on the tax-basis from a prior contract in the case of
a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation period.
|X| To meet liquidity needs, you can withdraw a limited amount of your Account Value during each of Annuity
Year 1-8 without a CDSC being applied. We call this the "Free Withdrawal" amount. The Free Withdrawal
amount is not available if you choose to surrender your Annuity. The minimum Free Withdrawal you may
request is $100.
|X| You can also make withdrawals in excess of the Free Withdrawal amount. We call this a "Partial
Withdrawal." The amount that you may withdraw will depend on the Annuity's Surrender Value. The
Surrender Value is equal to your Account Value minus any CDSC, the Annual Maintenance Fee, the Tax
Charge, any charges for optional benefits and any Market Value Adjustment that may apply to any Fixed
Allocations. After any Partial Withdrawal, your Annuity must have a Surrender Value of at least $1,000,
or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity. The
minimum Partial Withdrawal you may request is $100.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine
what, if any, amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial
Withdrawals or Systematic Withdrawals of amounts greater than the maximum Free Withdrawal amount will be subject
to a CDSC.
Partial Withdrawals may also be available following annuitization but only if you choose certain annuity payment
options.
To request the forms necessary to make a withdrawal from your Annuity, contact our Customer Service Team at
1-800-752-6342 or visit our Internet Website at www.americanskandia.com.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 10% of Purchase Payments that, as of the date of the withdrawal, have been invested for less than the
CDSC period (with your Annuity, eight (8) years). The 10% amount is not cumulative.
"Growth" equals the current Account Value less all Purchase Payments that have been invested for less than the
CDSC period and have not been previously withdrawn. "Growth" does not include any additional amounts we applied
to your Annuity based on your Purchase Payments (see "How Do I Receive Credits" and "What Are Target Value
Credits").
NOTE: Free withdrawals do not reduce the amount of any CDSC that would apply upon a partial withdrawal or
subsequent surrender. The minimum Free Withdrawal you may request is $100.
We may reduce or eliminate the amount available as a Free Withdrawal if your Annuity is used in connection with
certain plans that receive special tax treatment under the Code. As of the date of this Prospectus, the Free
Withdrawal privilege has been eliminated for Annuities purchased as funding vehicles for retirement plans under
Section 401 or 403(b) of the Code.
Examples
Assume you make an initial Purchase Payment of $10,000 and make no additional Purchase Payments. Assume that in
Annuity Year 2, due to positive investment performance, your Account Value is $12,500. The maximum Free
Withdrawal amount would be the greater of Growth (Account Value minus Purchase Payments = $2,500) or 10% of
Purchase Payments ($1,000). Your maximum Free Withdrawal amount would therefore be $2,500.
Further assume that in your third Annuity Year, you choose to surrender your Annuity. Assume that after taking
your $2,500 Free Withdrawal in Year 2, your Account Value has increased to $11,000 due to positive investment
performance. Upon surrender, we will deduct a CDSC of 8.5% based on the number of years that your Purchase
Payment has been invested times the amount of your Purchase Payment that has not been previously withdrawn (8.5%
of $10,000 = $850). The amount of the previous Free Withdrawal was not subject to a CDSC when withdrawn.
Therefore, upon surrender, the amount of the entire Purchase Payment is subject to the CDSC. You would receive
$10,150 minus the Annual Maintenance Fee and any Target Value Credits.
These examples do not reflect the effect of any Credits or Target Value Credits. These amounts are not available
as a free withdrawal.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine
what, if any, amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial
Withdrawal or Systematic Withdrawal of amounts greater than the maximum Free Withdrawal amount will be subject to
a CDSC.
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
A CDSC may be assessed against a Partial Withdrawal during the accumulation period. Whether a CDSC applies and
the amount to be charged depends on whether the Partial Withdrawal exceeds any Free Withdrawal amount and, if so,
the number of years that have elapsed since the Purchase Payment being withdrawn has been invested in the Annuity.
1. If you request a Partial Withdrawal we determine if the amount you requested is available as a Free
Withdrawal (in which case it would not be subject to a CDSC);
2. If the amount requested exceeds the available Free Withdrawal amount:
|X| First, we withdraw the amount from Purchase Payments that have been invested for longer than the CDSC
period, if any (with your Annuity, eight (8) years);
|X| Second, we withdraw the remaining amount from the Purchase Payments that are still subject to a CDSC.
We withdraw the "oldest" of your Purchase Payments first so that the lowest CDSC will apply to the
amount withdrawn.
Any CDSC will only apply to the amount withdrawn that exceeds the Free Withdrawal amount.
3. If the amount requested exceeds the amounts available under Item#2 above, we withdraw the remaining amount
from any other Account Value (including Account Value due to Credits and Target Value Credits).
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal
plus earnings or a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine
whether a CDSC applies and the amount in the same way as we would for a Partial Withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed
Allocations. Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the
program of Systematic Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings.
Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The Surrender Value
of your Annuity must be at least $20,000 before we will allow you to begin a program of Systematic Withdrawals.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less
than $100, we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on
the next scheduled Systematic Withdrawal.
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE?
Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment
under Sections 401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10%
penalty tax on distributions made prior to age 59 1/2if you elect to receive distributions as a series of
"substantially equal periodic payments". Distributions received under this provision in any Annuity Year that
exceed the maximum amount available as a free withdrawal will be subject to a CDSC. To request a program that
complies with Section 72(t), you must provide us with certain required information in writing on a form
acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The
Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for
withdrawals under Section 72(t). The minimum amount for any such withdrawal is $100.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life
expectancy) as a means of receiving income payments before age 59 1/2that are not subject to the 10% penalty.
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?
(See "Tax Considerations" for a further discussion of Minimum Distributions.)
Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under
Sections 401, 403(b) or 408 of the Code. Under the Code, you may be required to begin receiving periodic amounts
from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the
minimum distribution rules under the Code. We do not assess a CDSC on Minimum Distributions from your Annuity if
you are required by law to take such Minimum Distributions from your Annuity at the time it is taken. However, a
CDSC may be assessed on that portion of a Systematic Withdrawal that is taken to satisfy the minimum distribution
requirements in relation to other savings or investment plans under other qualified retirement plans not
maintained with American Skandia.
The amount of the required Minimum Distribution for your particular situation may depend on other annuities,
savings or investments. We will only calculate the amount of your required Minimum Distribution based on the
value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of
your payments. We may charge you for calculating required Minimum Distributions. You may elect to have Minimum
Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum that applies to
Systematic Withdrawals does not apply to Minimum Distributions.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life
expectancy) as a means of receiving income payments and satisfying the Minimum Distribution requirements under
the Code.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will
receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the
Annuity.
Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value.
To request the forms necessary to surrender your Annuity, contact our Customer Service Team at 1-800-752-6342 or
visit our Internet Website at www.americanskandia.com.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity prior to the Annuity Date without application
of any CDSC upon occurrence of a medically-related "Contingency Event". The amount payable will be your Account
Value minus: (a) the amount of any Credits applied within 12 months of the applicable "Contingency Event" as
defined below; (b) the amount of any Credits added in conjunction with any Purchase Payments received after our
receipt of your request for a medically-related surrender (i.e. Purchase Payments received at such time pursuant
to a salary reduction program; and (c) the amount of any Target Value Credits under certain circumstances.
This waiver of any applicable CDSC is subject to our rules, including but not limited to the following:
|X| the Annuitant must be named or any change of Annuitant must be accepted by us, prior to the "Contingency
Event" described below;
|X| the Annuitant must be alive as of the date we pay the proceeds of such surrender request;
|X| if the Owner is one or more natural persons, all such Owners must also be alive at such time;
|X| we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal
Illness in writing on a form satisfactory to us; and
|X| this benefit is not available if the total Purchase Payments received exceed $500,000 for all annuities
issued by us with this benefit where the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
|X| first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at
least 90 days in a row; or
|X| first diagnosed as having a "Fatal Illness" while your Annuity is in force.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are
provided in your Annuity. Specific details and definitions in relation to this benefit may differ in certain
jurisdictions.
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?
We currently make annuity options available that provide fixed annuity payments, variable payments or adjustable
payments. Fixed options provide the same amount with each payment. Variable options generally provide a payment
which may increase or decrease depending on the investment performance of the Sub-accounts. However, currently,
we also make a variable payment option that has a guarantee feature. Adjustable options provide a fixed payment
that is periodically adjusted based on current interest rates. We do not guarantee to make any Annuity Payment
Options available in the future.
When you purchase an Annuity, or at a later date, you may choose an Annuity Date, an annuity option and the
frequency of annuity payments. You may change your choices up to 30 days before the Annuity Date. A maximum
Annuity Date may be required by law. Any change to these options must be in writing. The Annuity Date may
depend on the annuity option you choose. Certain annuity options may not be available depending on the age of
the Annuitant.
Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit
proceeds as a series of payments instead of a lump sum payment.
Option 1
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Payments for Life: Under this option, income is payable periodically until the death of the "key life". The
"key life" (as used in this section) is the person or persons upon whose life annuity payments are based. No
additional annuity payments are made after the death of the key life. Since no minimum number of payments is
guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options.
It is possible that only one payment will be payable if the death of the key life occurs before the date the
second payment was due, and no other payments nor death benefits would be payable. This Option is currently
available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 2
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Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of
two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior
to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that
only one payment will be payable if the death of all the key lives occurs before the date the second payment was
due, and no other payments or death benefits would be payable. This Option is currently available on a fixed or
variable basis. Under this option, you cannot make a partial or full surrender of the annuity.
Option 3
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Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life.
However, if the key life dies before the end of the period selected (5, 10, 15, or 20 years), the remaining
payments are paid to the Beneficiary until the end of such period. This Option is currently available on a fixed
or variable basis. If you elect to receive payments on a variable basis under this option, you can request
partial or full surrender of the annuity and receive its then current cash value (if any) subject to our rules.
Option 4
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Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of
years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the
Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of
life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives
outlive our expectations provides no benefit to an Owner selecting this option. Under this option, you cannot
make a partial or full surrender of the annuity.
Option 5
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Variable Payments for a Certain Period: Under this option, income is payable periodically for a specified number
of years. The number of years cannot be less than 5 or more than 50. Payments may increase or decrease
depending on the investment performance of the Sub-Accounts. If the payee dies before the end of the specified
number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under
this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the
Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an
Owner selecting this option. If this option is selected, full surrenders may be made from the Annuity prior to
the last guaranteed Payment Date. No partial surrenders are permitted if this option is selected.
Option 6
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Variable Payments for Life with a Cash Value: Under this option, benefits are payable periodically until the
death of the key life. Benefits may increase or decrease depending on the investment performance of the
Sub-accounts. This option has a cash value that also varies with the investment performance of the Sub-account.
The cash value provides a "cushion" from volatile investment performance so that negative investment performance
does not automatically result in a decrease in the annuity payment each month, and positive investment
performance does not automatically result in an increase in the annuity payment each month. The cushion
generally "stabilizes" monthly annuity payments. Any cash value remaining on the death of the key life is paid
to the Beneficiary in a lump sum or as periodic payments. Under this option, you can request partial or full
surrender of the annuity and receive its then current cash value (if any) subject to our rules.
Option 7
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Variable Payments for Life with a Cash Value and Guarantee: Under this option, benefits are payable as described
in Option 6; except that, while the key life is alive, the annuity payment will not be less than a guaranteed
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amount, which generally is equal to the first annuity payment. We charge an additional amount for this
guarantee. Under this option, any cash value remaining on the death of the key life is paid to the Beneficiary in
a lump sum or as periodic payments. Under this option, you can request partial or full surrender of the annuity
and receive its then current cash value (if any) subject to our rules.
We may make additional annuity payment options available in the future.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of
at least 5 years if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Therefore,
making a purchase payment within eight years of the Annuity Date limits your annuity payment options. Certain
annuity payment options may not be available if your Annuity Date occurs during the period that a CDSC would
apply.
If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then:
|X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th
birthday or the fifth anniversary of our receipt of your request to purchase an Annuity; and
|X| the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments
for Life with 10 years certain.
HOW ARE ANNUITY PAYMENTS CALCULATED?
Fixed Annuity Payments (Options 1-4)
If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the
period you select. The amount of the fixed payment will vary depending on the annuity payment option and payment
frequency you select. Generally, the first annuity payment is determined by multiplying the Account Value, minus
any state premium taxes that may apply, by the factor determined from our table of annuity rates. The table of
annuity rates differs based on the type of annuity chosen and the frequency of payment selected. Our rates will
not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the a2000
Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or
regulation, such annuity table will have rates that do not differ according to the gender of the key life.
Otherwise, the rates will differ according to the gender of the key life.
Variable Annuity Payments
We offer three different types of variable annuity payment options. The first annuity payment will be calculated
based upon the assumed investment return ("AIR"). You select the AIR before we start to make Annuity Payments.
The remaining annuity payments will fluctuate based on the performance of the Portfolios relative to the AIR, as
well as, other factors described below. The greater the AIR, the greater the first annuity payment. A higher
AIR may result in smaller potential growth in the annuity payments. A lower AIR results in a lower initial
annuity payment.
|X| Variable Payments (Options 1-3 & 5)
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We calculate each annuity payment amount by multiplying the number of units scheduled to be redeemed
under a schedule of units for each Sub-account by the Unit Value of each Sub-Account on the annuity
payment date. We determine the schedule of units based on your Account Value (minus any premium tax that
applies) at the time you elect to begin receiving annuity payments. The schedule of units will vary
based on the annuity payment option selected, the length of any certain period (if applicable), the
Annuitant's age and gender (if annuity payments are due for the life of the Annuitant) and the Unit
Value of the Sub-Accounts you initially selected on the Issue Date. The calculation is performed for
each Sub-Account, and the sum of the Sub-Account calculations equals the amount of your annuity
payment. Other than to fund annuity payments, the number of units allocated to each Sub-Account will
not change unless you transfer among the Sub-Accounts or make a withdrawal (if allowed). You can select
one of three AIRs for these options: 3%, 5% or 7%.
|X| Stabilized Variable Payments (Option 6)
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This option provides guaranteed payments for life, a cash value for the Annuitant (while alive) and a
variable period of time during which annuity payments will be made whether or not the Annuitant is still
alive. We calculate the initial annuity payment amount by multiplying the number of units scheduled to
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be redeemed under a schedule of units by the Unit Values determined on the annuitization date. The
schedule of units is established for each Sub-account you choose on the annuitization date based on the
applicable benchmark rate and the annuity factors. The annuity factors reflect our assumptions
regarding the costs we expect to bear in guaranteeing payments for the lives of the Annuitant and will
depend on the benchmark rate, the annuitant's attained age and gender (where permitted). Unlike
variable payments (described above) where each payment can vary based on Sub-account performance, this
payment option cushions the immediate impact of Sub-account performance by adjusting the length of the
time during which annuity payments will be made whether or not the Annuitant is alive while generally
maintaining a level annuity payment amount. Sub-account performance that exceeds a benchmark rate will
generally extend this time period, while Sub-account performance that is less than a benchmark rate will
generally shorten the period. If the period reaches zero and the Annuitant is still alive, Annuity
Payments continue, however, the annuity payment amount will vary depending on Sub-account performance,
similar to conventional variable payments. The AIR for this option is 4%.
|X| Stabilized Variable Payments with a Guaranteed Minimum (Option7)
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This option provides guaranteed payments for life in the same manner as Stabilized Variable Payments
(described above). In addition to the stabilization feature, this option also guarantees that variable
annuity payments will not be less than the initial annuity payment amount regardless of Sub-account
performance. The AIR for this option is 3%.
Adjustable Annuity Payments
We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly
to fixed annuity payments except that on every fifth (5th) anniversary of receiving annuity payments, the annuity
payment amount is adjusted upward or downward depending on the rate we are currently crediting to annuity
payments. The adjustment in the annuity payment amount does not affect the duration of remaining annuity
payments, only the amount of each payment.
DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
The Annuity provides a Death Benefit during its accumulation period. If the Annuity is owned by one or more
natural persons, the Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an
entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. If a
Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent
Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death
the Death Benefit is paid is referred to below as the "decedent."
The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct from Account
Value allocated to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic
Death Benefit guarantee under the Annuity. The Annuity also offers two different optional Death Benefits.
Either benefit can be purchased for an additional charge. The additional charge is deducted to compensate
American Skandia for providing increased insurance protection under the optional Death Benefits. Notwithstanding
the additional protection provided under the optional Death Benefits, the additional cost has the impact of
reducing the net performance of the investment options. Under certain circumstances, your Death Benefit may be
reduced by the amount of any Credits or Target Value Credits we applied to your Purchase Payments (see "How are
Credits Applied to My Account Value" and "Recovery of Target Value Credits").
Basic Death Benefit
The basic Death Benefit depends on the decedent's age on the date of death:
If death occurs during the first ten (10) Annuity Years: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed
Allocations.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit is your Account Value.
OPTIONAL DEATH BENEFITS
You can purchase either of two optional Death Benefits with your Annuity to provide an enhanced level of
protection for your beneficiaries. We do not currently offer the Annuity with both optional Death Benefits.
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Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We
may, at a later date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to
our rules and any changes or restrictions in the benefits. Certain terms and conditions may differ if you
purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other
Annuity we issue.
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Enhanced Beneficiary Protection Optional Death Benefit
The Enhanced Beneficiary Protection Optional Death Benefit can provide additional amounts to your Beneficiary
that may be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of
your death. Whether this benefit is appropriate for you may depend on your particular circumstances, including
other financial resources that may be available to your Beneficiary to pay taxes on your Annuity should you die
during the accumulation period. No benefit is payable if death occurs on or after the Annuity Date.
The Enhanced Beneficiary Protection Optional Death Benefit provides a benefit that is payable in addition to the
basic Death Benefit. If the Annuity has one Owner, the Owner must be age 75 or less at the time the benefit is
purchased. If the Annuity has joint Owners, the oldest Owner must be age 75 or less. If the Annuity is owned by
an entity, the Annuitant must be age 75 or less.
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The Enhanced Beneficiary Protection Optional Death Benefit is being offered in those jurisdictions where we have
received regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The
benefit is currently only offered to Owners who purchase the Annuity as a "non-qualified" investment. We may
make the benefit available to Owners who purchase the Annuity as an IRA or other "qualified" investment at a
later date. Please refer to the section entitled "Tax Considerations" for a discussion of special tax
considerations for purchasers of this benefit.
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Calculation of Enhanced Beneficiary Protection Optional Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as
follows:
1. the basic Death Benefit described above
PLUS
2. 50% of the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Death Benefit Amount includes your Account Value and any amounts added to your Account Value under the basic
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Death Benefit when the Death Benefit is calculated. Under the basic Death Benefit, amounts are added to your
Account Value when the Account Value is less than Purchase Payments minus proportional withdrawals.
The amount calculated in Items 1 & 2 above may be reduced by any Credits or Target Value Credits under certain
circumstances.
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The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 50% of all Purchase
Payments applied to the Annuity at least 12 months prior to the death of the decedent that triggers the payment
of the Death Benefit.
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See Appendix C for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated.
Guaranteed Minimum Death Benefit
If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is
purchased. If the Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by
an entity, the Annuitant must be age 80 or less.
Key Terms Used with the Guaranteed Minimum Death Benefit
|X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current
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Owner, the oldest of either joint Owner or the Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the
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earlier of the Owner's date of death and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all
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Purchase Payments on or after such anniversary less the sum of all "Proportional Reductions" since such
anniversary.
|X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the
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percentage of the withdrawal as compared to the Account Value as of the date of the withdrawal. For
example, if your Account Value is $10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both
your Anniversary Value and the amount determined by Purchase Payments increasing at the appropriate interest
rate by 20%.
Calculation of Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit depends on whether death occurs before or after the Death Benefit Target
Date.
If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of:
1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the
date we receive in writing "due proof of death"; and
2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily
until the Owner's date of death at a rate of 5.0%, subject to a limit of 200% of the difference
between the sum of all Purchase Payments and the sum of all withdrawals as of the Owner's date of
death; and
3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death.
The amount determined by this calculation is increased by any Purchase Payments received after the
Owner's date of death and decreased by any Proportional Reductions since such date. The amount
calculated in Items 1 & 3 above may be reduced by any Credits or Target Value Credits under certain
circumstances.
If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of:
1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to
amounts in any Fixed Allocations); and
2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments
less the sum of all Proportional Reductions since the Death Benefit Target Date.
The amount calculated in Item 1 above may be reduced by any Credits or Target Value Credits under
certain circumstances.
Annuities with joint Owners
For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest
of the Joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the
Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the
surviving spouse, then the surviving spouse can elect to assume ownership of the Annuity and continue the
contract instead of receiving the Death Benefit.
Annuities owned by entities
For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the
Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death
of the Annuitant (or Contingent Annuitant, if applicable).
Can I terminate the optional Death Benefits? Do the optional Death Benefits terminate under other circumstances?
You can terminate the Enhanced Beneficiary Protection Optional Death Benefit at any time. Upon termination, you
will be required to pay a pro-rata portion of the annual charge for the benefit. The Guaranteed Minimum Death
Benefit cannot be terminated once it is elected. Both optional Death Benefits will terminate automatically on
the Annuity Date. We may also terminate the optional Death Benefit if necessary to comply with our
interpretation of the Code and applicable regulations.
How much do you charge for the optional Death Benefit?
We deduct a charge from your Account Value if you elect to purchase either optional Death Benefit. No charge
applies after the Annuity Date. We deduct the charge:
1. on each anniversary of the Issue Date;
2. when Account Value is transferred to our general account prior to the Annuity Date;
3. if you surrender your Annuity; and
4. if you choose to terminate the benefit (Enhanced Beneficiary Protection Optional Death Benefit only)
If you surrender the Annuity, elect to begin receiving annuity payments or terminate the benefit on a date other
than an anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date,
the charge will be prorated from the Issue Date. In all subsequent years, it would be prorated from the last
anniversary of the Issue Date.
We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We
only deduct the charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in
the variable investment options to pay the charge. If your Annuity's Account Value is insufficient to pay the
charge, we may deduct your remaining Account Value and terminate your Annuity. We will notify you if your
Account Value is insufficient to pay the charge and allow you to submit an additional Purchase Payment to
continue your Annuity.
Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the
optional Death Benefit.
PAYMENT OF DEATH BENEFITS
Payment of Death Benefit to Beneficiary
Except in the case of a spousal Beneficiary, in the event of your death, the death benefit must be distributed:
|X| as a lump sum amount at any time within five (5) years of the date of death; or
|X| as a series of annuity payments not extending beyond the life expectancy of the Beneficiary or over the
life of the Beneficiary. Payments under this option must begin within one year of the date of death.
Unless you have made an election prior to death benefit proceeds becoming due, a Beneficiary can elect to receive
the Death Benefit proceeds as a series of fixed annuity payments (Annuity Payment Option 1-4) or as a series of
variable annuity payments (Annuity Payment Option 1-3 or 5-7). See the section entitled "What Types of Annuity
Options are Available."
Spousal Beneficiary - Assumption of Annuity
You may name your spouse as your Beneficiary. If you and your spouse own the Annuity jointly, we assume that the
sole primary Beneficiary will be the surviving spouse unless you elect an alternative Beneficiary designation.
Unless you elect an alternative Beneficiary designation, the spouse Beneficiary may elect to assume ownership of
the Annuity instead of taking the Death Benefit payment. Any Death Benefit (including any optional Death
Benefits) that would have been payable to the Beneficiary will become the new Account Value as of the date we
receive due proof of death and any required proof of a spousal relationship. As of the date the assumption is
effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity
to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the
surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply
to the new Account Value. However, any additional Purchase Payments applied after the date the assumption is
effective will be subject to all provisions of the Annuity.
See the section entitled "Managing Your Annuity - Spousal Contingent Annuitant" for a discussion of the treatment
of a spousal Contingent Annuitant in the case of the death of the Annuitant in an entity owned Annuity.
Inherited IRA Death Benefit Payout
The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or
other "qualified investment" that requires Minimum Distributions. The available payment options will depend on
whether the Owner died on or before the date he or she was required to begin receiving Minimum Distributions
under the Code and whether the Beneficiary is the surviving spouse.
|X| If death occurs before the date Minimum Distributions must begin under the Code, the Death Benefit can
be paid out in either a lump sum, within five years from the date of death, or over the life or life
expectancy of the designated Beneficiary (as long as payments begin by December 31st of the year
following the year of death). However, if the spouse is the Beneficiary, the Death Benefit can be paid
out over the life or life expectancy of the spouse with such payments beginning no earlier than December
31 of the year following the year of death or December 31st of the year in which the deceased would have
reached age 70 1/2, which ever is later.
|X| If death occurs after the date Minimum Distributions must begin under the Code, the Death Benefit must
be paid out at least as rapidly as under the method then in effect.
A Beneficiary has the flexibility to take out more each year than required under the Minimum Distribution rules.
Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts
withdrawn each year, including amounts that are required to be withdrawn under the Minimum Distribution rules,
are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular
situation. See the section entitled "How are Distributions From Qualified Contracts Taxed? - Minimum
Distributions after age 70 1/2."
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the
Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or
Annuitant due to the prior Owner's or Annuitant's death. Any minimum Death Benefit that applies will be
suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year
suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on
the Issue Date.
When do you determine the Death Benefit?
We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written
representations we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof
of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of
competent jurisdiction as to the finding of death or other satisfactory proof of death. Upon our receipt of "due
proof of death" we automatically transfer the Death Benefit to the AST Money Market Sub-Account until we further
determine the universe of eligible Beneficiaries. Once the universe of eligible Beneficiaries has been
determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit to the
Sub-Accounts according to our rules.
Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit.
Absent an election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may
require written acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period
from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject
to market fluctuations.
VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for
each Sub-account allocation and for each Fixed Allocation. The Account Value is the sum of the values of each
Sub-account allocation and the value of each Fixed Allocation. The Account Value does not reflect any CDSC that
may apply to a withdrawal or surrender. The Account Value includes any additional amounts we applied to your
Purchase Payments that we are entitled to recover upon surrender of your Annuity. When determining the Account
Value on any day other than a Fixed Allocation's Maturity Date, the Account Value may include any Market Value
Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The
Surrender Value is equal to your Account Value minus any CDSC, the Annual Maintenance Fee, the charge for any
optional Death Benefit and any additional amounts we applied to your Purchase Payments that we are entitled to
recover upon surrender of your Annuity. The Surrender Value will also include any Market Value Adjustment that
may apply.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account
invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market
fluctuations of the Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge.
Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit
Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the
number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of
the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is
$14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of
your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the
transfer, the Unit Price of the original Sub-account has increased to $16.79. To transfer $3,000, we sell
178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new
Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any
day and is equal to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed
Allocation as of the date calculated. The Interim Value does not include the impact of any Market Value
Adjustment. If you made any transfers or withdrawals from a Fixed Allocation, the Interim Value will reflect the
withdrawal of those amounts and any interest credited to those amounts before they were withdrawn. To determine
the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply the Account Value of
the Fixed Allocation times the Market Value Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within
two (2) days after we receive all of our requirements to issue the Annuity. If we do not have all the required
information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or
your representative to obtain all of our requirements. If we are unable to obtain all of our required
information within five (5) days, we are required to return the Purchase Payment to you at that time, unless you
specifically consent to our retaining the Purchase Payment while we gather the required information. Once we
obtain the required information, we will invest the Purchase Payment and issue the Annuity within two (2) days.
During any period that we are trying to obtain the required information, your money is not invested.
Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive
the Purchase Payment with satisfactory instructions.
Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing,
or asset allocation program, Systematic Withdrawals, Minimum Distributions or annuity payments. Scheduled
transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a
Valuation Day. In that case, the transaction will be processed and valued on Valuation Day prior to the
scheduled transaction date.
Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for
Partial Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of
the Valuation Day we receive the request at our Office in good order.
Medically-related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims
require our review and evaluation before processing. We price such transactions as of the date we receive at our
Office all materials we require for such transaction and that are satisfactory to us.
TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?
Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since
the tax laws are complex and tax consequences are affected by your individual circumstances, this summary of our
interpretation of the relevant tax laws is not intended to be fully comprehensive nor is it intended as tax
advice. Therefore, you may wish to consult a professional tax advisor for tax advice as to your particular
situation.
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?
The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance
company under Part I, subchapter L of the Code. No taxes are due on interest, dividends and short-term or
long-term capital gains earned by the Separate Accounts with respect to the Annuities.
IN GENERAL, HOW ARE ANNUITIES TAXED?
Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in
large part on:
1. whether the Annuity is used by:
|X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for
special treatment under the Code (for purposes of this discussion, a "Qualified Contract"); or
|X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and
2. whether the Owner is:
|X| an individual person or persons; or
|X| an entity including a corporation, trust or partnership.
Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed
on any increase in the value of the Annuity until an amount is received (a "distribution"). This is commonly
referred to as "tax deferral". A distribution can be in the form of a lump sum payment including payment of a
Death Benefit, or in annuity payments under one of the annuity payment options. Certain other transactions may
qualify as a distribution and be subject to taxation.
Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of
the Annuity must currently include any increase in the value of the Annuity during a tax year in its gross
income. An exception from current taxation applies for annuities held by an employer with respect to a
terminated tax-qualified retirement plan, a trust holding an annuity as an agent for a natural person, or by a
decedent's estate by reason of the death of the decedent. A tax-exempt entity for Federal tax purposes will not
be subject to income tax as a result of this provision.
HOW ARE DISTRIBUTIONS TAXED?
Distributions from an Annuity are taxed as ordinary income and not as capital gains.
Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as
coming first from "income on the contract" and then as a return of the "investment in the contract". The amount
of any distribution that is treated as receipt of "income on the contract" is includible in the taxpayer's gross
income and taxable in the year it is received. The amount of any distribution treated as a return of the
"investment in the contract" is not includible in gross income.
|X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from
the aggregate value of all "related contracts" (discussed below).
|X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any
previous distributions or portions of such distributions from such "related contracts" that were not
includible in gross income. "Investment in the contract" may be affected by whether an annuity or any
"related contract" was purchased as part of a tax-free exchange of life insurance, endowment, or annuity
contracts under Section 1035 of the Code. The "investment in the contract" for a Qualified Contract will be
considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will
generally be taxable. The taxable portion of each annuity payment is determined by a formula which establishes
the ratio that the "investment in the contract" bears to the total value of annuity payments to be made. This is
called the "exclusion ratio." The investment in the contract is excluded from gross income. Any portion of an
annuity payment received that exceeds the exclusion ratio will be entirely includible in gross income. The
formula for determining the exclusion ratio differs between fixed and variable annuity payments. When annuity
payments cease because of the death of the person upon whose life payments are based and, as of the date of
death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the
"investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by
the beneficiary in the tax year of such death.
Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a
Qualified Contract (Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount
includible in gross income. This penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 591/2;
|X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death
of the annuitant;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a series of substantially equal periodic payments for the life (or life
expectancy) of the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary);
|X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14,
1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan
that is held by the employer until the employee separates from service.
Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner
within the same calendar year (other than certain contracts owned in connection with a tax-qualified retirement
arrangement) are to be treated as one annuity contract when determining the taxation of distributions before
annuitization. We refer to these contracts as "related contracts." In situations involving related contracts we
believe that the values under such contracts and the investment in the contracts will be added together to
determine the proper taxation of a distribution from any one contract described under the section "Distributions
before Annuitization." Generally, distributions will be treated as coming first from income on the contract
until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the
contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view
related contracts when one or more contracts are immediate annuities or are contracts that have been annuitized.
The Internal Revenue Service has not issued guidance clarifying this issue as of the date of this Prospectus.
You are particularly cautioned to seek advice from your own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)"
distributions) Any modification to a program of distributions which are part of a series of substantially equal
periodic payments that occur before the later of the taxpayer reaching age 59 1/2or five (5) years from the first
of such payments will result in the requirement to pay the 10% premature distribution penalty that would have
been due had the payments been treated as subject to the 10% premature distribution penalty in the years
received, plus interest. This does not apply when the modification is by reason of death or disability.
American Skandia does not currently support a section 72(q) program.
Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the immediate annuity
exception to the 10% penalty described above under "Penalty Tax on Distributions" for "non-qualified" immediate
annuities as defined under the Code may not apply to annuity payments under a contract recognized as an immediate
annuity under state insurance law obtained pursuant to an exchange of a contract if: (a) purchase payments for
the exchanged contract were contributed or deemed to be contributed more than one year prior to the annuity
starting date under the immediate annuity; and (b) the annuity payments under the immediate annuity do not meet
the requirements of any other exception to the 10% penalty.
Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain
tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased
through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August
14, 1982, then any distributions other than as annuity payments will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into
the annuity;
|X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to
August 14, 1982 (including income on such original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982.
Therefore, to the extent a distribution is equal to or less than the remaining investment in the contract made
prior to August 14, 1982, such amounts are not included in taxable income. Further, distributions received that
are considered to be a return of investment on the contract from purchase payments made prior to August 14, 1982,
such distributions are not subject to the 10% tax penalty. In all other respects, the general provisions of the
Code apply to distributions from annuities obtained as part of such an exchange.
Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore
avoiding current taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2
withdrawals. The IRS has reserved the right to treat transactions it considers abusive as ineligible for this
favorable partial 1035 exchange treatment. We do not know what transactions may be considered abusive. For
example, we do not know how the IRS may view early withdrawals or annuitizations after a partial exchange. As of
the date of this prospectus, we will treat a partial surrender of this type involving a non-qualified annuity
contract as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a reporting
and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some
insurance companies may not recognize these partial surrenders as tax-free exchanges and may report them as
taxable distributions to the extent of any gain distributed as well as subjecting the taxable portion of the
distribution to the 10% IRS early distribution penalty. We strongly urge you to discuss any transaction of this
type with your tax advisor before proceeding with the transaction.
There is no guidance from the Internal Revenue Service as to whether a partial exchange from a life insurance
contract is eligible for non-recognition treatment under Section 1035 of the Code. We will continue to report a
partial surrender of a life insurance policy as subject to current taxation to the extent of any gain. In
addition, please be cautioned that no specific guidance has been provided as to the impact of such a transaction
for the remaining life insurance policy, particularly as to the subsequent methods to be used to test for
compliance under the Code for both the definition of life insurance and the definition of a modified endowment
contract.
Special Considerations for Purchasers of the Enhanced Beneficiary Protection Optional Death Benefit: As of the
date of this Prospectus, it is our understanding that the charges related to the optional Death Benefit are not
subject to current taxation and we will not report them as such. However, the IRS could take the position that
these charges should be treated as partial withdrawals subject to current taxation to the extent of any gain and,
if applicable, the 10% tax penalty. We reserve the right to report charges for the optional Death Benefit as
partial withdrawals if we, as a reporting and withholding agent, believe that we would be expected to report them
as such.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have
provided summaries of the types of tax-qualified retirement plans with which we may issue an Annuity. These
summaries provide general information about the tax rules and are not intended to be complete discussions. The
tax rules regarding qualified plans are complex. These rules may include limitations on contributions and
restrictions on distributions, including additional taxation of distributions and additional penalties. The
terms and conditions of the tax-qualified retirement plan may impose other limitations and restrictions that are
in addition to the terms of the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice,
both as to the tax treatment and suitability of such an investment. American Skandia does not offer all of its
annuities to all of these types of tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate
pension and profit-sharing plans established by corporate employers under Section 401(a) of the Code including
401(k) plans. Contributions to such plans are not taxable to the employee until distributions are made from the
retirement plan. The Code imposes limitations on the amount that may be contributed and the timing of
distributions. The tax treatment of distributions is subject to special provisions of the Code, and also depends
on the design of the specific retirement plan. There are also special requirements as to participation,
nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed
individuals for themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans".
These plans are subject to most of the same types of limitations and requirements as retirement plans established
by corporations. However, the exact limitations and requirements may differ from those for corporate plans.
Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into
which contributions may be made by certain qualifying employers such as public schools and certain charitable,
educational and scientific organizations specified in Section 501(c)(3) for the benefit of their employees. Such
contributions are not taxable to the employee until distributions are made from the TSA. The Code imposes limits
on contributions, transfers and distributions. Nondiscrimination requirements also apply.
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Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made
pursuant to a salary reduction agreement unless the distribution is made:
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|X| After the participating employee attains age 59 1/2;
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|X| Upon separation from service, death or disability; or
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|X| In the case of financial hardship (subject to restrictions).
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Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and
certain other tax exempt employers for their employees may invest in annuity contracts. The Code limits
contributions and distributions, and imposes eligibility requirements as well. Contributions are not taxable to
employees until distributed from the plan. However, plan assets remain the property of the employer and are
subject to the claims of the employer's general creditors until such assets are made available to participants or
their beneficiaries.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an
individual retirement account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the
amount that may be contributed, the contributions that may be deducted from taxable income, the persons who may
be eligible to establish an IRA and the time when distributions must commence. Further, an Annuity may be
established with "roll-over" distributions from certain tax-qualified retirement plans and maintain the
tax-deferred status of these amounts.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax
deductible. However, distributions from a Roth IRA are free from Federal income taxes and are not subject to the
10% penalty tax if five (5) tax years have passed since the first contribution was made or any conversion from a
traditional IRA was made and the distribution is made (a) once the taxpayer is age 59 1/2or older, (b) upon the
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death or disability of the taxpayer, or (c) for qualified first-time home buyer expenses, subject to certain
limitations. Distributions from a Roth IRA that are not "qualified" as described above may be subject to Federal
income and penalty taxes.
Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on
eligibility, contributions, transferability and distributions. It also describes the conditions under which
distributions from IRAs and qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis
and the conditions under which distributions from traditional IRAs may be rolled over to, or the traditional IRA
itself may be converted into, a Roth IRA.
SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP
IRAs. Employer contributions that may be made to employee SEP IRAs are larger than the amounts that may be
contributed to other IRAs, and may be deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a
portion of each distribution may be excludable from income. The excludable amount is the proportion of a
distribution representing after-tax contributions. Generally, a 10% penalty tax applies to the taxable portion
of a distribution from a Qualified Contract made prior to age 59 1/2. However, the 10% penalty tax does not apply
when the distribution:
|X| is part of a properly executed transfer to another IRA or another eligible qualified account;
|X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in
Section 72(m)(7) of the Code);
|X| is part of a series of substantially equal periodic payments to be paid not less frequently than
annually for the taxpayer's life or life expectancy or for the joint lives or life expectancies of the
taxpayer and a designated beneficiary;
|X| is subsequent to a separation from service after the taxpayer attains age 55*;
|X| does not exceed the employee's allowable deduction in that tax year for medical care*;
|X| is made to an alternate payee pursuant to a qualified domestic relations order*; and
|X| is made pursuant to an IRS levy.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be
available.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be
distributed, or begin to be distributed, by the "required beginning date". This is April 1st of the calendar
year following the later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the employer sponsoring the plan.
The retirement option is not available to IRAs.
The IRS has released proposed Treasury regulations containing new Minimum Distribution rules. Under the new
rules, the Minimum Distribution amount will be lower for the vast majority of individuals. The new rules are
available, at the option of the individual, for Minimum Distributions required in the year 2001. For Minimum
Distributions required in 2002 and beyond, the individual must utilize the new Minimum Distribution rules.
Under existing Minimum Distribution rules, the participant's entire interest must be distributed beginning no
later than the required beginning date over a period which may not extend beyond a maximum of the life or life
expectancy of the participant (or the life expectancies of the owner and a designated beneficiary). Each annual
distribution must equal or exceed a "minimum distribution amount" which is determined by dividing the account
value by the applicable life expectancy or pursuant to an annuity payout. If the account balance is used, it
generally is based upon the Account Value as of the close of business on the last day of the previous calendar
year.
If the participant dies before reaching his or her "required beginning date", his or her entire interest must
generally be distributed within five (5) years of death. However, this rule will be deemed satisfied if
distributions begin before the close of the calendar year following death to a designated beneficiary (or over a
period not extending beyond the life expectancy of the beneficiary). If the Beneficiary is the individual's
surviving spouse, distributions may be delayed until the deceased owner would have attained age 701/2. A
surviving spouse would also have the option to assume the IRA as his or her own if he or she is the sole
designated beneficiary. If a participant dies after reaching his or her required beginning date or after
distributions have commenced, the individual's interest must generally be distributed at least as rapidly as
under the method of distribution in effect at the time of the individual's death.
If the amount distributed is less than the minimum required distribution for the year, the participant is subject
to a 50% tax on the amount that was not properly distributed.
Under the new Minimum Distribution rules, a uniform life expectancy table will be utilized by all participants
except those with a spouse who is more than ten (10) years younger than the participant. In that case, the new
rules permit the participant to utilize the actual life expectancies of the participant and the spouse. In
addition, the designated beneficiary under the new rules is not determined until December 31 of the year
following the year of the participant's death. In most cases, the beneficiary may be changed during the
participant's lifetime with no affect on the Minimum Distributions. At death, the designated Beneficiary may
take Minimum Distributions over his/her life expectancy or in a lump sum. In the absence of a designated
beneficiary, the beneficiary may take a lump sum or distributions over five (5) years.
It is important to note that the new Minimum Distribution rules may not apply to certain qualified retirement
plans (at this time), but currently generally apply to IRA's and 403(b)'s.
GENERAL TAX CONSIDERATIONS
Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an
annuity, must have an "adequately diversified" segregated asset account (including investments in a mutual fund
by the segregated asset account of insurance companies). If the diversification requirements under the Code are
not met and the annuity is not treated as an annuity, the taxpayer will be subject to income tax on the annual
gain in the contract. The Treasury Department's regulations prescribe the diversification requirements for
variable annuity contracts. We believe the underlying mutual fund portfolios should comply with the terms of
these regulations.
Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The
Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity
for tax purposes if persons with ownership rights have excessive control over the investments underlying such
variable annuity. Such guidelines may or may not address the number of investment options or the number of
transfers between investment options offered under a variable annuity. It is not known whether such guidelines,
if in fact promulgated, would have retroactive effect. It is also not known what effect, if any, such guidelines
may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus. We will
take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such
guidelines if promulgated.
Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the
portion of a distribution which is includible in the gross income of the recipient. Amounts to be withheld
depend upon the nature of the distribution. However, under most circumstances a recipient may elect not to have
income taxes withheld or have income taxes withheld at a different rate by filing a completed election form with
us.
Certain distributions, known as eligible rollover distributions, from Qualified Contracts, are subject to
automatic 20% withholding for Federal income taxes. The following distributions are not eligible rollover
distributions and not subject to 20% withholding::
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual retirement annuity;
|X| distributions made as substantially equal periodic payments for the life or life expectancy of the
participant in the retirement plan or the life or life expectancy of such participant and his or her
designated beneficiary under such plan;
|X| distributions that are part of a series of substantial periodic payments pursuant to Section 72(q) or
72(t) of the Code; and
|X| certain other distributions where automatic 20% withholding may not apply.
Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or
pledge of any portion of the value of, an annuity before annuity payments have begun are treated as a
distribution subject to taxation under the distribution rules set forth above. Any gain in an annuity on or
after the assignment or pledge of an entire annuity and while such assignment or pledge remains in effect is
treated as "income on the contract" in the year in which it is earned. For annuities not issued as Qualified
Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge includible in
gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or
by payment of any interest thereon.
Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a
divorce) is treated, for income tax purposes, as a distribution.
Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and
state estate and gift tax consequences flowing from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is
transferred to, or a death benefit is paid to, an individual two or more generations younger than the contract
holder. These generation-skipping transfers generally include those subject to federal estate or gift tax
rules. There is an aggregate $1 million exemption from taxes for all such transfers. We may be required to
determine whether a transaction is a direct skip as defined in the Code and the amount of the resulting tax. We
will deduct from your Annuity or from any applicable payment treated as a direct skip any amount of tax we are
required to pay.
Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant
succeeds an annuitant when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred
treatment under certain sections of the Code. In general, the Code is designed to prevent indefinite deferral of
tax. Continuing the benefit of tax deferral by naming one or more contingent annuitants when the Annuity is
owned by a non-qualified trust might be deemed an attempt to extend the tax deferral for an indefinite period.
Therefore, adverse tax treatment may depend on the terms of the trust, who is named as contingent annuitant, as
well as the particular facts and circumstances. You should consult your tax advisor before naming a contingent
annuitant if you expect to use an Annuity in such a fashion.
GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to you at your last known address of
record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent
permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements,
confirmations, statements and reports required by applicable law or regulation to you through our Internet
Website at http://www.americanskandia.com or any other electronic means, including diskettes or CD ROMs. We send
a confirmation statement to you each time a transaction is made affecting Account Value, such as making
additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing
the activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve
the right to charge up to $50 for each such additional report. Instead of immediately confirming transactions
made pursuant to some type of periodic transfer program (such as a dollar cost averaging program) or a periodic
Purchase Payment program, such as a salary reduction arrangement, we may confirm such transactions in quarterly
statements. You should review the information in these statements carefully.
All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to
your Annuity. For transactions that are confirmed immediately, we assume all transactions are accurate unless you
notify us otherwise within 10 days from the date you receive the confirmation. For transactions that are only
confirmed on the quarterly statement, we assume all transactions are accurate unless you notify us within 10 days
from the date you receive the quarterly statement. All transactions confirmed immediately or by quarterly
statement are deemed conclusive after the applicable 10-day period. We may also send an annual report and a
semi-annual report containing applicable financial statements, as of December 31 and June 30, respectively, to
Owners or, with your prior consent, make such documents available electronically through our Internet Website or
other electronic means.
WHO IS AMERICAN SKANDIA?
American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in
Connecticut with licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned
subsidiary of American Skandia, Inc., formerly known as American Skandia Investment Holding Corporation, whose
ultimate parent is Skandia Insurance Company Ltd., a Swedish company. American Skandia markets its products to
broker-dealers and financial planners through an internal field marketing staff. In addition, American Skandia
markets through and in conjunction with financial institutions such as banks that are permitted directly, or
through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American
Skandia currently offers the following products: (a) flexible premium deferred annuities and single premium fixed
deferred annuities that are registered with the SEC; (b) certain other fixed deferred annuities that are not
registered with the SEC; (c) certain group variable annuities that are exempt from registration with the SEC that
serve as funding vehicles for various types of qualified pension and profit sharing plans; (d) a single premium
variable life insurance policy that is registered with the SEC; and (e) a flexible premium life insurance policy
that is registered with the SEC.
WHAT ARE SEPARATE ACCOUNTS?
The assets supporting our obligations under the Annuities may be held in various accounts, depending on the
obligation being supported. In the accumulation period, assets supporting Account Values are held in separate
accounts established under the laws of the State of Connecticut. We are the legal owner of assets in the
separate accounts. In the payout phase, assets supporting fixed annuity payments and any adjustable annuity
payments we make available are held in our general account. Income, gains and losses from assets allocated to
these separate accounts are credited to or charged against each such separate account without regard to other
income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be
charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance
Corporation. The amount of our obligation in relation to allocations to the Sub-accounts is based on the
investment performance of such Sub-accounts. However, the obligations themselves are our general corporate
obligations.
Separate Account B
During the accumulation period, the assets supporting obligations based on allocations to the variable investment
options are held in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also
referred to as "Separate Account B". Separate Account B consists of multiple Sub-accounts. The name of each
Sub-account generally corresponds to the name of the underlying Portfolio. The names of each Sub-account are
shown in the Statement of Additional Information. Separate Account B was established by us pursuant to
Connecticut law. Separate Account B also holds assets of other annuities issued by us with values and benefits
that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to
this Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate
Account B has a different level of charges assessed against such Sub-accounts. You will find additional
information about these underlying mutual funds and portfolios in the prospectuses for such funds.
Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act")
as a unit investment trust, which is a type of investment company. This does not involve any supervision by the
SEC of the investment policies, management or practices of Separate Account B. Each Sub-account invests only in
a single mutual fund or mutual fund portfolio.
We reserve the right to make changes to the Sub-accounts available under the Annuity as we determine
appropriate. We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole
discretion. We may also close Sub-accounts to additional Purchase Payments on existing Annuity contracts or
close Sub-accounts for Annuities purchased on or after specified dates. We may also substitute an underlying
mutual fund or portfolio of an underlying mutual fund for another underlying mutual fund or portfolio of an
underlying mutual fund, subject to our receipt of any exemptive relief that we are required to obtain under the
Investment Company Act of 1940. We will notify Owners of changes we make to the Sub-accounts available under the
Annuity.
Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the
underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any
Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire
investment risk.
Separate Account D
During the accumulation period, assets supporting our obligations based on Fixed Allocations are held in American
Skandia Life Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations
are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These
obligations do not depend on the investment performance of the assets in Separate Account D. Separate Account D
was established by us pursuant to Connecticut law.
There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An
Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the
investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We
retain the risk that the value of the assets in Separate Account D may drop below the reserves and other
liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and
other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets
from our general account to Separate Account D to make up the difference. We have the right to transfer to our
general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain
assets in Separate Account D supporting a number of annuities we offer.
We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account
D. Each manager we employ is responsible for investment management of a different portion of Separate Account
D. From time to time additional investment managers may be employed or investment managers may cease being
employed. We are under no obligation to employ or continue to employ any investment manager(s).
We are not obligated to invest according to specific guidelines or strategies except as may be required by
Connecticut and other state insurance laws.
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment company under the Investment
Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance
companies offering variable annuity and variable life insurance products. The shares may also be sold directly
to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However,
under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an
underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares in the manner directed
by Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the
number of shares attributable to their contracts. If we do not receive voting instructions in relation to
certain shares, we will vote those shares in the same manner and proportion as the shares for which we have
received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account whose
underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their
instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in
a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the
structure of the underlying mutual fund that require a vote of shareholders.
American Skandia Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that
permits its investment adviser, American Skandia Investment Services, Incorporated ("ASISI"), subject to approval
by the Board of Trustees of the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory
agreements, without obtaining shareholder approval of the changes. This exemption (which is similar to
exemptions granted to other investment companies that are organized in a similar manner as the Trust) is intended
to facilitate the efficient supervision and management of the sub-advisors by ASISI and the Trustees. The Trust
is required, under the terms of the exemption, to provide certain information to shareholders following these
types of changes.
Material Conflicts
It is possible that differences may occur between companies that offer shares of an underlying mutual fund
portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance
products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable
life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these
differences could be considered "material conflicts," in which case we would take necessary action to protect
persons with voting rights under our variable annuity contracts and variable life insurance policies against
persons with voting rights under other insurance companies' variable insurance products. If a "material
conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued
by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material
conflicts" could arise due to differences in voting instructions between owners of variable life insurance and
variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist.
Service Fees Payable by Underlying Funds
American Skandia or our affiliates have entered into agreements with the investment adviser or distributor of
many of the underlying Portfolios. Under the terms of these agreements, American Skandia provides administrative
and support services to the Portfolios for which a fee is paid that is generally based on a percentage of the
average assets allocated to the Portfolios under the Annuity. Any fees payable will be consistent with the
services rendered or the expected cost savings resulting from the arrangement. These agreements may be different
for each underlying mutual fund whose portfolios are offered as Sub-accounts.
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the
distributor and principal underwriter of the securities offered through this prospectus. ASM acts as the
distributor of a number of annuity and life insurance products we offer and both American Skandia Trust and
American Skandia Advisor Funds, Inc., a family of retail mutual funds. ASM also acts as an introducing
broker-dealer through which it receives a portion of brokerage commissions in connection with purchases and sales
of securities held by portfolios of American Skandia Trust which are offered as underlying investment options
under the Annuity.
ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as
broker-dealer under the Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National
Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent
broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuity but are
exempt from registration. Applications for the Annuity are solicited by registered representatives of those
firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition,
ASM may offer the Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual
representative will receive a portion of the compensation, depending on the practice of the firm. Compensation
is generally based on a percentage of Purchase Payments made, up to a maximum of 7.0%. Alternative compensation
schedules are available that provide a lower initial commission plus ongoing annual compensation based on all or
a portion of Account Value. We may also provide compensation for providing ongoing service to you in relation to
the Annuity. Commissions and other compensation paid in relation to the Annuity do not result in any additional
charge to you or to the Separate Account. No compensation is payable on Annuities purchased by a member of the
designated class of Owners (see "Credits Applied to Purchase Payments for Designated Class of Annuity Owner").
In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales
personnel, marketing or other services they provide to us or our affiliates. We or ASM may enter into
compensation arrangements with certain firms. These arrangements will not be offered to all firms and the terms
of such arrangements may differ between firms. Any such compensation will be paid by us or ASM and will not
result in any additional charge to you. To the extent permitted by NASD rules and other applicable laws and
regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or other
compensation.
Advertising: We may advertise certain information regarding the performance of the investment options. Details
on how we calculate performance for the Sub-accounts are found in the Statement of Additional Information,
including how we account for Credits in these performance measures. This information may help you review the
performance of the investment options and provide a basis for comparison with other annuities. This
information's usefulness may be limited because of the Credits, since, as of the date of this Prospectus, we were
not aware of many annuities with variable and/or market value adjusted fixed investment options that included
this type of feature. This information also may be less useful when comparing the performance of the investment
options with other savings or investment vehicles. Such other investments may not provide some of the benefits
of annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment
vehicles may not be receive the beneficial tax treatment given to annuities under the Code.
We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and
"Non-standard" Total Returns. "Standard Total Return" figures assume that all charges and fees are applicable,
including any contingent deferred sales charge that may apply for the period shown but it does not take into
consideration any Credits. "Non-standard Total Return" figures may be used that do not reflect all fees and
charges and may assume Credits of 1.5%, 3.0%, 4.0% or 5.0%, respectively, depending on the cumulative amount of
Purchase Payments being illustrated. The amount of credits illustrated may be more or less than the Credits
applicable to your Annuity (see "What are Credits and how do I Receive Them?"). Non-standard Total Returns are
calculated in the same manner as standardized returns except that the calculations may assume no redemption at
the end of the applicable periods. These figures may not take into consideration the Annuity's contingent
deferred sales charge. Standard and Non-standard Total returns will not reflect charges that apply to either
Optional Death Benefit. Non-standard Total Returns must be accompanied by Standard Total Returns. Any
performance advertisements will not reflect the impact of any Target Value Credits.
Performance information on the Sub-accounts is based on past performance only and is not an indication or
representation of future performance. Performance of the Sub-accounts is not fixed. Actual performance will
depend on the type, quality and, for some of the Sub-accounts, the maturities of the investments held by the
underlying mutual funds or portfolios and upon prevailing market conditions and the response of the underlying
mutual funds to such conditions. Actual performance will also depend on changes in the expenses of the
underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest in
such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account
will affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance
quoted in advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during which the underlying mutual fund
portfolios have been in existence, but the Sub-accounts have not. Such hypothetical historical performance is
calculated using the same assumptions employed in calculating actual performance since inception of the
Sub-accounts. Hypothetical historical performance of the underlying mutual fund portfolios prior to the existence
of the Sub-accounts may only be presented as Non-Standard Total Returns.
The information we may advertise regarding the Fixed Allocations may include the then current interest rates we
are crediting to new Fixed Allocations. Information on current rates will be as of the date specified in such
advertisement. Rates will be included in advertisements to the extent permitted by law. Given that the actual
rates applicable to any Fixed Allocation are as of the date of any such Fixed Allocation's Guarantee Period
begins, the rate credited to a Fixed Allocation may be more or less than those quoted in an advertisement.
Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged
market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
NASDAQ 100, the Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital
International Index of Europe, Asia and Far East Funds, and the Morgan Stanley Capital International World Index;
and/or (b) other management investment companies with investment objectives similar to the mutual fund or
portfolio underlying the Sub-accounts being compared. This may include the performance ranking assigned by
various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's,
Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual
Funds Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the
Morningstar Mutual Fund Sourcebook and the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial
ratings services. Such rankings may help you in evaluating our ability to meet our obligations in relation to
Fixed Allocations, pay minimum death benefits, pay annuity payments or administer Annuities. Such rankings and
ratings do not reflect or relate to the performance of Separate Account B.
AVAILABLE INFORMATION
A Statement of Additional Information is available from us without charge upon your request. This Prospectus is
part of the registration statement we filed with the SEC regarding this offering. Additional information on us
and this offering is available in those registration statements and the exhibits thereto. You may obtain copies
of these materials at the prescribed rates from the SEC's Public Reference Section, 450 Fifth Street N.W.,
Washington, D.C., 20549. You may inspect and copy those registration statements and exhibits thereto at the SEC's
public reference facilities at the above address, Room 1024, and at the SEC's Regional Offices, 7 World Trade
Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL. These
documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for other registrants that file
electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document incorporated by reference into this
Prospectus is modified or superseded by a statement in this Prospectus or in a later-filed document, such
statement is hereby deemed so modified or superseded and not part of this Prospectus. The Annual Report on Form
10-K for the year ended December 31, 2000 previously filed by the Company with the SEC under the Exchange Act is
incorporated by reference in this Prospectus.
We will furnish you without charge a copy of any or all of the documents incorporated by reference in this
Prospectus, including any exhibits to such documents which have been specifically incorporated by reference. We
will do so upon receipt of your written or oral request.
HOW TO CONTACT US
You can contact us by:
|X| calling our Customer Service Team at 1-800-752-6342 or our automated telephone access and response
system (STARS) at 1-800-766-4530
|X| writing to us at American Skandia Life Assurance Corporation, Attention: Customer Service, P.O. Box
7038, Bridgeport, Connecticut 06601-7038
|X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at
www.americanskandia.com
|X| accessing information about your Annuity through our Internet Website at www.americanskandia.com
You can obtain account information through our automated telephone access and response system (STARS) and at
www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during
business hours to provide you with information about your account. You can request certain transactions through
our telephone voice response system, our Internet Website or through a customer service representative. You can
provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney
or a financial professional, to access your account information and perform certain transactions on your
account. You will need to complete a form provided by us which identifies those transactions that you wish to
authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such
transactions. We require that you or your representative provide proper identification before performing
transactions over the telephone or through our Internet Website. This may include a Personal Identification
Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN
through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet
Website. Any third party that you authorize to perform financial transactions on your account will be assigned a
PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible
for any claims, loss, liability or expense in connection with a transaction requested by telephone or other
electronic means if we acted on such transaction instructions after following reasonable procedures to identify
those persons authorized to perform transactions on your Annuity using verification methods which may include a
request for your Social Security number, PIN or other form of electronic identification. We may be liable for
losses due to unauthorized or fraudulent instructions if we did not follow such procedures.
American Skandia does not guarantee access to telephonic and electronic information or that we will be able to
accept transaction instructions via the telephone or electronic means at all times. American Skandia reserves
the right to limit, restrict or terminate telephonic and electronic transaction privileges at any time.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be
permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary
course of business, and know of no material claims.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and certain significant employees, their ages, positions with us and principal
occupations are indicated below. The immediately preceding work experience is provided for officers that have
not been employed by us or an affiliate for at least five years as of the date of this Prospectus.
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
- --- -------------------------- --------------------
Patricia J. Abram Senior Vice President Senior Vice President:
49 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer
with Mutual Service Corporation. Ms. Abram was employed there since 1982.
Lori Allen Vice President Vice President:
31 American Skandia
Marketing, Incorporated
Robert M. Arena Vice President Vice President:
32 American Skandia Life
Assurance Corporation
Gordon C. Boronow Deputy Chief Executive Officer Deputy Chief Executive Officer:
48 and Director (since July, 1991) American Skandia Life
Assurance Corporation
Robert W. Brinkman Senior Vice President Senior Vice President:
36 American Skandia
Marketing, Incorporated
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
45 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Carl Cavaliere Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc.
since 1989.
Y.K. Chan Senior Vice President Senior Vice President
43 and Director (since September, 2000) and Chief Information Officer:
American Skandia Information
Services and Technology Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg
Pincus from January 1995 until April 1999 and the position of Vice President, Client Server Application
Development with Scudder, Stevens and Clark from January 1991 until January 1995.
Lucinda C. Ciccarello Vice President Vice President:
42 American Skandia
Marketing, Incorporated
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff
& Phelps since 1984.
Lincoln R. Collins Senior Vice President Senior Vice President:
40 Director (since February, 1996) American Skandia Life
Assurance Corporation
Tim Cronin Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle
Investors since 1995.
Harold Darak Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche
since 1998 and the positions of Second Vice President with The Guardian since 1996 and The Travelers from
October, 1982 until December, 1995.
Wade A. Dokken President and Chief Executive Officer President and
41 and Chairman of the Board Chief Executive Officer:
American Skandia, Inc.
Elaine C. Forsyth Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance:
54 American Skandia Life
Assurance Corporation
Maureen Gulick Director, Business Operations Director, Business Operations:
38 American Skandia Life
Assurance Corporation
Ian Kennedy Senior Vice President Senior Vice President:
53 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice
President, Customer Service with SunLife of Canada from September, 1968 to August, 1995.
N. David Kuperstock Vice President Vice President:
49 American Skandia Life
Assurance Corporation
Robert K. Leach Vice President and Vice President,
46 Chief Actuary Chief Actuary:
American Skandia Life
Assurance Corporation
Mr. Robert K. Leach joined us in 2000. He previously was employed in the U.S. Retirement Products and Services
Division of Sun Life of Canada and held the position of Vice President, Finance and Product.
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
48 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,
46 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
39 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Michael A. Murray Senior Vice President Senior Vice President:
32 American Skandia
Marketing, Incorporated
Polly Rae Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Rebecca Ray Vice President Senior Vice President:
45 American Skandia
Marketing, Incorporated
Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities
since 1997 and Vice President with Merrill Lynch since 1995.
Rodney D. Runestad Vice President Vice President:
51 American Skandia Life
Assurance Corporation
Hayward L. Sawyer Senior Vice President Senior Vice President:
56 American Skandia
Marketing, Incorporated
Lisa Shambelan Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Karen Stockla Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with
Citizens Utilities Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since
1993.
William H. Strong Vice President Vice President:
57 American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems
from June 1994 to October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June
1994.
Guy Sullivan Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Sullivan joined us in 2000. He previously held the positions of Managing Director, Wholesale Distribution
with Allmerica Financial Services since 1999 and Managing Director and Member of the Executive Committee with
Putnam Investments since 1995.
Leslie S. Sutherland Vice President Vice President:
47 American Skandia
Marketing, Incorporated
Amanda C. Sutyak Vice President Vice President:
43 Director (since July, 1991) American Skandia Life
Assurance Corporation
Christian W. Thwaites Senior Vice President Senior Vice President:
43 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mary Toumpas Vice President Vice President and
49 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb
Life/Chubb Securities since 1973.
Bayard F. Tracy Senior Vice President and Senior Vice President:
53 Director (since September, 1994) American Skandia
Marketing, Incorporated
Deborah G. Ullman Senior Vice President Senior Vice President:
46 and Director (since September, 2000) American Skandia Life
Assurance Corporation
Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977.
Jeffrey M. Ulness Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Kirk Wickman General Counsel General Counsel:
44 American Skandia Life
Assurance Corporation
Mr. Wickman joined us in 2001. He previously held the position of Senior Vice President and General Counsel with
Aetna Financial Services since 1992.
Brett M. Winson Senior Vice President and Senior Vice President:
45 Director (since March 2000) American Skandia, Inc.
Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd.
since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about American Skandia
|X| American Skandia Life Assurance Corporation
|X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
|X| American Skandia Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated
How Performance Data is Calculated
|X| Current and Effective Yield
|X| Total Return
How the Unit Price is Determined
Additional Information on Fixed Allocations
|X| How We Calculate the Market Value Adjustment
General Information
|X| Voting Rights
|X| Modification
|X| Deferral of Transactions
|X| Misstatement of Age or Sex
|X| Ending the Offer
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
|X|
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
- ----------------------------
Revenues:
Annuity and life insurance charges and fees* $424,578 $289,989 $186,211 $121,158 $69,780
Fee income
130,610 83,243 50,839 27,593 16,420
Net investment income
11,656 10,441 11,130 8,181 1,586
Premium income and other revenues
4,778 3,688 1,360 1,082 265
----- ----- ----- ----- ---
Total revenues $ 571,622 $ 387,361 $ 249,540 $ 158,014 $ 88,051
====== ========= ======= ========= ============
Benefits and Expenses:
Annuity and life insurance benefits $ 751 $ 612 $ 558 $ 2,033 $ 613
Change in annuity and life insurance 45,018 3,078 1,053 37 635
policy reserves
Cost of minimum death benefit reinsurance - 2,945 5,144 4,545 2,867
Return credited to contractowners
9,046 (1,639) (8,930) (2,018) 673
Underwriting, acquisition and other insurance
expenses
335,213 206,350 167,790 90,496 49,887
Interest expense 85,998 69,502 41,004 24,895 10,791
--------- --------- --------- --------- ------------
Total benefits and expenses $ 476,026 $ 280,848 $ 206,619 $ 119,988 $ 65,466
====== ============= ============= ============= ===========
Income tax expense (benefit) $ 30,779 $ 30,344 $ 8,154 $ 10,478 $ (4,038)
======== ============== ========== ============== =
Net income $ 64,817 $ 76,169 $ 34,767 $ 27,548 $ 26,623
======== ======== ======== ============== ===========
STATEMENT OF FINANCIAL CONDITION DATA
- -------------------------------------
Total Assets $31,702,705 $30,881,579 $18,848,273 $12,894,290 $8,268,696
=========== =========== =========== =========== ==========
Future fees payable to parent $ 934,410 $ 576,034 $ 368,978 $ 233,034 $ 47,112
====== ============= ============= ============= ============
Surplus Notes $ 159,000 $ 179,000 $ 193,000 $ 213,000 $ 213,000
========== ============= ========== ============= ===========
Shareholder's Equity $ 496,911 $ 359,434 $ 250,417 $ 184,421 $ 126,345
====== ============= ====== ============= ===========
* On annuity and life insurance sales of $8,216,167, $6,862,968, $4,159,662, $3,697,990, and $2,795,114 during the
years ended December 31, 2000, 1999, 1998, 1997, and 1996, respectively, with contractowner assets under management
of $29,751,822, $29,396,693, $17,854,761, $12,119,191, and $7,764,891 as of December 31, 2000, 1999, 1998, 1997 and
1996, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the consolidated financial statements and the notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking
statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ
materially due to factors not currently known. These factors include significant changes in financial markets and
other economic and business conditions, state and federal legislation and regulation, ownership and competition.
Results of Operations
---------------------
Annuity and life insurance sales increased 20% in 2000 to $8,216,167,000 as compared to 65% in 1999. Overall sales
growth in 2000 was driven by significant sales volume in the first quarter of 2000 due to the strong equity market
performance. However, the decline in the equity markets during the remainder of the year negatively impacted sales as
the first quarter growth rate was not sustained. The Company continues to focus on increasing sales through innovative
product development activities, the recruitment and retention of top producers, high quality customer service and
improvements in web-based technology. All three major distribution channels achieved sales growth in 2000.
Average assets under management totaled $31,413,809,000 in 2000 and $21,984,759,000 in 1999, representing an increase
of 43%. As a result of the growth in sales and average assets under management, annuity and life insurance charges and
fees increased 46% in 2000 and 56% in 1999. Fee income generated from transfer agency-type and investment support
activities increased 57% in 2000 and 64% in 1999.
Net investment income increased 12% in 2000 compared to 1999 and decreased 6% in 1999 compared to 1998. The increase
in 2000 is primarily due to a higher level of investments, partially offset by $6,939,000 of amortization of premiums
paid on derivative instruments. The decrease in 1999 was primarily the result of $1,036,000 of amortization of the
premium paid on a derivative instrument purchased during 1999. See Note 2D to the consolidated financial statements
for information related to derivative instruments used to hedge the guaranteed minimum death benefit ("GMDB") reserve
fluctuations. Excluding the derivative amortization, net investment income increased 62% in 2000 and increased 3% in
1999 as a result of increased bond holdings that support the Company's risk-based capital objectives.
Premium income represents premiums earned on the sale of ancillary contracts such as immediate annuities with life
contingencies, supplementary contracts with life contingencies and certain life insurance products. Increased sales of
these products led to an increase in premium income in 2000. The increase in 2000 and 1999 was primarily due to higher
sales of supplementary contracts. Management expects supplementary contracts to grow over time with the maturing of
core business lines.
Net realized investment losses totaled $688,000 in 2000, compared to gains of $578,000 in 1999 and $99,000 in 1998.
The change from 1999 to 2000 is primarily due to realized losses on sales of securities in the fixed maturity
portfolio. These losses were partially offset by realized gains on sales of fixed maturities and mutual funds. The
increase in realized gains in 1999 compared to 1998 is due to higher gains on sales of mutual fund investments.
The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as
well as the Company's GMDB liability. In 2000, equity markets declined and the underlying fund performance was lower
than the prior year. In contrast, the equity markets and underlying fund performance were up significantly in 1999
compared to 1998. The combination of these events resulted in an increase in GMDB reserves of $39,866,000 in 2000.
This compares to an increase in GMDB reserves of $2,323,000 in 1999.
In 1999, the Company began to develop a program utilizing equity put options to manage the risks embedded in the GMDB
in annuity contracts that would result from significant declines in the equity markets. Prior to the implementation of
the hedge strategies utilizing equity put options, the Company had reinsured substantially all of its exposure on the
GMDB liability. The reinsurance was terminated during the second quarter of 1999 as the reinsurer had exited this
market.
Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and changes in reserves required on this business. Market value
adjusted annuity activity has the largest impact on this benefit. In 2000 and 1999, the Separate Account investment
returns on the market value adjusted annuities were less than the expected returns as calculated in the reserves,
contributing to the significant increase in the return credited to contractholders benefit. In addition, this benefit
increased as a result of the amortization of unearned Performance Advantage target value credits, which increased
$6,826,000 in 2000 over 1999. Other significant contributors to the change from 1999 to 2000 include guaranteed
minimum death benefit payments on variable annuities which were driven up due to the market declines in 2000 as well as
increased costs associated with processing of backdated financial transactions. These increased costs were partially
offset by a 2000 experience refund on certain reinsurance treaties in the amount of $4,339,000.
Underwriting, acquisition and other insurance expenses for 2000, 1999 and 1998 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Commissions and purchase credits $ 393,494 $ 358,279 $ 201,008
General operating expenses 252,206 214,269 141,586
Acquisition costs deferred during the year (495,103) (450,059) (261,432)
Acquisition costs amortized during the year 184,616 83,861 86,628
------- - ------ - ------
Net capitalization of deferred acquisition costs (310,487) (366,198) (174,804)
- --------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 335,213 $ 206,350 $ 167,790
========= ========= =========
Underwriting, acquisition and other insurance expenses increased 62% and 23% in 2000 and 1999, respectively.
Increased commissions and purchase credits reflect the increase in sales in both 2000 and 1999. Significant
investments in new product development and internet-based technology contributed to general operating expense
increases in both 2000 and 1999. The amortization of acquisition costs increased substantially in 2000 compared to
1999 as the associated costs from record sales in late 1999 and early 2000 were recognized in accordance with
accounting principles generally accepted in the United States profit and expense recognition models.
Interest expense increased $16,496,000 in 2000 and $28,498,000 in 1999 as a result of additional securitized financing
transactions, which consist of the transfer of rights to receive future fees to the Parent ("securitization
transactions"). In addition, the Company retired surplus notes on December 10, 2000 and December 31, 1999 of
$20,000,000 and $14,000,000, respectively. Surplus notes outstanding as of December 31, 2000 and 1999 totaled
$159,000,000 and $179,000,000, respectively.
The effective income tax rates for the years ended December 31, 2000, 1999 and 1998 were 32%, 28% and 19%,
respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most
significant item being the dividend received deduction. Management believes that based on the taxable income produced
in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable
income in future years to realize its deferred tax assets.
The Company generated net income after tax of $64,817,000, $76,169,000 and $34,767,000 in 2000, 1999 and 1998,
respectively. Revenue increases in 2000 were more than offset by higher benefits and expenses driven primarily from
the increase in the reserve requirement related to the GMDB as a result of the decline in the equity markets.
Investments in new product development and technology also contributed to the increase in expenses. These factors
resulted in the 15% decline in net income. Net income increased 119% in 1999 due to strong sales growth and favorable
market conditions which led to higher asset-based revenue. The Company considers Mexico an emerging market and has
invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. The Company expects to transfer ownership of Skandia Vida to an
upstream affiliate during 2001.
On March 22, 2001, the Company announced that it will begin an aggressive operating expense reduction program to better
align its operating infrastructure with the current investment environment. The planned moves include a reduction of
approximately 150 positions, representing 13% of the Company's workforce, reductions in the compensation and benefit
programs and the curtailment of certain discretionary expenses.
Total assets grew 3% in 2000 partially as a result of the modest increase in separate account assets reflecting the
impact of strong sales which were almost entirely offset by the decline in equity markets. Increased deferred
acquisition costs also contributed to the increase in assets. Liabilities grew 2% in 2000 due to higher reserves
required to support the increase in annuity and life insurance business, and increased financing activity related to
the transfer of rights to receive future fees and charges.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from
ASI and the securitization transactions with ASI.
The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products that
carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the
proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the
acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by
insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions,
securitization transactions and modified coinsurance reinsurance arrangements:
o During 2000 and 1999, the Company received $69,000,000 and $34,800,000, respectively, from ASI to support the
capital needs and anticipated growth in business of its U.S. operations. In addition, the Company received
$2,450,000 and $1,690,000 from ASI in 2000 and 1999, respectively, to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to $476,288,000 in 2000 and $265,710,000 in 1999
(see Note 8 to the consolidated financial statements).
o During 2000 and 1999, the Company extended its reinsurance agreements. The Company also entered into an
agreement with SICL in 2000. The reinsurance agreements are modified coinsurance arrangements where the reinsurer
shares in the experience of a specific book of business.
The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain
anticipated from the acquisition costs on the coming years' sales volume.
As of December 31, 2000 and 1999, shareholder's equity totaled $496,911,000 and $359,434,000, respectively. The
increases were driven by the previously mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI.
The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information
regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance
regulators to identify companies that may need regulatory attention. The RBC model law requires that insurance
companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula
includes components for asset risk, insurance risk, interest rate risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital.
Effects of Inflation
--------------------
The rate of inflation has not had a significant effect on the Company's financial statements.
Outlook
- -------
The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial
products for long-term savings and retirement purposes as well as to address the economic impact of premature death,
estate and business planning concerns and supplemental retirement needs. The Company continues to focus on offering
innovative long-term savings and income products and providing superior customer service in order to gain market share
and improve profitability in an increasingly competitive market.
The Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) permits affiliation among banks,
securities firms and insurance companies. This legislative change has created opportunities for continued
consolidation in the financial services industry and increased competition as large companies offer a wide array of
financial products and services.
Various other legislative initiatives could impact the Company such as pension reform, capital gains and estate tax
changes, privacy standards and internet regulation. Pension reform may change current tax deferral rules and allow
increased contributions to retirement plans, which may lead to higher investments in tax-deferred products and create
growth opportunities for the Company. A capital gains tax reduction may cause tax-deferred products to be less
attractive to consumers, which could adversely impact the Company. New privacy standards and internet regulation may
impact the Company's strategic initiatives especially related to potential partnerships with web-based technology
providers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and
liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices.
The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and
describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market
risks and is not intended to be a complete discussion of all of the risks to which the Company is exposed.
Interest Rate Risk
------------------
Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97%
of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not
significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets, the
interest rate risk from contracts that carry interest rate exposure is managed through an asset/liability matching
program which takes into account the risk variables of the insurance liabilities supported by the assets.
At December 31, 2000, the Company held fixed maturity investments in its general account that are sensitive to changes
in interest rates. These securities are held in support of the Company's fixed immediate annuities, supplementary
contracts, the fixed components of variable life insurance contracts, and in support of the Company's target solvency
capital. The Company has a conservative investment philosophy with regard to these investments. All investments are
investment grade corporate securities, government agency or U.S. government securities.
The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period
options available range from one to ten years. Withdrawal of funds before the end of the guarantee period subjects the
contractowner to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed
maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining
interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should
substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the
default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of
failing to maintain the asset/liability matching program with respect to duration and convexity.
Liabilities held in the Company's general account and guaranteed separate account as of December 31, 2000 totaled
$1,095,100,000. Fixed income investments supporting those liabilities had a fair value of $1,098,500,000. The Company
performed a sensitivity analysis on these interest-sensitive liabilities and assets at December 31, 2000. The analysis
showed that an immediate decrease of 100 basis points in interest rates would result in a net increase in liabilities
and the corresponding assets of approximately $37,300,000 and $41,500,000, respectively. An analysis of a 100 basis
point decline in interest rates at December 31, 1999 showed a net increase in interest-sensitive liabilities and the
corresponding assets of approximately $10,200,000 and $24,800,000, respectively.
Equity Market Exposure
----------------------
The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products
sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of
assets under management. In a market decline, this income would be reduced. This could be further compounded by
customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option
discussed above. A 10% decline in the market value of the assets under management at December 31, 2000, sustained
throughout 2001, would result in an approximate drop in related annual fee income of $54,000,000. This result was not
materially different than the result obtained from the analysis performed as of December 31, 1999.
Another equity market risk exposure of the Company relates to the guaranteed minimum death benefit liability. Declines
in equity markets and correspondingly the performance of the underlying mutual funds, increases the guaranteed minimum
death benefit liabilities. As discussed in Note 2D of the consolidated financial statements, the Company utilizes
derivative instruments to hedge against the risk of significant decreases in equity markets. Prior to the
implementation of this program the Company utilized reinsurance to transfer this risk.
The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred
compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio
would decline, however the accrued benefits payable under the related deferred compensation program would decline by a
corresponding amount.
Estimates of interest rate risk and equity price risk were obtained using computer models that take into consideration
various assumptions about the future. Given the uncertainty of future interest rate movements, volatility in the
equity markets and consumer behavior, actual results may vary from those predicted by the Company's models.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the
"Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholder's equity and cash flows for the three year period ended
December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of American Skandia Life Assurance Corporation at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young
February 2, 2001
Hartford, Connecticut
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
See notes to consolidated financial statements.
As of December 31,
2000 1999
--------------- ----------------
ASSETS
- ------
Investments:
Fixed maturities - at fair value 285,708 $ 198,165 $
Fixed maturities - at amortized cost 3,360
-
Equity securities - at fair value 20,402 16,404
Derivative instruments
3,015 189
Policy loans 3,746 1,270
-------------- --------------
-------------- --------------
Total investments 312,871 219,388
Cash and cash equivalents 76,499 89,212
Accrued investment income 5,209 4,054
Deferred acquisition costs 1,398,192 1,087,705
Reinsurance receivable 3,642 4,062
Receivable from affiliates 3,327
-
Income tax receivable
34,620 -
Income tax receivable - deferred 51,726
-
State insurance licenses 4,113 4,263
Fixed assets 10,737 3,305
Other assets 96,403 36,698
Separate account assets 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total assets $ 31,702,705 $ 30,881,579
=============== ================
=============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities:
Reserves for future insurance policy and contract benefits 135,545 $ 73,292 $
Drafts outstanding 63,758 51,059
Accounts payable and accrued expenses 137,040 158,590
Income tax payable 24,268
-
Income tax payable - deferred
8,949 -
Payable to affiliates
- 68,736
Future fees payable to parent 934,410
576,034
Short-term borrowing 10,000 10,000
Surplus notes 159,000 179,000
Separate account liabilities 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total liabilities 31,205,794 30,522,145
--------------- ----------------
--------------- ----------------
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 287,329 215,879
Retained earnings 205,979 141,162
Accumulated other comprehensive income (loss) 1,103 (107)
--------------- ----------------
--------------- ----------------
Total shareholder's equity 496,911 359,434
--------------- ----------------
--------------- ----------------
Total liabilities and shareholder's equity 31,702,705 $ 30,881,579 $
=============== ================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
---------------- --------------- ---------------
---------------- --------------- ---------------
REVENUES
- --------
Annuity and life insurance charges and fees $ $ $
424,578 289,989 186,211
Fee income 130,610 83,243 50,839
Net investment income 11,656 10,441 11,130
Premium income 3,118 1,278 874
Net realized capital (losses) gains (688) 578 99
Other 2,348 1,832 387
---------------- --------------- ---------------
---------------- --------------- ---------------
Total revenues 571,622 387,361 249,540
---------------- --------------- ---------------
---------------- --------------- ---------------
EXPENSES
- --------
Benefits:
Annuity and life insurance benefits 751 612 558
Change in annuity and life insurance policy reserves 45,018 3,078 1,053
Cost of minimum death benefit reinsurance
- 2,945 5,144
Return credited to contractowners 9,046 (1,639) (8,930)
---------------- --------------- ---------------
---------------- --------------- ---------------
54,815 4,996 (2,175)
Expenses:
Underwriting, acquisition and other insurance
expenses 335,213 206,350 167,790
Interest expense 85,998 69,502 41,004
---------------- --------------- ---------------
---------------- --------------- ---------------
421,211 275,852 208,794
---------------- --------------- ---------------
---------------- --------------- ---------------
Total benefits and expenses 476,026 280,848 206,619
---------------- --------------- ---------------
---------------- --------------- ---------------
Income from operations before income tax 95,596 106,513 42,921
Income tax expense
30,779 30,344 8,154
---------------- --------------- ---------------
---------------- --------------- ---------------
Net income $ $ $
64,817 76,169 34,767
================ =============== ===============
================ =============== ===============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Common stock:
Beginning balance $ $ $
2,500 2,000 2,000
Increase in par value
- 500 -
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
2,500 2,500 2,000
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Additional paid in capital:
Beginning balance 215,879 179,889 151,527
Transferred to common stock
- (500) -
Additional contributions 71,450 36,490 28,362
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 287,329 215,879 179,889
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Retained earnings:
Beginning balance 141,162 64,993 30,226
Net income 64,817 76,169 34,767
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 205,979 141,162 64,993
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Accumulated other comprehensive income (loss):
Beginning balance
(107) 3,535 668
Other comprehensive income (loss)
1,210 (3,642) 2,867
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
1,103 (107) 3,535
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Total shareholder's equity $ $ $
496,911 359,434 250,417
=============== ================= =================
=============== ================= =================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flow
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
------------- -------------- -------------
Cash flow from operating activities:
Net income $ $ $
64,817 76,169 34,767
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation
7,565 1,495 251
Deferred tax expense
60,023 (10,903) (14,242)
Change in unrealized losses on derivatives
(2,935) 3,749 -
Increase in policy reserves
50,892 4,367 1,130
(Decrease) increase in payable to affiliates
(72,063) 69,897 166
Change in income tax payable/receivable
(58,888) 17,611 7,704
Increase in other assets
(59,987) (32,954) (1,173)
Increase in accrued investment income
(1,155) (1,174) (438)
Decrease in reinsurance receivable
420 129 2,152
Net increase in deferred acquisition costs
(310,487) (366,198) (174,804)
(Decrease) increase in accounts payable and accrued
expenses (21,550) 66,763 20,637
Increase in drafts outstanding
12,699 22,118 9,663
Change in foreign currency translation, net
(101) 701 (22)
Net realized capital gain on expiration of derivatives
(500) - -
Net realized capital losses (gains)
688 (578) (99)
------------- -------------- -------------
Net cash used in operating activities (330,562) (148,808) (114,308)
------------- -------------- -------------
Cash flow from investing activites:
Purchase of fixed maturity investments
(380,737) (99,250) (31,828)
Proceeds from sale and maturity of fixed
maturity investments
303,736 36,226 4,049
Purchase of derivatives
(6,722) (4,974) -
Purchase of shares in mutual funds
(18,136) (17,703) (7,158)
Proceeds from sale of shares in mutual funds
8,345 14,657 6,086
Purchase of fixed assets
(7,348) (3,178) (18)
Increase in policy loans
(2,476) (701) 118
------------- -------------- -------------
Net cash used in investing activities
(103,338) (17,703) (28,751)
------------- -------------- -------------
Cash flow from financing activities:
Capital contribution from parent
51,450 22,490 8,362
Increase in future fees payable to parent, net
358,376 207,056 135,944
Net deposits to (withdrawals from) contractowner
accounts 11,361 5,872 (5,696)
- -------------------------------------------------------------------------- -------------- -------------
Net cash provided by financing activities
421,187 235,418 138,610
------------- -------------- -------------
Net (decrease) increase in cash and cash
equivalents
(12,713) 11,687 (4,449)
Cash and cash equivalents at beginning of period
89,212 77,525 81,974
------------- -------------- -------------
Cash and cash equivalents at end of period $ $ $
76,499 89,212 77,525
============= ============== =============
Income taxes paid $ $ $
29,644 23,637 14,651
============= ============== =============
Interest paid $ $ $
85,551 69,697 35,588
============= ============== =============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia,
Inc. ("ASI") whose ultimate parent is Skandia Insurance Company Ltd., ("SICL") a Swedish Corporation.
The Company develops long-term savings and retirement products which are distributed through its affiliated
broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable
and term life insurance and variable, fixed, market value adjusted and immediate annuities for individuals,
groups and qualified pension plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance
company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,402,000 and $4,592,000 as of
December 31, 2000, and 1999, respectively. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
------------------
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. 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 Standard
-----------------------
The FASB has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138 (collectively, "SFAS 133").
SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000;
accordingly, the Company adopted SFAS 133 on January 1, 2001. This statement establishes accounting
and reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 requires that all derivative financial
instruments be measured at fair value and recognized in the statement of condition as either assets or
liabilities. Changes in the fair value of the derivative financial instruments will be reported in
either earnings or comprehensive income, depending on the use of the derivative and whether or not it
qualifies for hedge accounting.
Special hedge accounting treatment is permitted only if specific criteria are met, including that the
hedging relationship be highly effective both at inception and on an ongoing basis. Accounting for
hedges varies based on the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive income for cash flow
hedges. Ineffective portions of hedges are recognized immediately in earnings.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The derivative instruments held by the Company in 2000 and 1999 consisted of equity put options
utilized to manage the market risk and reserve fluctuations associated with the guaranteed minimum
death benefit ("GMDB"). The adoption of SFAS No. 133 did not have a material effect on the Company's
financial statements.
C. Investments
The Company has classified its fixed maturity investments as either held-to-maturity or
available-for-sale. Investments classified as held-to-maturity are investments that the Company has
the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those
investments which are classified as available-for-sale are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
The Company has classified its mutual fund investments held in support of a deferred compensation plan
(see Note 13) as available-for-sale. Such investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined by the specific identification
method and are included in revenues.
D. Derivative Instruments
----------------------
The Company uses derivative instruments which consist of equity option contracts for risk management
purposes, and not for trading or speculation. The Company hedges the market value fluctuations of the
GMDB exposure embedded in its policy reserves. Premiums paid on option contracts are amortized into
net investment income over the terms of the contracts. The options are carried at amortized cost plus
intrinsic value, if any, at the valuation date. An option has intrinsic value if it is
"in-the-money." For a put option to be "in-the-money," the exercise price must be greater than the
value of the underlying index. Changes in intrinsic value are recorded as a component of the change
in annuity and life insurance policy reserves consistent with changes in the GMDB reserve.
E. Cash Equivalents
----------------
The Company considers all highly liquid time deposits, commercial paper and money market mutual funds
purchased with a maturity at date of acquisition of three months or less to be cash equivalents.
F. Fair Values of Financial Instruments
------------------------------------
The methods and assumptions used to determine the fair value of financial instruments are as follows:
Fair values of fixed maturities with active markets are based on quoted market prices. For fixed
maturities that trade in less active markets, fair values are obtained from an independent pricing
service.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair values of investments in mutual funds are based on quoted market prices.
The intrinsic value portion of the derivative instrument is determined based on the current value of
the underlying index.
The carrying value of cash and cash equivalents (cost) approximates fair value due to the short-term
nature of these investments.
The carrying value of short-term borrowings (cost) approximates fair value due to the short-term
nature of these liabilities.
Fair values of certain financial instruments, such as future fees payable to parent and surplus notes
are not readily determinable and are excluded from fair value disclosure requirements.
G. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized and reflected at the purchase price of
$6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a
straight-line basis over 40 years.
H. Software Capitalization
-----------------------
The Company capitalizes certain costs associated with internal use software in accordance with the
American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which was
adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the
Company expensed all internal use software related costs as incurred. Details of the capitalized
software costs, which are included in fixed assets, and related amortization for the years ended
December 31, are as follows:
(in thousands) 2000 1999
---- ----
Balance at beginning of year $2,920 $ -
------ ----
Software costs capitalized during the year 4,804 3,035
Software costs amortized during the year (512) (115)
----- -----
4,292 2,920
----- -----
Balance at end of year $7,212 $2,920
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Income Taxes
------------
The Company is included in the consolidated federal income tax return and combined state income tax
return of an upstream company, Skandia AFS Development Holding Corporation and certain of its
subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax
provisions are computed on a separate return basis as adjusted for consolidated items such as net
operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
J. Recognition of Revenue and Contract Benefits
--------------------------------------------
Revenues for variable deferred 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 variable immediate annuity contracts with and without life contingencies consist of
certain charges against contractowner account values including mortality and expense risks and
administration fees. Benefit reserves for variable immediate annuity contracts represent the account
value of the contracts and are included in the separate account liabilities.
Revenues for market value adjusted fixed annuity contracts consist of separate account investment
income reduced by benefit payments and changes in reserves in support of contractowner obligations,
all of which are included in return credited to contractowners. Benefit reserves for these contracts
represent the account value of the contracts, and are included in the general account reserve for
future contractowner benefits to the extent in excess of the separate account assets.
Revenues for immediate annuity contracts without life contingencies consist of net investment income.
Revenues for immediate annuity contracts with life contingencies consist of single premium payments
recognized as annuity considerations when received. Benefit reserves for these contracts are based on
the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed
interest rates ranged from 6.25% to 8.25% at December 31, 2000 and 1999.
Revenues for variable life insurance contracts consist of charges against contractowner account values
for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium taxes. Benefit reserves for
variable life insurance contracts represent the account value of the contracts and are included in the
separate account liabilities.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are primarily related to the production of
new business, are being deferred, net of reinsurance. These costs include commissions, costs of
contract issuance, and certain selling expenses that vary with production. These costs are being
amortized generally in proportion to expected gross profits from surrender charges, policy and asset
based fees and mortality and expense margins. This amortization is adjusted retrospectively and
prospectively when estimates of current and future gross profits to be realized from a group of
products are revised.
Details of the deferred acquisition costs and related amortization for the years ended December 31,
are as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Balance at beginning of year $1,087,705 $721,507 $546,703
---------- -------- --------
Acquisition costs deferred during the year 495,103 450,059 261,432
Acquisition costs amortized during the year (184,616) (83,861) (86,628)
--------- ------------ ---------
310,487 366,198 174,804
---- ------- ------- --------
Balance at end of year $1,398,192 $1,087,705 $721,507
========== ========== ========
L. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance
arrangements provide additional capacity for growth in supporting the cash flow strain from the
Company's variable annuity and variable life insurance business. The reinsurance is effected under
quota share contracts.
The Company reinsured its exposure to market fluctuations associated with its GMDB liability
in the first half of 1999 and in 1998. Under this reinsurance agreement, the Company ceded premiums
of $2,945,000 and $5,144,000; received claim reimbursements of $242,000 and $9,000; and, recorded
increases/(decreases) in reserves of ($2,763,000) and $323,000 in 1999 and 1998, respectively.
At December 31, 2000 and 1999, in accordance with the provisions of modified coinsurance agreements, the Company
accrued $4,339,000 and $41,000, respectively, for amounts receivable from favorable reinsurance experience on certain
blocks of variable annuity business.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
M. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of Skandia Vida are measured using local currency as
the functional currency. Assets and liabilities are translated at the exchange rate in effect at each
year-end. Statements of income and shareholder's equity accounts are translated at the average rate
prevailing during the year. Translation adjustments arising from the use of differing exchange rates
from period to period are reported as a component of other comprehensive income.
N. Separate Accounts
-----------------
Assets and liabilities in Separate Accounts are included as separate captions in the consolidated
statements of financial condition. Separate Account assets consist principally of long term bonds,
investments in mutual funds, short-term securities and cash and cash equivalents, all of which are
carried at fair value. The investments are managed predominately through the Company's investment
advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are managed by independent investment firms. The
contractowner has the option of directing funds to a wide variety of mutual funds. The investment
risk on the variable portion of a contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The Company is responsible for the credit risk
associated with these investments.
Included in Separate Account liabilities are reserves of $1,059,987,000 and $896,205,000 at December
31, 2000 and 1999, respectively, relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of $1,059,987,000 and $896,205,000 at
December 31, 2000 and 1999, respectively, consisting of long term bonds, short-term securities,
transfers due from the general account and cash and cash equivalents are held in support of these
annuity contracts, pursuant to state regulation.
O. Estimates
---------
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires that management make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The more significant estimates and assumptions are
related to deferred acquisition costs and involve policy lapses, investment return and maintenance
expenses. Actual results could differ from those estimates.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Net income $64,817 $76,169 $34,767
Other comprehensive income:
Unrealized investment (losses) gains on
available for sale securities (1,681) (3,438) 2,801
Reclassification adjustment for realized losses (gains)
included in investment income 2,957 (660) 88
--------- ----- ----- ----------
Net unrealized gains (losses) on securities 1,276 (4,098) 2,889
Foreign currency translation (66) 456 (22)
------- ---------- -----------
Other comprehensive income (loss) 1,210 (3,642) 2,867
--------- ------- ------
Comprehensive income $66,027 $72,527 $37,634
======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31 were as follows:
(in thousands) 2000 1999
---- ----
Unrealized investment gains (losses) $1,021 ($255)
Foreign currency translation 82 148
------ ------
Accumulated other comprehensive income (loss) $1,103 ($107)
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and
held-to-maturity fixed maturities and investments in mutual funds as of December 31, 2000 and 1999 are shown
below. All securities held at December 31, 2000 and 1999 were publicly traded.
Investments in fixed maturities as of December 31, 2000 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $206,041 $4,445 $ (11) $210,475
Foreign government obligations 2,791 195 - 2,986
Obligations of state and political
subdivisions 253 1 - 254
Corporate securities 72,237 1,565 (1,809) 71,993
------ ----- ------- ------
Totals $281,322 $6,206 $(1,820) $285,708
======== ====== ======== ========
The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 2000 are shown
below.
(in thousands) Available-for-Sale
------------------
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 7,005 $ 7,018
Due after one through five years 157,111 158,344
Due after five through ten years 107,729 110,469
Due after ten years 9,477 9,877
-------- ---------
Total $281,322 $285,708
======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $ 81,183 $ - $(678) $ 80,505
Obligations of state and political
subdivisions 253 - (3) 250
Corporate securities 121,859 - (4,449) 117,410
------- ------- -------
Totals $203,295 $ - $(5,130) $198,165
======== === ======== ========
(in thousands) Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
------- -- ---- ------
Totals $3,360 $ - $(16) $3,344
====== === ===== ======
Proceeds from sales of fixed maturities during 2000, 1999 and 1998 were $302,632,000, $32,196,000, and
$999,000, respectively. Proceeds from maturities during 2000, 1999 and 1998 were $1,104,000, $4,030,000, and
$3,050,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 2000 and 1999 are shown
below:
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2000 $23,218 $ 372 $(3,188) $20,402
======= ===== ======== =======
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
Net realized investment gains (losses) were as follows for the years ended December 31:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities:
Gross gains $1,002 $ 253 $ -
Gross losses (3,450) (228) (1)
Investment in mutual funds:
Gross gains 1,913 990 281
Gross losses (153) (437) (181)
--- ----- -- ----- -----
Totals $ (688) $ 578 $ 99
======= ===== ====
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities $13,502 $ 9,461 $ 8,534
Cash and cash equivalents 5,154 2,159 1,717
Investment in mutual funds 99 32 1,013
Policy loans 97 31 45
Derivative instruments (6,939) (1,036) -
------- -------
Total investment income 11,913 10,647 11,309
Investment expenses 257 206 179
------ ------ ------
Net investment income $11,656 $10,441 $11,130
======= ======= =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Current tax (benefit) expense ($29,244) $41,248 $22,384
Deferred tax expense (benefit) 60,023 (10,904) (14,230)
------- -------- -------
Total income tax expense $30,779 $30,344 $8,154
======= ======= ======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 2000 and
1999 are as follows:
(in thousands) 2000 1999
---- ----
Deferred tax liabilities:
Deferred acquisition costs ($411,417) ($321,873)
Payable to reinsurers (29,985) (26,733)
Future contractowner benefits (11,526)
-
Internal use software (2,524)
(1,022)
Policy fees (1,551) (1,146)
Net unrealized gains (550)
-
Foreign exchange translation (45) (80)
--------- ---- --------- ----
Total (457,598) (350,854)
--------- ---------
Deferred tax assets:
Net separate account liabilities
421,662 333,521
Future contractowner benefits
- 3,925
Other reserve differences
2,675 39,645
Deferred compensation
17,869 18,844
Surplus notes interest
5,536 5,030
Net unrealized losses
- 137
Other
907 1,478
-------- --- -----
Total
-
448,649 402,580
------- -------
Income tax (payable) receivable - deferred ($ 8,949) $51,726
=========== =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35%
to pre-tax income from continuing operations as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Income (loss) before taxes
Domestic $98,136 $109,036 $45,435
Foreign (2,540) (2,523) (2,514)
------- --- ------- -------
Total 95,596 106,513 42,921
Income tax rate 35% 35% 35%
------- ------ --------
Tax expense at federal statutory income tax rate 33,459 37,280 15,022
Tax effect of:
Dividend received deduction (7,350) (9,572) (9,085)
Losses of foreign subsidiary 889 883 880
Meals and entertainment 841 664 487
State income taxes (524) 1,071 673
Other 3,464 18 177
-------- ---------- ---------
Income tax expense $ 30,779 $ 30,344 $ 8,154
======== ======== =======
7. COST ALLOCATION AGREEMENTS WITH AFFILIATES
Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been
charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"),
an affiliated company. The Company has also charged operating costs to ASISI. The total cost to the Company
for these items was $13,974,000, $11,136,000, and $7,722,000 for the years ended December 31, 2000, 1999 and
1998, respectively. Income received for these items was $11,186,000, $3,919,000 and $1,355,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the
sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed were $5,842,000 and $1,441,000 for the years ended December 31, 2000 and
1999. As of December 31, 2000 and 1999, amounts receivable under this agreement were $492,000 and $245,000,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, the Company transferred certain rights to receive future fees and
contract charges expected to be realized on variable portions of designated blocks of deferred annuity
contracts.
The proceeds from the transfers 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 Company did not transfer
the right to receive future fees and charges after the expiration of the surrender charge period.
In connection with these transactions, ASI issued collateralized notes in private placements, 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 transferred provide for ASI to receive a percentage
(60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender
charge period of the designated contracts (6 to 8 years).
Payments representing fees and charges in the aggregate amount of $219,454,000, $131,420,000 and $69,226,000
were made by the Company to the Parent for the years ended December 31, 2000, 1999 and 1998, respectively.
Related interest expense of $70,667,000, $52,840,000 and $22,978,000 has been included in the statement of
income for the years ended December 31, 2000, 1999 and 1998, respectively.
The Commissioner of the State of Connecticut has approved the transfer 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.
The present values of the transactions as of the respective effective date were as follows:
Closing Effective Contract Issue Discount Present
Transaction Date Date Period Rate Value
----------- ---- ---- ------ ---- -----
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 7.5% $50,221
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 7.5% 58,767
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 7.5% 77,552
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 7.5% 58,193
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 7.5% 61,180
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 7.0% 68,573
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 7.0% 40,128
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 7.5% 120,632
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99 7.5% 145,078
2000-1 3/22/00 2/1/00 8/1/99 - 1/31/00 7.5% 169,459
2000-2 7/18/00 6/1/00 2/1/00 - 4/30/00 7.25% 92,399
2000-3 12/28/00 12/1/00 5/1/00 - 10/31/00 7.25% 107,291
2000-4 12/28/00 12/1/00 1/1/98 - 10/31/00 7.25% 107,139
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 2000 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ------
2001 $164,892
2002 169,511
2003 165,626
2004 151,516
2005 128,053
2006 and thereafter 154,812
-- -------
Total $934,410
========
9. LEASES
The Company leases office space under a lease agreement established in 1989 with ASIST. The Company entered
into a lease agreement for office space in Westminster, Colorado, effective January 1, 2001. Lease expense for
2000, 1999 and 1998 was $6,593,000, $5,003,000 and $3,588,000 respectively. Future minimum lease payments per
year and in aggregate as of December 31, 2000 are as follows:
(in thousands) 2001 $6,487
2002 8,032
2003 8,098
2004 8,209
2005 8,756
2006 and thereafter 51,922
-----------
Total $91,504
===========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes
on deposit with various states. The carrying value of these deposits amounted to $4,636,000 and $4,868,000 as
of December 31, 2000, and 1999, respectively. These deposits are required to be maintained for the protection
of contractowners within the individual states.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $342,804,000 and $286,385,000 at December 31, 2000 and 1999,
respectively.
The statutory basis net income for the year ended December 31, 2000 was $11,550,000, as compared to losses of
$17,672,000 and $13,152,000 for the years ended December 31, 1999 and 1998, respectively.
Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without
prior approval of the state insurance department is subject to restrictions relating to statutory surplus and
net gain from operations. At December 31, 2000, no amounts may be distributed without prior approval.
On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital
stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the
California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and
contributed surplus of $500,000 and had no effect on capital and surplus.
12. STATUTORY ACCOUNTING PRACTICES
The National Association of Insurance Commissioners ("NAIC") revised the Accounting Practices and Procedures
Manual in a process referred to as Codification. The State of Connecticut has adopted the provisions of the
revised manual, which is effective January 1, 2001. The revised manual has changed, to some extent, prescribed
statutory accounting practices and will result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The adoption of the revised accounting practices is not
expected to have a material adverse effect on the Company's statutory-basis capital and surplus.
13. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company
contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up
to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants
were $3,734,000, $3,164,000 and $2,115,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company has a deferred compensation plan, which is available to the internal field marketing staff and
certain officers. Company contributions to this plan on behalf of the participants were $399,000, $193,000 and
$342,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company and certain affiliates cooperatively have a long-term incentive program under which units are
awarded to executive officers and other personnel. The Company and certain affiliates also have a profit
sharing program which benefits all employees below the officer level. These programs consist of multiple plans
with new plans instituted each year. Generally, participants must remain employed by the Company or its
affiliates at the time such units are payable in order to receive any payments under the programs. The accrued
liability representing the value of these units was $31,632,000 and $42,619,000 as of December 31, 2000 and
1999, respectively. Payments under these programs were $13,542,000, $4,079,000 and $2,407,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. REINSURANCE
The effect of reinsurance for the years ended December 31, 2000, 1999 and 1998 is as follows:
(in thousands) 2000
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $477,802 $45,784 $13,607
Ceded (53,224) (766) (4,561)
-------- ------ -------
Net $424,578 $45,018 $ 9,046
======== ======= =======
1999
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $326,670 $4,151 ($1,382)
Ceded (36,681) (1,073) (257)
-------- ------- -----
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- --- ---------
Net $186,211 $1,053 ($8,930)
======== ====== ========
In December 2000, the Company entered into a modified coinsurance agreement with SICL effective January 1996.
During 2000, ceded premiums received net of commission expenses and reserve adjustments were $10,360,000. At
December 31, 2000, $6,109,000 was payable to SICL under this agreement.
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains
liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its
obligations assumed under the reinsurance agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 2000
and 1999 were as follows:
(in thousands)
Interest for the
---------------------------------
Interest 2000 1999 Years Ended December 31,
---------------------------------
Issue Date Rate Amount Amount 2000 1999 1998
---------- ---- ------ ------ ---- ---- ----
---------------------------------
---------------------------------
December 29, 1993 6.84% - - - - 1,387
---------------------------------
February 18, 1994 7.28% 10,000 732 738 738
-
---------------------------------
March 28, 1994 7.90% 10,000 794 801 801
-
---------------------------------
September 30, 1994 9.13% 15,000 15,000 1,392 1,389 1,389
---------------------------------
December 28, 1994 9.78% - - 1,308 1,388
-
---------------------------------
December 19, 1995 7.52% 10,000 10,000 765 762 762
---------------------------------
December 20, 1995 7.49% 15,000 15,000 1,142 1,139 1,139
---------------------------------
December 22, 1995 7.47% 9,000 9,000 684 682 682
---------------------------------
June 28, 1996 8.41% 40,000 40,000 3,420 3,411 3,411
---------------------------------
December 30, 1996 8.03% 70,000 70,000 5,715 5,698 5,699
--- ------ --- ------ --- ----- --- ----- --- -----
---------------------------------
Total $159,000 $179,000 $14,644 $15,928 $17,396
======== ======== ======= ======= =======
---------------------------------
Surplus notes for $10,000,000 dated February 18, 1994 and $10,000,000 dated March 28, 1994 were converted to
additional paid-in capital on December 27, 2000. A surplus note for $14,000,000 dated December 28, 1994 was
converted to additional paid-in capital on December 10, 1999. All surplus notes mature seven years from the
issue date.
Payment of interest and repayment of principal for these notes is subject to certain conditions and require
approval by the Insurance Commissioner of the State of Connecticut. At December 31, 2000 and 1999, $15,816,000
and $14,372,000, respectively, of accrued interest on surplus notes was not approved for payment under these
criteria.
16. SHORT-TERM BORROWING
The Company had a $10,000,000 short-term loan payable to ASI at December 31, 2000 and 1999 as part of a
revolving loan agreement. The loan has an interest rate of 7.13% and matures on March 12, 2001. The total
interest expense to the Company was $687,000, $585,000 and $622,000 and for the years ended December 31, 2000,
1999 and 1998, respectively. Accrued interest payable was $222,000 and $197,000 as of December 31, 2000 and
1999, respectively.
17. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by
contractowners at market value or with market value adjustment. Separate account assets which are carried at
fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from
10% to 1% for contracts held less than 10 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. SEGMENT REPORTING
In recent years, in order to complete the array of products offered by the Company and its affiliates to meet a
wide variety of financial planning, the Company developed the variable life insurance and qualified retirement
plan annuity products. Assets under management and sales for the products other than variable annuities have
not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information."
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2000
Premiums and other insurance
revenues $137,255 $139,317 $147,923 $136,159
Net investment income 2,876 3,628 4,186 966
Net realized capital gains (losses) 729 (1,436) (858) 877
------- ------- ----- -------
Total revenues 140,860 141,509 151,251 138,002
Benefits and expenses 106,641 121,356 137,514 110,515
------- -------- -------- -------
Pre-tax net income 34,219 20,153 13,737 27,487
Income taxes 10,038 5,225 3,167 12,349
------ --------- ------ ------
Net income $24,181 $14,928 $10,570 $15,138
======= ======= ======= =======
1999
Premiums and other insurance
revenues $78,509 $88,435 $97,955 $111,443
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
------- --------- ------- ---------
Total revenues 81,458 91,302 100,896 113,705
Benefits and expenses 64,204 67,803 71,597 77,244
------ --------- ------- ------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
------ ------ ---------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $ 25,001
======== ======== ======== ========
1998
Premiums and other insurance
revenues $50,593 $57,946 $62,445 $67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
------- -------- ------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
------ ------ ------- -------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
----- ----- ------ -------
Net income $6,072 $13,975 $14,174 $ 546
====== ======= ======= ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2001 are
shown below. All or some of these Sub-accounts were available during the periods shown as investment options for
other variable annuities we offer pursuant to different prospectuses. The Insurance Charge assessed against the
Sub-accounts under the terms of those other variable annuities are the same as the charges assessed against such
Sub-accounts under the Annuity offered pursuant to this Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates
shown, for Units in each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to
January 1, 2001 and are being offered pursuant to this Prospectus or which we offer pursuant to certain other
prospectuses; and (b) the number of Units outstanding in each such Sub-account as of the dates shown. The year
in which operations commenced in each such Sub-account is noted in parentheses. The portfolios in which a
particular Sub-account invests may or may not have commenced operations prior to the date such Sub-account
commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ----------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Omega
(2000)
Unit Price $7.98 - - - - - - - - -
Number of Units 1,637,475 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Equity
Index
(2000)
Unit Price $9.47 - - - - - - - - -
Number of Units 302,954 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Foundation
(2000)
Unit Price $9.65 - - - - - - - - -
Number of Units 755,890 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Global
Leaders
(1999)
Unit Price $10.55 11.72 - - - - - - - -
Number of Units 887,758 23,100 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Small
Cap Value
(2000)
Unit Price $12.24 - - - - - - - - -
Number of Units 65,490 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Special
Equity
(1999) $11.01 12.19 - - - - - - - -
Unit Price 1,731,145 152,341 - - - - - - - -
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Strategic Income
(2000)
Unit Price $9.83 - - - - - - - - -
Number of Units 118,558 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Capital Growth
(2000)
Unit Price $12.35 - - - - - - - - -
Number of Units 268,886 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Blue
Chip
(2000)
Unit Price $8.99 - - - - - - - - -
Number of Units 351,338 - - - - - - - - -
AST AIM
International Equity
(1)
(1989) $31.88 43.99 27.18 22.95 19.70 18.23 16.80 16.60 12.37 13.69
Unit Price 19,112,622 16,903,882 17,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464 1,948,773 1,092,902
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
AST MFS Growth
(1999)
Unit Price $10.38 11.27 - - - - - - - -
Number of Units 7,515,486 409,467 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
AST JanCap Growth
(1992)
Unit Price $41.14 60.44 39.54 23.83 18.79 14.85 10.91 11.59 10.51 -
Number of Units 99,250,773 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST MFS Growth
with Income
(1999)
Unit Price $10.36 10.49 - - - - - - - -
Number of Units 6,937,627 741,323 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Federated High
Yield
(1994)
Unit Price $12.80 14.38 14.30 14.13 12.62 11.27 9.56 - - -
Number of Units 36,914,825 41,588,401 40,170,144 29,663,242 15,460,522 6,915,158 2,106,791 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Money Market
(1992)
Unit Price $12.94 12.38 12.00 11.57 11.16 10.77 10.35 10.12 10.01 -
Number of Units 172,493,206 187,609,708 75,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783 457,872 -
INVESCO VIF -
Technology
(1999)
Unit Price $12.48 16.52 - - - - - - - -
Number of Units 29,491,113 4,622,241 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Dynamics
(1999)
Unit Price $13.23 13.91 - - - - - - - -
Number of Units 11,409,827 2,022,584 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------------
Davis Variable
Account
Fund, Inc. - Value
(2000) $9.94 - - - - - - - - -
Unit Price 195,203 - - - - - - - - -
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
1. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between
October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio,
then named "AST Putnam International Equity." Prior to October 15, 1996, Seligman Henderson Co. served as
the Sub-advisor of the Portfolio, then named "Seligman Henderson International Equity Portfolio."
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS
Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation
The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each
example assumes that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the
Owner's death. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account
Value is maintained in the variable investment options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American
Skandia under certain circumstances.
Example with market increase
Assume that the Owner's Account Value has been increasing due to positive market performance. On the date we
receive due proof of death, the Account Value is $75,000. The basic Death Benefit is calculated as Purchase
Payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death
Benefit is equal to $75,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount
payable under the basic Death Benefit ($75,000) PLUS 50% of the "Death Benefit Amount" less Purchase Payments
reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $75,000
Basic Death Benefit = $75,000
Death Benefit Amount = $75,000 - $50,000 = $25,000
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $75,000 + $12,500 =
$87,500
Examples with market decline
Assume that the Owner's Account Value has been decreasing due to declines in market performance. On the date we
receive due proof of death, the Account Value is $45,000. The basic Death Benefit is calculated as Purchase
Payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death
Benefit is equal to $50,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount
payable under the basic Death Benefit ($50,000) PLUS 50% of the "Death Benefit Amount" less Purchase Payments
reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $40,000
Basic Death Benefit = $50,000
Death Benefit Amount = $50,000 - $50,000 = $0
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $50,000 + $0 = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary
Protection Optional Death Benefit.
Examples of Guaranteed Minimum Death Benefit Calculation
The following are examples of how the Guaranteed Minimum Death Benefit is calculated. Each example assumes that
a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each
example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained
in the variable investment options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American
Skandia under certain circumstances.
Example of market increase
Assume that the Owner's Account Value has generally been increasing due to positive market performance. On the
date we receive due proof of death, the Account Value is $90,000. The Highest Anniversary Value at the end of
any previous period is $72,000. The Death Benefit would be the Account Value ($90,000) because it is greater than
the Highest Anniversary Value ($72,000) or the sum of prior Purchase Payments increased by 5.0% annually
($73,872.77).
Example of market decrease
Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been
decreasing since the fifth contract anniversary. On the date we receive due proof of death, the Account Value is
$48,000. The Highest Anniversary Value at the end of any previous period is $54,000. The Death Benefit would be
the sum of prior Purchase Payments increased by 5.0% annually ($73,872.77) because it is greater than the Highest
Anniversary Value ($54,000) or the Account Value ($48,000).
Example of market increase followed by decrease
Assume that the Owner's Account Value increased significantly during the first six years following the Issue
Date. On the sixth anniversary date the Account Value is $90,000. During the seventh Annuity Year, the Account
Value increases to as high as $100,000 but then subsequently falls to $80,000 on the date we receive due proof of
death. The Death Benefit would be the Highest Anniversary Value at the end of any previous period ($90,000),
which occurred on the sixth anniversary, although the Account Value was higher during the subsequent period. The
Account Value on the date we receive due proof of death ($80,000) is lower, as is the sum of all prior Purchase
Payments increased by 5.0% annually ($73,872.77).
American Skandia Life Assurance Corporation
Attention: Concierge Desk
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
customerservice@americanskandia.com
For Requests by Phone:
1-800-752-6342
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PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER
DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS EVAXT-PROS
(05/2001).
- -------------------------------------------------------------------------------------------------
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-------------------------------------------------------
(print your name)
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(address)
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(city/state/zip code)
557703
ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
customerservice@americanskandia.com
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.americanskandia.com http://www.americanskandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: 203-926-1888
http://www.americanskandia.com
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes American Skandia XTra CreditSM Premier, a flexible premium deferred annuity (the "Annuity") offered by
American Skandia Life Assurance Corporation ("American Skandia", "we", "our" or "us"). The Annuity may be offered as an
individual annuity contract or as an interest in a group annuity. This Prospectus describes the important features of the Annuity
and what you should consider before purchasing the Annuity. We have also filed a Statement of Additional Information that is
available from us, without charge, upon your request. The contents of the Statement of Additional Information are described on
page 68. The Annuity or certain of its investment options and/or features may not be available in all states. Various rights and
benefits may differ between states to meet applicable laws and/or regulations. Certain terms are capitalized in this prospectus.
Those terms are either defined in the Glossary of Terms or in the context of the particular section.
====================================================================================================================================
American Skandia offers several different annuities which your financial professional may be authorized to offer to you. Each
annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how
you intend to use the annuity. The different features and benefits include variations in death benefit protection, the ability to
access your annuity's account value and the charges that you will be subject to if you choose to surrender the annuity. The fees
and charges may also be different between each annuity.
====================================================================================================================================
If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you should consider
any surrender or penalty charges you may incur when replacing your existing coverage and that this Annuity may be subject to a
contingent deferred sales charge if you elect to surrender the Annuity or take a partial withdrawal. You should consider your
need to access the annuity's account value and whether the annuity's liquidity features will satisfy that need.
WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY?
This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for "qualified" investments,
including an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or 403(b)). It may also be used as an investment vehicle for
"non-qualified" investments. The Annuity allows you to invest your money in a number of variable investment options as well as in
one or more fixed investment options.
When an Annuity is purchased as a "non-qualified" investment, you generally are not taxed on any investment gains the Annuity
earns until you make a withdrawal or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be
beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each
year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a
10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. Annuities purchased as a non-qualified
investment are not subject to the maximum contribution limits that may apply to a qualified investment, and are not subject to
required minimum distributions after age 701/2.
When an Annuity is purchased as a "qualified" investment, you should consider that the Annuity does not provide any additional tax
advantages to the preferential treatment already available through your retirement plan under the Internal Revenue Code. An
Annuity may offer features and benefits in addition to providing tax deferral that other investment vehicles may not offer,
including death benefit protection for your beneficiaries, lifetime income options, and the ability to make transfers between
numerous variable investment options offered under the Annuity. You should consult with your financial professional as to whether
the overall benefits and costs of the Annuity are appropriate considering your overall financial plan.
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These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, are NOT insured or guaranteed
by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An
investment in this annuity involves certain investment risks, including possible loss of principal.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING
MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-752-6342
Prospectus Dated: May 1, 2001 Statement of Additional Information Dated: May 1, 2001
FUSI XT-PROS- (05/2001) FUSI XTPROS
====================================================================================================================================
If you purchase this Annuity, we apply an additional amount (an XTra CreditSM) to your account value with each purchase payment
you make, including your initial purchase payment and any additional purchase payments.
====================================================================================================================================
This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities. However, if you
make a withdrawal that exceeds the free withdrawal amount or choose to surrender your Annuity, the contingent deferred sales
charge (CDSC) on this Annuity is higher and is deducted for a longer period of time as compared to our other variable
annuities. As with any annuity that features a CDSC, you should consider your need to access your account value during the
CDSC period and whether the liquidity provision under the Annuity will satisfy that need.
====================================================================================================================================
====================================================================================================================================
The XTra CreditSM amount is included in your account value. However, American Skandia may take back the original XTra
CreditSM amount applied to your purchase payment if you die, or elect to withdraw all or a portion of your account value under
the medically-related waiver provision, within 12 months of having received an XTra CreditSM amount. In either situation, the
value of the XTra CreditSM amount could be substantially reduced. However, any investment gain on the XTra CreditSM amount
will not be taken back. Additional conditions and restrictions apply.
====================================================================================================================================
====================================================================================================================================
WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
|X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable
flexibility in the timing and amount of premium payments. Generally, investors "defer" receiving annuity payments until
after an accumulation period.
|X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to variable
investment options, the value of your Annuity will vary daily to reflect the investment performance of the underlying
investment options. Fixed investment options of different durations are offered that are guaranteed by us, but may have a
Market Value Adjustment if you withdraw your Account Value before the Maturity Date.
|X| The Annuity features two distinct phases - the accumulation period and the payout period. During the accumulation period
your Account Value is allocated to one or more underlying investment options. The variable investment options, each a Class
1 Sub-account of American Skandia Life Assurance Corporation Variable Account B, invest in an underlying mutual fund
portfolio. Currently, portfolios of the following underlying mutual funds are being offered: American Skandia Trust,
Montgomery Variable Series, Wells Fargo Variable Trust, Rydex Variable Trust, INVESCO Variable Investment Funds, Inc.,
Evergreen Variable Annuity Trust, ProFunds VP, First Defined Portfolio Fund LLC and The Prudential Series Fund, Inc.
|X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2)
for life with a guaranteed minimum number of payments; (3) based on joint lives; or (4) for a guaranteed number of
payments. We currently make annuity payments available on a fixed or variable basis.
|X| This Annuity offers two different types of Credits. We add a Credit to your Annuity with each Purchase Payment we
receive. We also provide an additional 1% credit on Purchase Payments made within the first year and may provide certain
additional benefits if your Account Value has not reached a Target Value on its 10th anniversary.
|X| This Annuity offers a basic Death Benefit. It also offers optional Death Benefits that provide an enhanced level of
protection for your beneficiary(ies) for an additional charge.
|X| You are allowed to withdraw a limited amount of money from your Annuity on an annual basis without any charges. Other
product features allow you to access your Account Value as necessary, although a charge may apply.
|X| Transfers between investment options are tax-free. Currently, you may make twenty transfers each year free of charge.
We also offer several programs that enable you to manage your Account Value as your financial needs and investment
performance change.
HOW DO I PURCHASE THIS ANNUITY?
We sell the Annuity through licensed, registered financial professionals. You must complete an application and submit a minimum
initial purchase payment of $1,000. We may allow you to make a lower initial purchase payment provided you establish a bank
drafting program under which purchase payments received in the first Annuity Year total at least $1,000. If the Annuity is owned
by an individual or individuals, the oldest of those persons must be age 80 or under. If the Annuity is owned by an entity, the
annuitant must be age 80 or under.
Mailing Addresses:
New Business/Additional Purchase Payments: Exchange Paperwork:
American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7040 P.O. Box 7039
Bridgeport, CT 06601-7040 Bridgeport, CT 06601-7039
All other correspondence: Express/Overnight Mail:
American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7038 Three Corporate Drive
Bridgeport, CT 06601-7038 Shelton, CT 06484
TABLE OF CONTENTS
GLOSSARY OF TERMS..................................................................................................................6
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................7
EXPENSE EXAMPLES..................................................................................................................10
INVESTMENT OPTIONS................................................................................................................14
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................14
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................27
FEES AND CHARGES..................................................................................................................27
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................27
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................28
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?...................................................................................29
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................29
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................29
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES......................................................................................29
PURCHASING YOUR ANNUITY...........................................................................................................29
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................29
MANAGING YOUR ANNUITY.............................................................................................................30
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................30
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................31
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................31
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................31
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................31
MANAGING YOUR ACCOUNT VALUE.......................................................................................................31
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................31
HOW DO I RECEIVE CREDITS?......................................................................................................32
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?...................................................................................32
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................34
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................35
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................35
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?............................................35
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?................................................................37
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................38
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................38
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................38
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................39
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................40
ACCESS TO ACCOUNT VALUE...........................................................................................................41
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................41
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................41
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................42
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................42
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................43
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................43
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................43
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................43
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................44
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................44
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?...................................................................................44
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................46
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................46
DEATH BENEFIT.....................................................................................................................47
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................47
OPTIONAL DEATH BENEFITS........................................................................................................47
AMERICAN SKANDIA'S ANNUITY REWARDS.............................................................................................50
PAYMENT OF DEATH BENEFITS......................................................................................................50
VALUING YOUR INVESTMENT...........................................................................................................52
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................52
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................52
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................52
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................52
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................52
TAX CONSIDERATIONS................................................................................................................53
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................53
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................53
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................53
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................53
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED
CONTRACTS?...................................................................................................................55
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................56
GENERAL TAX CONSIDERATIONS.....................................................................................................57
GENERAL INFORMATION...............................................................................................................58
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................58
WHO IS AMERICAN SKANDIA?.......................................................................................................59
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................59
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................60
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................61
AVAILABLE INFORMATION..........................................................................................................62
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................62
HOW TO CONTACT US..............................................................................................................63
INDEMNIFICATION................................................................................................................63
LEGAL PROCEEDINGS..............................................................................................................63
EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................63
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................68
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS................................................................................1
APPENDIX D - SALE OF THE CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK...........................................................1
GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not
repeated in this Glossary of Terms.
Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date, plus any earnings,
and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Contingent
Deferred Sales Charge ("CDSC") and/or any Annual Maintenance Fee. The Account Value includes any additional amounts we applied to
your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is determined separately
for each Sub-account and for each Fixed Allocation, and then totaled to determine Account Value for your entire Annuity. The
Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment.
Annuitization: The application of Account Value to one of the available annuity options to begin receiving periodic payments for
life, for a guaranteed minimum number of payments or for life with a guaranteed minimum number of payments.
Annuity Date: The date you choose for annuity payments to commence. A maximum Annuity Date may apply.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified Guarantee Period
during the accumulation period.
Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation.
Interim Value: The value of the Fixed Allocation on any date other than the Maturity Date. The Interim Value is equal to the
initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less
any transfers or withdrawals from the Fixed Allocation.
Issue Date: The effective date of your Annuity.
MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on any day other than the
Maturity Date of such Fixed Allocation.
Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having
ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner"
refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate.
Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of
the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, Tax Charge, the charge for any optional
benefits and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your
Annuity.
Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission
requires mutual funds or unit investment trusts to be valued.
SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your Annuity while
others are assessed against assets allocated to the variable investment options. The charges that are assessed against the
Annuity include the Contingent Deferred Sales Charge, Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is
assessed against the variable investment options is the Insurance Charge, which is the combination of a mortality and expense risk
charge and a charge for administration of the Annuity. Each underlying mutual fund portfolio assesses a charge for investment
management and for other expenses. The prospectus for each underlying mutual fund provides more detailed information about the
expenses for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and expenses are
described in more detail within this Prospectus.
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YOUR TRANSACTION EXPENSES
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Amount Deducted/
Fee/Expense Description Of Charge When Deducted
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- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr.
9+ Upon Surrender or
Contingent Deferred Sales Partial Withdrawal
Charge
- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
8.5% 8.5% 8.5% 8.5% 7.5% 5.5% 3.5% 1.5% 0.0%
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The charge is a percentage of each applicable purchase
payment. The period is measured from the date each purchase
payment is allocated.
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Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's
anniversary date or upon surrender
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Transfer Fee $10.00 After the 20th transfer each annuity
year
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Tax Charge Depends on the requirements of the applicable jurisdiction Various
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ANNUAL EXPENSES OF THE SUB-ACCOUNTS
(as a percentage of the average daily net assets of the Sub-accounts)
- ------------------------------- ----------------------------------------------------------------- --------------------------------------
Mortality & Expense Risk
Charge 1.25%
Daily
Administration Charge 0.15%
Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment
Sub-accounts* Options only
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* The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the "Insurance Charge"
elsewhere in this prospectus.
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OPTIONAL BENEFITS
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GUARANTEED RETURN OPTION
We offer a program that guarantees a "return of premium" at a future date, while allowing you to 0.25% of Account Value
allocate all or a portion of your Account Value to the Sub-accounts of your choice. Please refer to
the discussion of the Guaranteed Return Option for a description of restrictions under the program. (Amounts are deducted in
arrears each Annuity Year)
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- ------------------------------------------------------------------------------------------------------- --------------------------------
ENHANCED BENEFICIARY PROTECTION DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.25% of Account Value
beneficiary(ies) by providing additional amounts that can be used to offset federal and state taxes
payable on any taxable gains in your Annuity at the time of your death. (Amounts are deducted in
arrears each Annuity Year)
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GUARANTEED MINIMUM DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.30% of the current Death
beneficiary(ies) by providing the greater of the current Account Value, a 5.0% annual increase on Benefit
Purchase Payments minus proportional withdrawals or the Highest Anniversary Value. (Amounts are deducted in
arrears each Annuity Year)
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Please refer to the section entitled "Death Benefit" for a complete discussion of the optional Death Benefits, including restrictions
on the age of the Owner/ Annuitant and limits on the amount payable.
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Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
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Below are the investment management fees, other expenses, and the total annual expenses for each underlying Portfolio as of
December 31, 2000, except as noted. The total annual expenses are the sum of the investment management fee, other expenses and
any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. For certain of the
underlying Portfolios, a portion of the management fee is being waived and/or other expenses are being partially reimbursed.
"N/A" indicates that no portion of the management fee and/or other expenses is being waived and/or reimbursed. Any footnotes
about expenses appear after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios
of American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual funds and has
not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios
for further details. The current prospectus and statement of additional information for the underlying Portfolios can be obtained
by calling 1-800-752-6342.
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Fund
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
American Skandia Trust: (2)
AST Founders Passport 1.00% 0.38% 0.00% 1.38% N/A 1.38%
AST Scudder Japan (3) 1.00% 1.78% 0.00% 2.78% 1.03% 1.75%
AST AIM International Equity 0.86% 0.24% 0.06% 1.16% N/A 1.16%
AST Janus Overseas Growth 1.00% 0.18% 0.01% 1.19% N/A 1.19%
AST American Century International Growth 1.00% 0.27% 0.00% 1.27% N/A 1.27%
AST American Century International Growth II 1.00% 0.26% 0.00% 1.26% N/A 1.26%
AST MFS Global Equity 1.00% 0.87% 0.00% 1.87% 0.12% 1.75%
AST Janus Small-Cap Growth 0.90% 0.16% 0.01% 1.07% N/A 1.07%
AST Scudder Small-Cap Growth 0.95% 0.16% 0.02% 1.13% N/A 1.13%
AST Federated Aggressive Growth (3) 0.95% 6.27% 0.00% 7.22% 5.87% 1.35%
AST Goldman Sachs Small-Cap Value 0.95% 0.20% 0.00% 1.15% N/A 1.15%
AST Gabelli Small-CapValue 0.90% 0.21% 0.01% 1.12% N/A 1.12%
AST Janus Mid-Cap Growth (5) 1.00% 0.28% 0.00% 1.28% N/A 1.28%
AST Neuberger Berman Mid-Cap Growth 0.90% 0.16% 0.03% 1.09% N/A 1.09%
AST Neuberger Berman Mid-Cap Value 0.90% 0.18% 0.16% 1.24% N/A 1.24%
AST Alger All-Cap Growth 0.95% 0.24% 0.05% 1.24% N/A 1.24%
AST Gabelli All-Cap Value (3) 0.95% 0.64% 0.00% 1.59% 0.14% 1.45%
AST Kinetics Internet (3) 1.00% 4.34% 0.00% 5.34% 3.94% 1.40%
AST T. Rowe Price Natural Resources 0.90% 0.24% 0.06% 1.20% N/A 1.20%
AST Alliance Growth 0.90% 0.19% 0.07% 1.16% N/A 1.16%
AST MFS Growth 0.90% 0.30% 0.00% 1.20% N/A 1.20%
AST Marsico Capital Growth 0.90% 0.14% 0.02% 1.06% 0.02% 1.04%
AST JanCap Growth 0.90% 0.13% 0.01% 1.04% 0.04% 1.00%
AST Janus Strategic Value (3) 1.00% 1.41% 0.00% 2.41% 1.06% 1.35%
AST Alliance/Bernstein Growth + Value (4) 0.90% 0.24% 0.03% 1.17% N/A 1.17%
AST Sanford Bernstein Core Value (4) 0.75% 0.24% 0.03% 1.02% N/A 1.02%
AST Cohen & Steers Realty 1.00% 0.22% 0.06% 1.28% N/A 1.28%
AST Sanford Bernstein Managed Index 500 0.60% 0.16% 0.02% 0.78% N/A 0.78%
AST American Century Income & Growth 0.75% 0.19% 0.00% 0.94% N/A 0.94%
AST Alliance Growth and Income 0.75% 0.15% 0.16% 1.06% 0.01% 1.05%
AST MFS Growth with Income (4) 0.90% 0.33% 0.00% 1.23% N/A 1.23%
AST INVESCO Equity Income 0.75% 0.17% 0.03% 0.95% 0.01% 0.94%
AST AIM Balanced 0.73% 0.22% 0.00% 0.95% N/A 0.95%
AST American Century Strategic Balanced 0.85% 0.25% 0.00% 1.10% N/A 1.10%
AST T. Rowe Price Asset Allocation 0.85% 0.23% 0.00% 1.08% N/A 1.08%
AST T. Rowe Price Global Bond 0.80% 0.32% 0.00% 1.12% N/A 1.12%
AST Federated High Yield 0.75% 0.21% 0.00% 0.96% N/A 0.96%
AST Lord Abbett Bond-Debenture (3) 0.80% 2.27% 0.00% 3.07% 1.87% 1.20%
AST PIMCO Total Return Bond 0.65% 0.17% 0.00% 0.82% N/A 0.82%
AST PIMCO Limited Maturity Bond 0.65% 0.22% 0.00% 0.87% N/A 0.87%
AST Money Market 0.50% 0.15% 0.00% 0.65% 0.05% 0.60%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Fund
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Montgomery Variable Series:
Emerging Markets 1.25% 0.56% 0.00% 1.81% 0.25% 1.56%
Wells Fargo Variable Trust:
Equity Income 0.70% 0.22% 0.25% 1.17% 0.17% 1.00%
Equity Value 0.70% 0.62% 0.25% 1.57% 0.57% 1.00%
Rydex Variable Trust:
Nova 0.75% 0.67% 0.00% 1.42% N/A 1.42%
Ursa 0.90% 0.69% 0.00% 1.59% N/A 1.59%
OTC 0.75% 0.71% 0.00% 1.46% N/A 1.46%
INVESCO Variable Investment Funds, Inc.:
Technology 0.72% 0.30% 0.00% 1.02% N/A 1.02%
Health Sciences 0.75% 0.32% 0.00% 1.07% N/A 1.07%
Financial Services 0.75% 0.34% 0.00% 1.09% N/A 1.09%
Telecommunications 0.75% 0.31% 0.00% 1.06% N/A 1.06%
Dynamics 0.75% 0.34% 0.00% 1.09% N/A 1.09%
Evergreen Variable Annuity Trust:
Omega 0.52% 0.16% 0.00% 0.68% N/A 0.68%
Equity Index 0.32% 0.22% 0.00% 0.54% 0.23% 0.31%
Foundation 0.75% 0.17% 0.00% 0.92% N/A 0.92%
Global Leaders 0.87% 0.29% 0.00% 1.16% 0.15% 1.01%
Special Equity 0.92% 0.25% 0.00% 1.17% 0.13% 1.04%
Capital Growth 0.80% 0.32% 0.00% 1.12% 0.09% 1.03%
Blue Chip 0.61% 0.64% 0.00% 1.25% 0.24% 1.01%
Perpetual International 1.00% 0.37% 0.00% 1.37% N/A 1.37%
ProFund VP:
Europe 30 0.75% 0.75% 0.25% 1.75% N/A 1.75%
UltraSmall-Cap 0.75% 1.34% 0.25% 2.34% 0.29% 2.05%
UltraOTC 0.75% 0.75% 0.25% 1.75% N/A 1.75%
OTC (5) 0.75% 0.95% 0.25% 1.95% N/A 1.95%
Bear (5) 0.75% 0.95% 0.25% 1.95% N/A 1.95%
Bull Plus (5) 0.75% 0.95% 0.25% 1.95% N/A 1.95%
Biotechnology (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Energy (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Financial (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Healthcare (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Real Estate (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Technology (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Telecommunications (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
Utilities (5) 0.75% 1.00% 0.25% 2.00% N/A 2.00%
First Defined Portfolio Fund LLC:
First Trust(R)10 Uncommon Values 0.60% 2.47% 0.25% 3.32% 1.95% 1.37%
The Prudential Series Fund, Inc.:
SP Jennison International Growth (6) 0.85% 0.60% 0.25% 1.70% 0.06% 1.70%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
1 The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain Portfolios until
at least April 30, 2002. The caption "Total Annual Fund Operating Expenses" reflects the Portfolios' fees and expenses before
such waivers and reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects the effect of such waivers
and reimbursements.
2 American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1 of the
Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to receive brokerage commissions in
connection with purchases and sales of securities held by Portfolios of the Trust, and to use these commissions to promote the
sale of shares of such Portfolios. While the brokerage commission rates and amounts paid by the various Portfolios are not
expected to increase as a result of the Distribution Plan, the staff of the Securities and Exchange Commission takes the
position that commission amounts received under the Distribution Plan should be reflected as distribution expenses of the
Portfolios. The Distribution Fee estimates are derived and annualized from data regarding commission amounts directed to the
affiliate under the Distribution Plan for the fiscal year ended December 31, 2000. Although there are no maximum amounts
allowable, actual commission amounts directed under the Distribution Plan will vary and the amounts directed during the first
full fiscal year of the Plan's operations may differ substantially from the annualized amounts listed in the above chart.
3 These Portfolios commenced operations on October 23, 2000. "Other Expenses" and "12b-1 Fees" shown are based on
estimated amounts for the fiscal year ending December 31, 2001.
4 These Portfolios commenced operations on May 1, 2001. "Other Expenses" and "12b-1 Fees" shown are based on estimated
amounts for the fiscal year ending December 31, 2001.
5 These Portfolios commenced operations on January 22, 2001. "Other Expenses" and "12b-1 Fees" shown are based on
estimated amounts for the fiscal year ending December 31, 2001.
6 This Portfolio commenced operations on April 15, 2001. "Other Expenses" are based on estimated amounts for the fiscal
year ending December 31, 2001 and include a 0.15% Administration Fee. The 0.06% fee waiver and expense reimbursement is
currently in effect but may be eliminated. Therefore, the Expense Examples reflect the Total Annual Portfolio Operating
Expenses, not the Net Annual Portfolio Operating Expenses.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various costs and expenses you will incur with the Annuity over
certain periods of time based on specific assumptions. The examples reflect expenses of our Sub-accounts, as well as those of the
underlying mutual fund portfolios. The Securities and Exchange Commission ("SEC") requires these examples.
The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) the Insurance Charge is assessed as
1.40% per year; (c) the Annual Maintenance Fee is reflected as a charge equal to 0.05% based on an assumed average contract size;
(d) you make no withdrawals of Account Value during the period shown; (e) you make no transfers, withdrawals, surrender or other
transactions that we charge a fee during the period shown; (f) no tax charge applies; (g) the expenses throughout the period for
the underlying mutual fund portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled
"Underlying Mutual Fund Portfolio Annual Expenses"; and (h) the Credit applicable to your Annuity is 4% of Purchase Payments. The
Credit may be less when total Purchase Payments are less then $10,000 and may be more when total Purchase Payments are at least
$5,000,000 (see "How do I Receive Credits. The examples do not reflect the impact of any Target Value Credits that may be applied
to Purchase Payments within the first Annuity Year.
These examples do not reflect the charge for either optional Death Benefit that is offered under the Annuity or the Guaranteed
Return Option. If you purchase the Annuity with either optional Death Benefit or the Guaranteed Return Option, this charge is
deducted on an annual basis in arrears in addition to the amounts shown below. Please see the example of how we charge for the
optional Death Benefits and the Guaranteed Return Option following these tables.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING
MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- -----------------------------------------------------------------------------------------------------------------------------------------
Expense Examples
(amounts shown are rounded to the nearest dollar)
- -----------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------- ------- -----------------------------------------
If you surrender your Annuity at the end If you do not surrender your Annuity at
of the applicable time period, you would the end of the applicable time period
pay the following expenses on a $1,000 or begin taking annuity payments at
investment, assuming 5% annual return on such time, you would pay the following
assets: expenses on a $1,000 investment,
assuming 5% annual return on assets:
-------------------------------------------- ------- -----------------------------------------
After: After:
- -----------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- -----------
AST Founders Passport 115 177 232 330 30 92 157 330
AST Scudder Japan 119 189 251 366 34 104 176 366
AST AIM International Equity 113 170 220 307 28 85 145 307
AST Janus Overseas Growth 113 171 222 310 28 86 147 310
AST American Century International Growth 114 173 225 317 29 88 150 317
AST American Century International Growth 114 173 225 317 29 88 150 317
II
AST MFS Global Equity 119 189 251 366 34 104 176 366
AST Janus Small-Cap Growth 112 167 215 297 27 82 140 297
AST Scudder Small-Cap Growth 112 169 218 304 27 84 143 304
AST Federated Aggressive Growth 115 176 230 327 30 91 155 327
AST Goldman Sachs Small-Cap Value 113 170 219 306 28 85 144 306
AST Gabelli Small-Cap Value 112 169 218 303 27 84 143 303
AST Janus Mid-Cap Growth 114 174 226 319 29 89 151 319
AST Neuberger Berman Mid-Cap Growth 112 168 217 300 27 83 142 300
AST Neuberger Berman Mid-Cap Value 114 173 224 315 29 88 149 315
AST Alger All-Cap Growth 114 173 224 315 29 88 149 315
AST Gabelli All-Cap Value 116 179 235 337 31 94 160 337
AST Kinetics Internet 115 177 232 330 30 92 157 330
AST T. Rowe Price Natural Resources 113 171 222 310 28 86 147 310
AST Alliance Growth 113 170 220 307 28 85 145 307
AST MFS Growth 113 171 222 310 28 86 147 310
AST Marsico Capital Growth 111 166 213 294 26 81 138 294
AST JanCap Growth 111 165 212 290 26 80 137 290
AST Janus Strategic Value 115 176 230 327 30 91 155 327
AST Alliance/Bernstein Growth + Value 113 170 220 307 28 85 145 307
AST Sanford Bernstein Core Value 111 165 212 291 26 80 137 291
AST Cohen & Steers Realty 114 174 226 319 29 89 151 319
AST Sanford Bernstein Managed Index 500 109 158 200 267 24 73 125 267
AST American Century Income & Growth 110 163 208 284 25 78 133 284
AST Alliance Growth and Income 112 167 214 295 27 82 139 295
AST MFS Growth with Income 113 172 223 314 28 87 148 314
AST INVESCO Equity Income 110 163 208 284 25 78 133 284
AST AIM Balanced 110 163 208 284 25 78 133 284
AST American Century Strategic Balanced 112 168 217 300 27 83 142 300
AST T. Rowe Price Asset Allocation 112 167 215 298 27 82 140 298
AST T. Rowe Price Global Bond 112 169 218 303 27 84 143 303
AST Federated High Yield 111 164 209 286 26 79 134 286
AST Lord Abbett Bond-Debenture 113 171 222 310 28 86 147 310
AST PIMCO Total Return Bond 109 159 202 271 24 74 127 271
AST PIMCO Limited Maturity Bond 110 161 205 277 25 76 130 277
AST Money Market 107 152 190 247 22 67 115 247
MV Emerging Markets 117 183 241 348 32 98 166 348
WFVT Equity Income 111 165 212 290 26 80 137 290
WFVT Equity Value 111 165 212 290 26 80 137 290
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- -----------
After: After:
- ----------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Rydex Nova 115 178 233 333 30 93 158 333
Rydex Ursa 117 183 242 350 32 98 167 350
Rydex OTC 116 179 235 337 31 94 160 337
INVESCO VIF Technology 111 165 212 291 26 80 137 291
INVESCO VIF Health Sciences 112 167 215 297 27 82 140 297
INVESCO VIF Financial Services 112 168 217 300 27 83 142 300
INVESCO VIF Telecommunications 112 167 215 297 27 82 140 297
INVESCO VIF Dynamics 112 168 217 300 27 83 142 300
Evergreen VA Omega 108 155 194 256 23 70 119 256
Evergreen VA Equity Index 104 143 174 215 19 58 99 215
Evergreen VA Foundation 110 162 207 281 25 77 132 281
Evergreen VA Global Leaders 111 165 212 291 26 80 137 291
Evergreen VA Special Equity 111 166 213 294 26 81 138 294
Evergreen VA Capital Growth 111 166 213 294 26 81 138 294
Evergreen VA Blue Chip 111 165 212 291 26 80 137 291
Evergreen VA Perpetual International 115 177 231 328 30 92 156 328
ProFund VP Europe 30 119 189 251 366 34 104 176 366
ProFund VP UltraSmall-Cap 122 198 266 395 37 113 191 395
ProFund VP UltraOTC 119 189 251 366 34 104 176 366
ProFund VP OTC 121 195 261 385 36 110 186 385
ProFund VP Bear 121 195 261 385 36 110 186 385
ProFund VP Bull Plus 121 195 261 385 36 110 186 385
ProFund VP Biotechnology 122 197 264 390 37 112 189 390
ProFund VP Energy 122 197 264 390 37 112 189 390
ProFund VP Financial 122 197 264 390 37 112 189 390
ProFund VP Healthcare 122 197 264 390 37 112 189 390
ProFund VP Real Estate 122 197 264 390 37 112 189 390
ProFund VP Technology 122 197 264 390 37 112 189 390
ProFund VP Telecommunications 122 197 264 390 37 112 189 390
ProFund VP Utilities 122 197 264 390 37 112 189 390
First Trust(R)10 Uncommon Values 115 177 231 328 30 92 156 328
SP Jennison International Growth 118 187 248 361 33 102 173 361
- -------------------------------------------- --------- ---------- --------- ---------- ------ ---------- ---------- --------- ----------
Expenses For Optional Benefits
Guaranteed Return Option
If you elect to participate in the Guaranteed Return Option program, an annual charge of 0.25% is deducted from your Annuity's
Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed Allocations as of the date the
charge is deducted. Below is an example of how the charge for the Optional Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Enhanced Beneficiary Protection Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, an annual charge of 0.25% is deducted from your
Annuity's Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed Allocations as of the date
the charge is deducted. Below is an example of how the charge for the Optional Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Since charges for the Optional Death Benefit are determined based on a percentage of Account Value, you will pay more for this
benefit if your Account Value increases. The value of the Optional Death Benefit will also increase as the Account Value
increases. However, the Optional Death Benefit is also subject to a maximum benefit. See the section entitled "Optional Death
Benefits" for a description of the Enhanced Beneficiary Protection Optional Death Benefit.
Guaranteed Minimum Death Benefit
If you purchase the Guaranteed Minimum Death Benefit, an annual charge of 0.30% is deducted from your Annuity's Account Value.
The charge will be based on the current Death Benefit under the Guaranteed Minimum Death Benefit as of the date the charge is
deducted. Below is an example of how the charge for the Guaranteed Minimum Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Current Death Benefit: $13,000
Cost of Optional Death Benefit 0.30% X Current Death Benefit = $39.00 per year
The charge for optional Death Benefits is deducted in addition to the Insurance Charge which is deducted on a daily basis from the
Account Value allocated to the Sub-accounts. The charge for the optional Death Benefits is deducted in arrears on each
anniversary of the Issue Date of the Annuity or, if you terminate the optional Death Benefit or surrender your Annuity, on the
date the termination or surrender is effective.
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B (see
"What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively in one Portfolio. You should
carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the
Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a
description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist
you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying mutual fund portfolio
will meet its investment objective.
The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose name includes the
prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is American Skandia Investment Services,
Incorporated ("ASISI"), an affiliated company of American Skandia. However, a sub-advisor, as noted below, is engaged to conduct
day-to-day investment decisions.
Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or sub-advisor as a
retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception. Certain retail mutual funds may
also have been modeled after a Portfolio. While the investment objective and policies of the funds may be substantially similar,
the actual investments made by the funds will differ to varying degrees. Differences in the performance of the funds can be
expected, and in some cases could be substantial. Details about the investment objectives, policies, risks, costs and management
of the Portfolios are found in the prospectuses for the underlying mutual funds.
========================================================================================================================================
Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no longer offered as a Sub-account under the Annuity. Owners
of Contracts issued on or before January 18, 2000 may not allocate additional Account Value or make transfers into the AST Janus
Small-Cap Growth Sub-account, except that, Owners who had previously elected a bank drafting, dollar cost averaging, asset allocation
and/or rebalancing program will be allowed to continue. However, no changes involving the AST Janus Small-Cap Growth Sub-account may
be made to such programs.
Effective March 1, 2000, the AST Janus Overseas Growth portfolio is no longer offered as a Sub-account under the Annuity, except as
noted below. Owners of Contracts issued on or before February 29, 2000 with Account Value allocated to the AST Janus Overseas Growth
Sub-account may continue to allocate Account Value and make transfers into the AST Janus Overseas Growth Sub-account, including any
bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Contracts issued on or after March 1, 2000 will not
be allowed to allocate Account Value to the AST Janus Overseas Growth Sub-account.
The Portfolios may be offered as a Sub-account to Contract Owners at some future date; however, at the present time, American Skandia
has no intention to do so.
========================================================================================================================================
====================================================================================================================================
Effective March 16, 2001, the Nova, Ursa and OTC portfolios of Rydex Variable Trust will no longer be offered as Sub-accounts
under the Annuity. Owners of Annuity contracts issued on or after March 16, 2001 will not be allowed to allocate Account Value to
the Rydex Nova, Rydex Ursa or Rydex OTC Sub-accounts. Except as noted below, Owners of Annuity contracts issued before March 16,
2001, and/or their authorized financial professionals, will no longer be able to allocate additional Account Value or make
transfers into the Rydex Nova, Rydex Ursa or Rydex OTC Sub-accounts. Contract Owners and/or their authorized financial
professionals who elect to transfer Account Value out of the Rydex Sub-accounts on or after March 16, 2001 will not be allowed to
transfer Account Value into the Rydex Sub-accounts at a later date. Bank drafting, dollar cost averaging, asset allocation and
rebalancing programs that were effective on or before March 16, 2001 and included one or more of the Rydex Sub-accounts will be
allowed to continue. However, no changes involving the Rydex Sub-accounts may be made to such programs.
====================================================================================================================================
Please refer to Appendix B for certain required financial information related to the historical performance of the Sub-accounts.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Money Market: seeks to maximize current income and maintain high levels of liquidity. The
MONEY MARKET Portfolio attempts to accomplish its objective by maintaining a dollar-weighted average J. P. Morgan
maturity of not more than 90 days and by investing in securities which have effective Investment Management
maturities of not more than 397 days. Inc.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Lord Abbett Bond-Debenture: seeks high current income and the opportunity for capital
appreciation to produce a high total return. The Portfolio pursues its objective by normally
investing in high yield and investment grade debt securities, securities convertible into
common stock and preferred stocks. Under normal circumstances, the Portfolio invests at least
65% of its total assets in fixed income securities of various types. The Portfolio may find
good value in high yield securities, sometimes called "lower-rated bonds" or "junk bonds," and
frequently may have more than half of its assets invested in those securities. At least 20% Lord, Abbett & Co.
of the Portfolio's assets must be invested in any combination of investment grade debt
securities, U.S. Government securities and cash equivalents. The Portfolio may also make
significant investments in mortgage-backed securities. Although the Portfolio expects to
BOND maintain a weighted average maturity in the range of seven to nine years, there are no
restrictions on the overall Portfolio or on individual securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
AST PIMCO Limited Maturity Bond: seeks to maximize total return consistent with preservation
of capital and prudent investment management. The Portfolio will invest in a diversified Pacific Investment
portfolio of fixed-income securities of varying maturities. The average portfolio duration of Management Company
the Portfolio generally will vary within a one- to three-year time frame based on the
Sub-advisor's forecast for interest rates.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST PIMCO Total Return Bond: seeks to maximize total return consistent with preservation of
capital and prudent investment management. The Portfolio will invest in a diversified Pacific Investment
portfolio of fixed-income securities of varying maturities. The average portfolio duration of Management Company
the Portfolio generally will vary within a three- to six-year time frame based on the
Sub-advisor's forecast for interest rates.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Federated High Yield: seeks high current income by investing primarily in a diversified
portfolio of fixed income securities. The Portfolio will invest at least 65% of its assets in
lower-rated corporate fixed income securities ("junk bonds"). These fixed income securities
HIGH YIELD BOND may include preferred stocks, convertible securities, bonds, debentures, notes, equipment Federated Investment
lease certificates and equipment trust certificates. A fund that invests primarily in Counseling
lower-rated fixed income securities will be subject to greater risk and share price
fluctuation than a typical fixed income fund, and may be subject to an amount of risk that is
comparable to or greater than many equity funds.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST T. Rowe Price Global Bond (f/k/a AST T. Rowe Price International Bond): seeks to provide
high current income and capital growth by investing in high-quality foreign and U.S.
government bonds. The Portfolio will invest at least 65% of its total assets in bonds issued
or guaranteed by the U.S. or foreign governments or their agencies and by foreign authorities,
provinces and municipalities. Corporate bonds, mortgage- and asset-backed securities may also
be purchased. The Sub-advisor bases its investment decisions on fundamental market factors,
GLOBAL BOND currency trends, and credit quality. The Portfolio generally invests in countries where the T. Rowe Price
combination of fixed-income returns and currency exchange rates appears attractive, or, if the International, Inc.
currency trend is unfavorable, where the Sub-advisor believes that the currency risk can be
minimized through hedging. The Portfolio may also invest up to 20% of its assets in the
aggregate in below investment-grade, high-risk bonds ("junk bonds"). In addition, the
Portfolio may invest up to 30% of its assets in mortgage-backed (including derivatives, such
as collateralized mortgage obligations and stripped mortgage securities) and asset-backed
securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST T. Rowe Price Asset Allocation: seeks a high level of total return by investing primarily
in a diversified portfolio of fixed income and equity securities. The Portfolio normally
ASSET ALLOCA-TION invests approximately 60% of its total assets in equity securities and 40% in fixed income
securities. The Sub-advisor concentrates common stock investments in larger, more established T. Rowe Price
companies, but the Portfolio may include small and medium-sized companies with good growth Associates, Inc.
prospects. The fixed income portion of the Portfolio will be allocated among investment grade
securities, high yield or "junk" bonds, foreign high quality debt securities and cash reserves.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
AST AIM Balanced: seeks to provide a well-diversified portfolio of stocks and bonds that will
produce both capital growth and current income. The Portfolio attempts to meet its objective
by investing, normally, a minimum of 30% and a maximum of 70% of its total assets in equity A I M Capital
securities and a minimum of 30% and a maximum of 70% of its total assets in non-convertible Management, Inc.
debt securities. The Sub-advisor will primarily purchase equity securities for growth of
capital and debt securities for income purposes.
BALANCED
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST American Century Strategic Balanced: seeks capital growth and current income. The
Sub-advisor intends to maintain approximately 60% of the Portfolio's assets in equity
securities and the remainder in bonds and other fixed income securities. Both the Portfolio's American Century
equity and fixed income investments will fluctuate in value. The equity securities will Investment
fluctuate depending on the performance of the companies that issued them, general market and Management, Inc.
economic conditions, and investor confidence. The fixed income investments will be affected
primarily by rising or falling interest rates and the credit quality of the issuers.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Foundation: seeks, in order of priority, reasonable income, conservation of
capital and capital appreciation. The Portfolio invests principally in a combination of
common stocks, securities convertible into or exchangeable for common stocks and fixed income Evergreen Investment
securities. Common stocks are selected based on a combination of financial strength and Management Company,
estimated growth potential. Fixed income securities are selected based on the investment LLC
adviser's projections of interests rates, varying amounts and maturities in order to achieve (f/k/a Evergreen
capital protection and, when possible, capital appreciation. Under normal circumstances, the Asset Management
Portfolio anticipates that at least 25% of its net assets will consist of debt securities and Corp.)
the remainder in equity securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
AST INVESCO Equity Income: seeks capital growth and current income while following sound
investment practices. The Portfolio seeks to achieve its objective by investing in securities
that are expected to produce relatively high levels of income and consistent, stable returns. INVESCO Funds Group,
The Portfolio normally will invest at least 65% of its assets in dividend-paying common and Inc.
preferred stocks of domestic and foreign issuers. Up to 30% of the Portfolio's assets may be
invested in equity securities that do not pay regular dividends.
EQUITY INCOME
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- -------------------
WFVT Equity Income: seeks long-term capital appreciation and above-average dividend income.
The Portfolio pursues its objective primarily by investing in the common stocks of large,
high-quality domestic companies with above-average return potential based on current market
valuations and above-average dividend income. Under normal market conditions, the Portfolio Wells Fargo Funds
invests at least 65% of its total assets in income producing equity securities and in issues Management, LLC
of companies with market capitalizations greater than the median of the Russell 1000 Index.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Alliance Growth and Income (f/k/a AST Lord Abbett Growth and Income): seeks long-term
growth of capital and income while attempting to avoid excessive fluctuations in market value.
The Portfolio normally will invest in common stocks (and securities convertible into common
GROWTH stocks). The Sub-advisor will take a value-oriented approach, in that it will try to keep the Alliance Capital
& Portfolio's assets invested in securities that are selling at reasonable valuations in Management, L.P.
INCOME relation to their fundamental business prospects. The stocks that the Portfolio will normally
invest in are those of seasoned companies that are expected to show above-average growth and
that the Sub-advisor believes are in sound financial condition.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST American Century Income & Growth: seeks capital growth with current income as a secondary
objective. The Portfolio invests primarily in common stocks that offer potential for capital
growth, and may, consistent with its investment objective, invest in stocks that offer American Century
potential for current income. The Sub-advisor utilizes a quantitative management technique Investment
with a goal of building an equity portfolio that provides better returns than the S&P 500 Management, Inc.
GROWTH Index without taking on significant additional risk and while attempting to create a dividend
& yield that will be greater than the S&P 500 Index.
INCOME
(Cont.)
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AST MFS Growth with Income: seeks reasonable current income and long-term capital growth and
income. Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks and related securities, such as preferred stocks, convertible Massachusetts
securities and depositary receipts. The stocks in which the Portfolio invests generally will Financial Services
pay dividends. While the Portfolio may invest in companies of any size, the Portfolio Company
generally focuses on companies with larger market capitalizations that the Sub-advisor
believes have sustainable growth prospects and attractive valuations based on current and
expected earnings or cash flow. The Portfolio may invest up to 20% of its net assets in
foreign securities.
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AST Cohen & Steers Realty: seeks to maximize total return through investment in real estate
securities. The Portfolio pursues its investment objective by seeking, with approximately
REAL ESTATE equal emphasis, capital growth and current income. Under normal circumstances, the Portfolio Cohen & Steers
(REIT) will invest substantially all of its assets in the equity securities of real estate companies, Capital Management,
i.e., a company that derives at least 50% of its revenues from the ownership, construction, Inc.
financing, management or sale of real estate or that has at least 50% of its assets in real
estate. Real estate companies may include real estate investment trusts or REITs.
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- -------------------
Evergreen VA Equity Index: seeks investment results that achieve price and yield performance
similar to the Standards and Poor's 500 Composite Price Index ("S&P 500 Index"). The Evergreen Investment
Portfolio invests substantially all of its total assets in equity securities that represent a Management Company,
S&P 500 INDEX composite of the S&P 500 Index. The correlation between the performance of the Portfolio and LLC
the S&P 500 Index is expected to be, before expenses, 0.98 or higher. The S&P 500 is an (f/k/a First Capital
unmanaged index of 500 common stocks chosen to reflect the industries of the U.S. economy and Group)
is often considered a proxy for the stock market in general.
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- -------------------
AST Sanford Bernstein Managed Index 500: seeks to outperform the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500(R)") through stock selection resulting in different
weightings of common stocks relative to the index. The Portfolio will invest primarily in the
common stocks of companies included in the S&P 500(R). In seeking to outperform the S&P 500,
the Sub-advisor starts with a portfolio of stocks representative of the holdings of the
MANAGED INDEX index. It then uses a set of fundamental quantitative criteria that are designed to indicate Sanford C. Bernstein
whether a particular stock will predictably perform better or worse than the S&P 500. Based & Co., LLC
on these criteria, the Sub-advisor determines whether the Portfolio should over-weight,
under-weight or hold a neutral position in the stock relative to the proportion of the S&P 500
that the stock represents. In addition, the Sub-advisor also may determine that based on the
quantitative criteria, certain equity securities that are not included in the S&P 500 should
be held by the Portfolio.
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- -------------------
AST Alliance/Bernstein Growth + Value: seeks capital growth by investing approximately 50% of
its assets in growth stocks of large companies and approximately 50% of its assets in value
stocks of large companies. The Portfolio will invest primarily in commons tocks of large U.S.
companies included in the Russell 1000 Index (the "Russell 1000"). The Russell 1000 is a
LARGE CAP market capitalization-weighted index that measures the performance of the 1,000 largest U.S. Alliance Capital
EQUITY companies. Normally, about 60-85 companies will be represented in the Portfolio, with 25-35 Management, L.P.
companies primarily from the Russell 1000 Growth Index constituting approximately 50% of the
Portfolio's net assets and 35-50 companies primarily from the Russell 1000 Value Index
constituting the remainder of the Portfolio's net assets. There will be a periodic
rebalancing of each segment's assets to take account of market fluctuations in order to
maintain the approximately equal allocation.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Alliance Growth: seeks long-term capital growth. The Portfolio invests at least 80% of
its total assets in the equity securities of a limited number of large, carefully selected,
high-quality U.S. companies that are judged likely to achieve superior earnings growth. Alliance Capital
Normally, about 40-60 companies will be represented in the Portfolio, with the 25 companies Management, L.P.
most highly regarded by the Sub-advisor usually constituting approximately 70% of the
Portfolio's net assets. An emphasis is placed on identifying companies whose substantially
above average prospective earnings growth is not fully reflected in current market valuations.
LARGE CAP
EQUITY
(Cont.)
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AST JanCap Growth: seeks growth of capital in a manner consistent with the preservation of
capital. Realization of income is not a significant investment consideration and any income
realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's
objective. The Portfolio will pursue its objective by investing primarily in common stocks of Janus Capital
companies that the Sub-advisor believes are experiencing favorable demand for their products Corporation
and services, and which operate in a favorable competitive and regulatory environment. The
Sub-advisor generally takes a "bottom up" approach to choosing investments for the Portfolio.
In other words, the Sub-advisor seeks to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
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AST Janus Strategic Value: seeks long-term growth of capital. The Portfolio pursues its
objective by investing primarily in common stocks with the potential for long-term growth of
capital using a "value" approach. This value approach emphasizes investments in companies the
Sub-advisor believes are undervalued relative to their intrinsic worth. Realization of income Janus Capital
is not a significant consideration when choosing investments for the Portfolio. The Portfolio Corporation
will generally focus on the securities of larger companies, however, it may invest in the
securities of smaller companies, including start-up companies offering emerging products or
services.
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AST Marsico Capital Growth: seeks capital growth. Income realization is not an investment
objective and any income realized on the Portfolio's investments, therefore, will be
incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing
primarily in common stocks of larger, more established companies. In selecting investments
for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis Marsico Capital
with "bottom up" stock selection. The "top down" approach identifies sectors, industries and Management, LLC
companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor
then looks for individual companies with earnings growth potential that may not be recognized
by the market at large. This is called "bottom up" stock selection.
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AST MFS Growth: seeks long-term capital growth and future income. Under normal market
conditions, the Portfolio invests at least 80% of its total assets in common stocks and
related securities, such as preferred stocks, convertible securities and depositary receipts, Massachusetts
of companies that the Sub-advisor believes offer better than average prospects for long-term Financial Services
growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run Company
and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign
securities.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Sanford Bernstein Core Value: seeks long-term capital growth by investing primarily in
common stocks. The Sub-advisor expects that the majority of the Portfolio's assets will be
invested in the common stocks of large companies that appear to be undervalued. Among other
things, the Portfolio seeks to identify compelling buying opportunities created when companies Sanford C. Bernstein
are undervalued on the basis of investor reactions to near-term problems or circumstances even & Co., LLC
though their long-term prospects remain sound. The Sub-advisor seeks to identify individual
companies with earnings growth potential that may not be recognized by the market at large.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Blue Chip: seeks capital growth with the potential for income. The Portfolio Evergreen Investment
invests primarily in common stocks of well-established, large U.S. companies with a long Management Company,
history of performance, typically recognizable names representing a broad range of LLC
industries. To provide balance, the Portfolio also invests in quality medium-sized (f/k/a Evergreen
companies. The Portfolio's stock selection is based on a diversified style of equity Investment Management
investment management that allows it to invest in both value and growth-oriented equity Company)
LARGE CAP securities.
EQUITY
(Cont.)
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Evergreen VA Capital Growth: seeks to provide long-term appreciation of capital. The
Portfolio invests primarily in common stocks. The Portfolio may also invest in preferred Evergreen Investment
stocks, convertible preferred stocks, convertible debentures, and any other class or type of Management Company,
security which the investment adviser believes offers the potential for capital appreciation. LLC
In selecting investments, the investment adviser attempts to identify securities it believes (f/k/a Mentor
will provide capital appreciation over the intermediate or long term due to changes in the Investment Advisors
financial condition of issuers, changes in financial conditions generally, or other factors. LLC)
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Alger All-Cap Growth: seeks long-term capital growth. The Portfolio invests primarily in
equity securities, such as common or preferred stocks that are listed on U.S. exchanges or in
the over-the-counter market. The Portfolio may invest in the equity securities of companies Fred Alger
of all sizes, and may emphasize either larger or smaller companies at a given time based on Management, Inc.
the Sub-advisor's assessment of particular companies and market conditions.
ALL-CAP
EQUITY
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AST Gabelli All-Cap Value: seeks capital growth. The Portfolio pursues its objective by
investing primarily in readily marketable equity securities including common stocks, preferred
stocks and securities that may be converted at a later time into common stock. The Portfolio
may invest in the securities of companies of all sizes, and may emphasize either larger or GAMCO Investors, Inc.
smaller companies at a given time based on the Sub-advisor's assessment of particular
companies and market conditions. The Portfolio focuses on companies that appear underpriced
relative to their private market value ("PMV"). PMV is the value that the Portfolio's
Sub-advisor believes informed investors would be willing to pay for a company.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Janus Mid-Cap Growth: seeks long-term capital growth. The Portfolio invests primarily in
common stocks, selected for their growth potential, and normally invests at least 65% of its
equity assets in medium-sized companies. For purposes of the Portfolio, medium-sized
companies are those whose market capitalizations (measured at the time of investment) fall Janus Capital
within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor Corporation
seeks to identify individual companies with earnings growth potential that may not be
recognized by the market at large.
MID-CAP EQUITY
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Neuberger Berman Mid-Cap Growth: seeks capital growth. The Portfolio primarily invests in
the common stocks of mid-cap companies, i.e., companies with equity market capitalizations Neuberger Berman
from $300 million to $10 billion at the time of investment. The Portfolio is normally managed Management
using a growth-oriented investment approach. The Sub-advisor looks for fast-growing companies Incorporated
that are in new or rapidly evolving industries.
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AST Neuberger Berman Mid-Cap Value: seeks capital growth. The Portfolio primarily invests in
the common stocks of mid-cap companies. Under the Portfolio's value-oriented investment
approach, the Sub-advisor looks for well-managed companies whose stock prices are undervalued Neuberger Berman
and that may rise in price before other investors realize their worth. Factors that the Management
Sub-advisor may use to identify these companies include strong fundamentals, including a low Incorporated
price-to-earnings ratio, consistent cash flow, and a sound track record through all phases of
the market cycle.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Omega: seeks maximum capital growth. The Portfolio invests primarily in common
stocks and securities convertible into common stocks of U.S. companies across all market Evergreen Investment
capitalizations. The Portfolio utilizes the fully-managed investment concept whereby the Management Company,
Portfolio's manager will continuously review the Portfolio's holdings in light of market LLC
conditions, business developments and economic trends. During this review process, the (f/k/a Evergreen
Portfolio's manager seeks to identify and invest in industries that are growing faster than Investment Management
the economy. The Portfolio invests in companies of all sizes. The continuous review may lead Company)
to high portfolio turnover, but that will not limit investment decisions. The Portfolio may
also invest up to 25% of its assets in foreign securities.
MID-CAP EQUITY
(Cont.)
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Dynamics: seek capital appreciation. The Portfolio
invests primarily in common stocks of mid-size U.S. companies - those with market
capitalizations between $2 billion and $15 billion at the time of purchase - but also has the
flexibility to invest in other types of securities, including preferred stocks, convertible
securities and bonds. The core of the Portfolio's portfolio is invested in securities of INVESCO Funds Group,
established companies that are leaders in attractive growth markets with a history of strong Inc.
returns. The remainder of the Portfolio is invested in securities that show accelerating
growth, driven by product cycles, favorable industry or sector conditions and other factors
that will lead to rapid sales and earnings growth.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
WFVT Equity Value: seeks long-term capital appreciation. The Portfolio pursues its objective
by investing in a diversified portfolio composed primarily of equity securities that are
trading at low price-to-earnings ratios, as measured against the stock market as a whole or
against the individual stock's own price history. Under normal market conditions, the Wells Fargo Funds
Portfolio invests primarily in common stocks of both large, well-established companies and Management, LLC
smaller companies with market capitalization exceeding $50 million at the time of purchase.
The Portfolio may also invest in debt instruments that may be converted into the common stocks
of both U.S. and foreign companies.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- --------------------------------------------------------------------------------------------------------------------------------------------
Although investments in securities of smaller companies are generally considered to offer greater opportunity for appreciation, they also
involve greater risk of depreciation than securities of larger companies. Smaller companies may lack depth of management, financial
resources, or they may be developing or marketing products or services for which there is not an established market. Additionally,
smaller companies normally have fewer shares outstanding and trade less frequently than large companies. Therefore, the securities of
smaller companies may be subject to wider price fluctuations.
- --------------------------------------------------------------------------------------------------------------------------------------------
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AST Federated Aggressive Growth: seeks capital growth. The Portfolio pursues its investment
objective by investing in equity securities of companies offering superior prospects for
earnings growth. The Portfolio focuses its investments on the equity securities of smaller
companies, but it is not subject to any specific market capitalization requirements. The Federated Investment
Portfolio may invest in foreign issuers through American Depositary Receipts. The Portfolio's Counseling
strategies with respect to security analysis, market capitalization and sector allocation are
SMALL CAP designed to produce a portfolio of stocks whose long-term growth prospects are significantly
EQUITY above those of the S&P 500 Index.
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AST Gabelli Small-Cap Value (f/k/a AST T. Rowe Price Small Company Value): seeks to provide
long-term capital growth by investing primarily in small-capitalization stocks that appear to
be undervalued. The Portfolio will normally invest at least 65% of its total assets in stocks
and equity-related securities of small companies ($1 billion or less in market GAMCO
capitalization). Reflecting a value approach to investing, the Portfolio will seek the stocks Investors, Inc.
of companies whose current stock prices do not appear to adequately reflect their underlying
value as measured by assets, earnings, cash flow or business franchises.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Goldman Sachs Small-Cap Value (f/k/a AST Lord Abbett Small Cap Value): seeks long-term
capital appreciation. The Portfolio will seek its objective through investments primarily in
equity securities that are believed to be undervalued in the marketplace. The Portfolio
primarily seeks companies that are small-sized, based on the value of their outstanding Goldman Sachs Asset
stock. Specifically, under normal circumstances, at least 65% of the Portfolio's total assets Management
will be invested in common stocks issued by smaller, less well-known companies (with market
capitalizations of less than $4 billion at the time of investment).
SMALL CAP
EQUITY (Cont.)
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AST Janus Small-Cap Growth: seeks capital growth. The Portfolio pursues its objective by
normally investing at least 65% of its total assets in the common stocks of small-sized
companies, i.e., those that have market capitalizations of less than $1.5 billion or annual Janus Capital
gross revenues of less than $500 million. Corporation
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AST Scudder Small-Cap Growth (f/k/a AST Kemper Small-Cap Growth): seeks maximum growth of
investors' capital from a portfolio primarily of growth stocks of smaller companies. At least
65% of the Portfolio's total assets normally will be invested in the equity securities of
smaller companies, i.e., those having a market capitalization of $2 billion or less at the Zurich Scudder
time of investment, many of which would be in the early stages of their life cycle. The Investments, Inc.
Portfolio seeks attractive areas for investment that arise from factors such as technological
advances, new marketing methods, and changes in the economy and population.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Evergreen VA Special Equity: seeks capital growth. The Portfolio strives to provide a return Evergreen Investment
greater than broad stock market indices such as the Russell 2000 Index by investing Management Company,
principally in a diversified portfolio of common stocks of U.S. companies. The Portfolio's LLC
investment adviser principally chooses companies which it expects will experience growth in (f/k/a Meridian
earnings and price, and which have small market capitalizations (up to $1.5 billion). The Investment Company)
Portfolio may purchase stocks in initial public offerings (IPOs).
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST MFS Global Equity: seeks capital growth. Under normal market conditions, the Portfolio
invests at least 65% of its total assets in common stocks and related securities, such as
preferred stock, convertible securities and depositary receipts, of U.S. and foreign issuers Massachusetts
(including issuers in developing countries). The Portfolio generally seeks to purchase Financial Services
securities of companies with relatively large market capitalizations relative to the market in Company
which they are traded.
GLOBAL EQUITY
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Evergreen VA Global Leaders: seeks to provide investors with long-term capital growth. The
Portfolio normally invests as least 65% of its assets in a diversified portfolio of U.S. and Evergreen Investment
non-U.S. equity securities of companies located in the world's major industrialized Management Company,
countries. The Portfolio will invest in no less than three countries, which may include the LLC
U.S., but may invest more than 25% of its total assets in one country. The Portfolio invests (f/k/a Evergreen
only in the best 100 companies, which are selected by the investment advisor based on Asset Management
qualitative and quantitative criteria such as high return on equity, consistent earnings Corp.)
growth and established market presence.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Investments in securities of foreign issuers may involve risks that are not present with domestic investments. Some of these risks may be
fluctuations in currency exchange rates, less liquid and more volatile securities markets, unstable political and economic structures,
reduced availability of public information and lack of uniform financial reporting and regulatory practices compared to those that apply
to U.S. issuers.
- --------------------------------------------------------------------------------------------------------------------------------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST AIM International Equity: seeks capital growth. The Portfolio seeks to meet its objective
by investing, normally, at least 70% of its assets in marketable equity securities of foreign
companies that are listed on a recognized foreign securities exchange or traded in a foreign A I M Capital
over-the-counter market. The Portfolio will normally invest in a diversified portfolio that Management, Inc.
includes companies from at least four countries outside the United States, emphasizing
countries of Western Europe and the Pacific Basin.
INTER-NATIONAL
EQUITY
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------------------------------------------------------------------------------------------------ -----------------------
AST American Century International Growth: seeks capital growth. The Portfolio will seek to
achieve its investment objective by investing primarily in equity securities of foreign
companies that the Sub-advisor believes will increase in value over time. Under normal
conditions, the Portfolio will invest at least 65% of its assets in equity securities of American Century
issuers from at least three countries outside of the United States. The Sub-advisor uses a Investment
growth investment strategy it developed that looks for companies with earnings and revenue Management, Inc.
growth. The Sub-advisor will consider a number of other factors in making investment
selections, including the prospects for relative economic growth among countries or regions,
economic and political conditions, expected inflation rates, currency exchange fluctuations
and tax considerations.
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AST American Century International Growth II: The investment objective, policies and risks of American Century
the Portfolio are substantially identical to those of the AST American Century International Investment
Growth Portfolio as described immediately above. Management, Inc.
------------------------------------------------------------------------------------------------ -----------------------
AST Founders Passport: seeks capital growth. The Portfolio normally invests primarily in
equity securities issued by foreign companies that have market capitalizations or annual
revenues of $1.5 billion or less. These securities may represent companies in both
established and emerging economies throughout the world. At least 65% of the Portfolio's Founders Asset
total assets normally will be invested in foreign securities representing a minimum of three Management LLC
countries. Foreign securities are generally considered to involve more risk than those of
U.S. companies, and securities of smaller companies are generally considered to be riskier
than those of larger companies.
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------------------------------------------------------------------------------------------------ -----------------------
AST Janus Overseas Growth: seeks long-term growth of capital. The Portfolio pursues its
objective primarily through investments in common stocks of issuers from at least five
different countries, excluding the United States. Securities are generally selected without Janus Capital
regard to any defined allocation among countries, geographic regions or industry sectors, or Corporation
other similar selection procedure.
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AST Scudder Japan: seeks long-term capital growth. The Portfolio pursues its investment
objective by investing at least 80% of net assets in Japanese securities (those issued by
Japan-based companies or their affiliates, or by any company that derives more than half of Scudder Kemper
its revenues from Japan). The Portfolio may invest in stocks of any size, including up to 30% Investments, Inc.
of its net assets in smaller companies that are traded over-the-counter. The Portfolio's
focus on a single country could give rise to increased risk, as the Portfolio's investments
will not be diversified among countries having varying characteristics and market performance.
------------------------------------------------------------------------------------------------ -----------------------
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Evergreen VA Perpetual International: seeks long-term capital appreciation. The Portfolio
invests principally in a diversified portfolio of equity securities of issuers located outside
of the United States across all market capitalizations. The Portfolio seeks to invest in
companies, large or small, where earnings are believed to be in a relatively strong growth Mentor Perpetual
trend, or where significant further growth is not anticipated but where shares are thought to Advisors LLC
be undervalued. The Portfolio may invest a portion of its assets in securities of smaller
companies and in issuers located in emerging markets. The Portfolio may invest to a lesser
extent in investment grade debt securities.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP Europe 30: seeks daily investment results that correspond to the performance of
the ProFunds Europe 30 Index. The ProFunds Europe 30 Index, created by ProFund Advisors, is
composed of 30 European companies whose securities are traded on U.S. exchanges or on the ProFund Advisors LLC
NASDAQ as ADRs with the highest market capitalization, as determined annually.
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------------------------------------------------------------------------------------------------ -----------------------
The Prudential Series Fund, Inc. - SP Jennison International Growth: seeks to provide
long-term growth of capital. The Portfolio pursues its objective by investing in
equity-related securities of foreign issuers that the Sub-advisor believes will increase in Prudential
value over a period of years. The Portfolio invests primarily in the common stock of large Investments Fund
and medium-sized foreign companies. Under normal circumstances, the Portfolio invests at Management, LLC/
least 65% of its total assets in common stock of foreign companies operating or based in at Jennison Associates
least five different countries. The Portfolio looks primarily for stocks of companies whose LLC
earnings are growing at a faster rate than other companies and that have above-average actual
and potential earnings growth over the long term and strong financial and operational
characteristics.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
Montgomery Variable Series - Emerging Markets: seeks long-term capital appreciation, under
normal conditions by investing at least 65% of its total assets in stocks of companies of any Montgomery Asset
EMERGING MARKETS size based in the world's developing economies. Under normal conditions, investments are Management, LLC
maintained in at least six countries at all times and no more than 35% of total assets in any
single one of them.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- --------------------------------------------------------------------------------------------------------------------------------------------
Sector funds generally diversify their investments across particular economic sectors or a single industry. However, because those
investments are limited to a comparatively narrow segment of the economy, the Portfolios are generally not as diversified as other
Portfolios. Sector funds tend to be more volatile than other types of funds. The value of fund shares may go up and down more rapidly
than other funds. Each sector of the economy may also have different regulatory or other risk factors that can cause greater fluctuations
in the share price. Please read the prospectus for the Portfolios for further details about the risks of the particular sector of the
economy. Each ProFunds VP sector Portfolio will concentrate its investments in a particular industry or group of industries to
approximately the same extent the applicable Index is so concentrated.
- --------------------------------------------------------------------------------------------------------------------------------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Kinetics Internet: seeks long-term growth of capital. Under normal circumstances, the
Portfolio invests at least 65% of its total assets in common stocks, convertible securities,
warrants and other equity securities having the characteristics of common stocks, such as
American Depositary Receipts and International Depositary Receipts, of domestic and foreign
companies that are engaged in the Internet and Internet-related activities. Portfolio Kinetics Asset
securities will be selected by the Sub-advisor from companies that are engaged in the Management, Inc.
development of hardware, software and telecommunications solutions that enable the transaction
of business on the Internet by individuals and companies, as well as companies that offer
products and services primarily via the Internet. The Portfolio seeks to invest in the equity
securities of companies whose research and development efforts may result in higher stock
values.
SECTOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST T. Rowe Price Natural Resources: seeks long-term capital growth primarily through the
common stocks of companies that own or develop natural resources (such as energy products,
precious metals, and forest products) and other basic commodities. The Portfolio normally
invests primarily (at least 65% of its total assets) in the common stocks of natural resource T. Rowe Price
companies whose earnings and tangible assets could benefit from accelerating inflation. The Associates, Inc.
Portfolio looks for companies that have the ability to expand production, to maintain superior
exploration programs and production facilities, and the potential to accumulate new resources.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Financial Services: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies involved in the financial
services sector. These companies include, among others, banks (regional and money-centers),
insurance companies (life, property and casualty, and multiline), and investment and INVESCO Funds Group,
miscellaneous industries (asset managers, brokerage firms, and government-sponsored Inc.
agencies). The investment advisor seeks companies which it believes can grow their revenues
and earnings in a variety of interest rate environments - although securities prices of
financial services companies generally are interest rate-sensitive.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Health Sciences: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies that develop, produce or
distribute products or services related to health care. These companies include, but are not
limited to, medical equipment or supplies, pharmaceuticals, health care facilities, and INVESCO Funds Group,
applied research and development of new products or services. The investment advisor attempts Inc.
to blend well-established healthcare firms with faster-growing, more dynamic health care
companies, which have new products or are increasing their market share of existing products.
SECTOR
(Cont.)
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Technology: seeks capital appreciation. The Portfolio
invests primarily in the equity securities of companies engaged in technology-related
industries. These include, but are not limited to, communications, computers, electronics,
Internet, IT services and consulting, oceanography, office and factory automation, networking,
applied technology, biotechnology, robotics and video. A core portion of the Portfolio's INVESCO Funds Group,
holdings are invested in market-leading technology companies which the investment advisor Inc.
believes will maintain or improve their market share regardless of overall economic
conditions. The remainder of the Portfolio's holdings consist of faster-growing, more
volatile technology companies which the investment advisor believes to be emerging leaders in
their fields.
- ------------------- -----------------------
------------------------------------------------------------------------------------------------ -----------------------
INVESCO Variable Investment Funds - Telecommunications: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies that are engaged in the
design, development, manufacture, distribution, or sale of communications services and
equipment, and companies that are involved in supplying equipment or services to such INVESCO Funds Group,
companies. The telecommunications sector includes companies that offer telephone services, Inc.
wireless communications, satellite communications, television and movie programming,
broadcasting and Internet access. Normally, the Portfolio will invest primarily in companies
located in at least three different countries, although U.S. issuers will often dominate the
holdings.
- ------------------- -----------------------
------------------------------------------------------------------------------------------------ -----------------------
ProFund VP Biotechnology: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Biotechnology Index ("Index"). The Index measures the
performance of the biotechnology sector of the U.S. equity market. The Portfolio invests
primarily in equity securities of, or in instruments that provide exposure to, biotechnology ProFund Advisors LLC
companies engaged in genetic research, and/or the marketing and development of recombinant DNA
products. Companies represented in this sector may include companies that may be newly formed
and that have relatively small market capitalizations.
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ProFund VP Energy: seeks daily investment results that correspond to the daily performance of
the Dow Jones U.S. Energy Sector Index ("Index"). The Index measures the performance of the
energy sector of the U.S. equity market. The Portfolio invests primarily in equity securities ProFund Advisors LLC
of, or in instruments that provide exposure to, energy companies engaged in the business of
oil equipment and services, oil-major, oil-secondary and pipelines.
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ProFund VP Financial: seeks daily investment results that correspond to the daily performance
of the Dow Jones U.S. Financial Sector Index ("Index"). The Index measures the performance of
the financial economic sector of the U.S. equity market. The Portfolio invests primarily in
equity securities of, or in instruments that provide exposure to, financial services
companies, including regional banks, major international banks, insurance companies, companies ProFund Advisors LLC
that invest, directly or indirectly in real estate, Fannie Mae, credit card insurers, check
cashing companies, mortgage lenders, investment advisors, savings and loans, savings banks,
thrifts, building associations and societies, credit unions, securities broker-dealers,
including investment banks and merchant banks, online brokers, publicly traded stock exchanges
and specialty finance companies.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ProFund VP Healthcare: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Healthcare Sector Index ("Index"). The Index measures the
performance of the healthcare sector of the U.S. equity market. The Portfolio invests
primarily in equity securities of, or in instruments that provide exposure to, health care ProFund Advisors LLC
providers, biotechnology companies and manufacturers of medical supplies, advanced medical
devices and pharmaceuticals.
SECTOR
(Cont.)
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ProFund VP Real Estate: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Real Estate Index ("Index"). The Index measures the
performance of the real estate industry sector of the U.S. equity market. The Portfolio
invests primarily in equity securities of, or in instruments that provide exposure to, hotel ProFund Advisors LLC
and resort companies and real estate investment trusts (REITs) that invest in apartments,
office and retail properties. REITs are passive investment vehicles that invest primarily in
income-producing real estate or real estate related loans or interests.
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ProFund VP Technology: seeks daily investment results that correspond to the daily performance
of the Dow Jones U.S. Technology Sector Index ("Index"). The Index measures the performance
of the technology sector of the U.S. equity market. The Portfolio invests primarily in equity
securities of, or in instruments that provide exposure to, companies involved in the ProFund Advisors LLC
development and production of technology products, including computer hardware and software,
telecommunications equipment, microcomputer components, integrated computer circuits and
office equipment utilizing technology.
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ProFund VP Telecommunications: seeks daily investment results that correspond to the daily
performance of the Dow Jones U.S. Telecommunications Sector Index ("Index"). The Index
measures the performance of the telecommunications sector of the U.S. equity market. The
Portfolio invests primarily in equity securities of, or in instruments that provide exposure ProFund Advisors LLC
to, telecommunications companies including fixed line communications and wireless
communications.
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ProFund VP Utilities: seeks daily investment results that correspond to the daily performance
of the Dow Jones U.S. Utilities Sector Index ("Index"). The Index measures the performance of
the utilities sector of the U.S. equity market. The Portfolio invests primarily in equity ProFund Advisors LLC
securities of, or in instruments that provide exposure to, utility companies, including
electric utilities, gas utilities and water utilities.
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The First Trust(R)10 Uncommon Values Portfolio of the First Defined Portfolio Fund LLC invests in the securities of a relatively few number
of issuers. Since the assets of the Portfolio are invested in a limited number of issuers, the net asset value of the Portfolio may be
more susceptible to a single adverse economic, political or regulatory occurrence. The Portfolio may also be subject to additional market
risk due to its policy of investing based on an investment strategy and generally not buying or selling securities in response to market
fluctuations. The Portfolio's relative lack of diversity and limited ongoing management may subject Owners to greater market risk than
other portfolios.
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First Trust(R)10 Uncommon Values: seeks to provide above-average capital appreciation. The
Portfolio pursues its objective by investing primarily in the ten common stocks selected by
the Investment Policy Committee of Lehman Brothers Inc. ("Lehman Brothers") with the First Trust Advisors
STRATEGY assistance of the Research Department of Lehman Brothers which, in their opinion have the L.P.
greatest potential for capital appreciation during the next year. The stocks included in the
Portfolio are adjusted annually on or about July 1st in accordance with the selections of
Lehman Brothers.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- --------------------------------------------------------------------------------------------------------------------------------------------
The ProFund VP Bear, Bull Plus, OTC, UltraOTC and UltraSmall-Cap portfolios and the Nova, Ursa and OTC portfolios of the Rydex Variable
Trust are available to all Owners. It is recommended that only those Owners who engage a financial advisor to allocate their funds in
strategic or tactical asset allocation strategies invest in these portfolios. There can be no assurance that any financial advisor will
successfully predict market fluctuations.
- --------------------------------------------------------------------------------------------------------------------------------------------
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ProFund VP Bear: seeks daily investment results that correspond to the inverse (opposite) of
the daily performance of the S&P 500(R)Index. The S&P 500(R)Index is comprised of diverse,
widely traded, large capitalization companies. If the Portfolio is successful in meeting its
objective, it should increase in value in direct proportion to any decrease in the level of ProFund Advisors LLC
the S&P 500(R)Index. Conversely, its value will decrease in direct proportion to any daily
increase in the level of the S&P 500(R)Index.
STRATEGIC OR
TACTICAL
ALLOCA-TION
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ProFund VP Bull Plus: seeks daily investment results that correspond to one and a half times
(150%) the daily performance of the S&P(R)500 Index. The S&P 500(R)Index is comprised of
diverse, widely traded, large capitalization companies. If the Portfolio is successful in
meeting its objective, it should gain approximately one and a half times as much as the S&P ProFund Advisors LLC
500(R)Index when the prices of the securities in the S&P 500(R)Index rise on a given day and
should lose approximately one and a half times as much when such prices decline on a given day.
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ProFund VP OTC: seeks daily investment results that correspond to the daily performance of the
NASDAQ 100 Index(TM). The NASDAQ 100 Index(TM)is comprised primarily of large capitalization
companies, most with a technology or growth orientation. If the Portfolio is successful in ProFund Advisors LLC
meeting its objective, it should increase or decrease in value in direct proportion to any
increase or decrease in the daily value of the NASDAQ 100 Index(TM).
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ProFund VP UltraOTC: seeks daily investment results that correspond to twice (200%) the daily
performance of the NASDAQ 100 Index(TM). The Portfolio principally invests in futures contracts
on stock indexes and options on futures contracts and financial instruments such as equity
caps, collars, floors and options on securities and stock indexes of large capitalization ProFund Advisors LLC
companies. If the Portfolio is successful in meeting its objective, it should gain
approximately twice as much as the growth oriented NASDAQ 100 Index(TM)when the prices of the
securities in that index rise on a given day and should lose approximately twice as much when
such prices decline on that day.
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ProFund VP UltraSmall-Cap (f/k/a ProFund VP Small Cap): seeks daily investment results that
correspond to twice (200%) the daily performance of the Russell 2000(R)Index. The Portfolio
principally invests in futures contracts on stock indexes and options on futures contracts and
financial instruments such as equity caps, collars, floors and options on securities and stock
indexes of diverse, widely traded, small capitalization companies. If the Portfolio is ProFund Advisors LLC
successful in meeting its objective, it should gain approximately twice as much as the growth
oriented Russell 2000(R)Index when the prices of the securities in that index rise on a given
day and should lose approximately twice as much when such prices decline on that day.
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Rydex Variable Trust - Nova: seeks to provide investment returns that are 150% of the daily
price movement of the S&P 500 Composite Stock Price Index by investing to a significant extent
in futures contracts and options on securities, futures contracts and stock indexes. If the Rydex Global Advisers
Portfolio meets its objective the value of its shares will tend to increase by 150% of the (f/k/a PADCO Advisors
daily value of any increase in the S&P 500 Index. However, when the value of the S&P 500 II, Inc.)
Index declines, the value of its shares should also decrease by 150% of the daily value of any
decrease in the S&P 500 Index.
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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Rydex Variable Trust - OTC: seeks to provide investment results that correspond to a
benchmark for over-the-counter securities, currently the NASDAQ 100 Index(TM), by investing
STRATEGIC OR principally in the securities of companies included in that Index. The Portfolio may also
TACTICAL invest in other instruments whose performance is expected to correspond to that of the Index, Rydex Global Advisers
ALLOCA-TION and may engage in futures and options transactions. If the Portfolio meets its objective the (f/k/a PADCO Advisors
(Cont.) value of its shares will tend to increase by the amount of the increase in the NASDAQ 100 II, Inc.)
Index(TM). However, when the value of the NASDAQ 100 Index(TM)declines, the value of its shares
should also decrease by the amount of the decrease in the value of the Index(TM).
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Rydex Variable Trust - Ursa: seeks to provide investment results that will inversely correlate
(e.g. be the opposite) to the performance of the S&P 500 Composite Stock Price Index by
investing to a significant extent in futures contracts and options on securities, futures Rydex Global Advisers
contracts and stock indexes. The Portfolio will generally not invest in the securities (f/k/a PADCO Advisors
included in the S&P 500 Index. If the Portfolio meets its objective the value of its shares II, Inc.)
will tend to increase when the value of the S&P 500 Index is decreasing. However, when the
value of the S&P 500 Index is increasing, the value of its shares should decrease by an
inversely proportional amount.
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"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of the McGraw-Hill Companies, Inc. and
have been licensed for use by American Skandia Investment Services, Incorporated. The Portfolio is not sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the
Portfolio.
The First Trust(R)10 Uncommon Values portfolio is not sponsored or created by Lehman Brothers, Inc. ("Lehman Brothers"). Lehman
Brothers' only relationship to First Trust is the licensing of certain trademarks and trade names of Lehman Brothers and of the
"10 Uncommon Values" which is determined, composed and calculated by Lehman Brothers without regard to First Trust or the First
Trust(R)10 Uncommon Values portfolio.
Dow Jones has no relationship to the ProFunds VP, other than the licensing of the Dow Jones sector indices and its service marks
for use in connection with the ProFunds VP. The ProFunds VP are not sponsored, endorsed, sold, or promoted by Standard & Poor's
or NASDAQ, and neither Standard & Poor's nor NASDAQ makes any representations regarding the advisability of investing in the
ProFunds VP.
WHAT ARE THE FIXED INVESTMENT OPTIONS?
We offer fixed investment options of different durations during the accumulation period. These "Fixed Allocations" earn a
guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed
Allocations with Guarantee Periods from 1 to 10 years. We may also offer special purpose Fixed Allocations for use with certain
optional investment programs. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer
Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula,
called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the rates that
are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the Market Value Adjustment
Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than
one Fixed Allocation at a time.
Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
(The Contingent Deferred Sales Charge is often referred to as a "Surrender Charge" or "CDSC".)
Contingent Deferred Sales Charge: We may assess a Contingent Deferred Sales Charge or CDSC if you surrender your Annuity or when
you make a partial withdrawal. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn
during the applicable Annuity Year. The amount of the CDSC decreases over time, measured from the date the Purchase Payment is
applied. The CDSC percentages are shown below.
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
YEARS 1 2 3 4 5 6 7 8 9+
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
CHARGE (%) 8.5 8.5 8.5 8.5 7.5 5.5 3.5 1.5 0.0
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Each Purchase Payment has its own CDSC period. When you make a withdrawal, we assume that the oldest Purchase Payment is being
withdrawn first so that the lowest CDSC is deducted from the amount withdrawn. After eight (8) complete years from the date you
make a Purchase Payment, no CDSC will be assessed if you withdraw or surrender that Purchase Payment.
Under certain circumstances you can withdraw a limited amount of Account Value without paying a CDSC. This is referred to as a
"Free Withdrawal." We may waive the CDSC under certain medically-related circumstances or when taking a Minimum Distribution from
an Annuity purchased as a "qualified" investment. Free Withdrawals, Medically-Related Waivers and Minimum Distributions are each
explained more fully in the section entitled "Access to Your Account Value".
Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $30.00
or 2% of your Account Value invested in the variable investment options, whichever is less. This fee will be deducted annually on
the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted
at the time of surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued
after the date of the increase.
Optional Benefits: If you elect to purchase either optional Death Benefit, we will deduct the annual charge from your Account
Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date other than the anniversary date.
Under certain circumstances, we may deduct a pro-rata portion of the annual charge for the optional Death Benefit. Please refer
to the section entitled "Death Benefit" for a description of the charge for each Optional Death Benefit. If you elect to purchase
the Guaranteed Return Option, we will deduct the annual charge from your Account Value on the anniversary of your Annuity's Issue
Date. Under certain circumstances, we may deduct a pro-rata portion of the annual charge for the Guaranteed Return Option.
Please refer to the section entitled "Managing Your Account Value - Do you offer programs designed to guarantee a "return of
premium" at a future date?" for a description of the charge for the Guaranteed Return Option.
Transfer Fee: Currently, you may make twenty (20) free transfers between investment options each Annuity Year. We will charge
$10.00 for each transfer after the twentieth in each Annuity Year. We do not consider transfers made as part of a dollar cost
averaging program when we count the twenty free transfers. Transfers made as part of a rebalancing, market timing or third party
investment advisory service will be subject to the twenty-transfer limit. However, all transfers made on the same day will be
treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period
are not subject to the Transfer Fee and are not counted toward the twenty free transfers. We may reduce the number of free
transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of
electronic means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted
electronically or through other means that reduce our processing costs.
Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will vary from
jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We generally will deduct the
amount of tax payable at the time the tax is imposed, but may also decide to deduct tax charges from each Purchase Payment at the
time of a withdrawal or surrender of your Annuity or at the time you elect to begin receiving annuity payments. We may assess a
charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts.
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?
Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the Sub-accounts. The charge
is equal to 1.40% on an annual basis. The Insurance Charge is intended to compensate American Skandia for providing the insurance
benefits under the Annuity, including the Annuity's basic death benefit that provides guaranteed benefits to your beneficiaries
even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The
charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract,
confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related
expenses. Finally, the charge covers the risk that our assumptions about the administrative and non-mortality expenses under this
Annuity are incorrect. We may increase the portion of the Insurance Charge for administrative costs. However, any increase will
only apply to Annuities issued after the date of the increase.
American Skandia may make a profit on the Insurance Charge if, over time, the actual cost of providing the guaranteed insurance
obligations under the Annuity are less than the amount we deduct for the Insurance Charge. To the extent we make a profit on the
Insurance Charge, such profit may be used for any other corporate purpose, including payment of other expenses that American
Skandia incurs in distributing, issuing and administering the Annuity.
The Insurance Charge is not deducted against assets allocated to a fixed investment option. However, the amount we credit to
Fixed Allocations may also reflect similar assumptions about the insurance guarantees provided to Contract Owners under the
Annuity.
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?
We do not assess any charges directly against the Portfolios. However, each Portfolio charges a total annual fee comprised of an
investment management fee, operating expenses and any distribution and service (12b-1) fees that may apply. More detailed
information about fees and charges can be found in the prospectuses for the Portfolios. Please also see "Service Fees Payable by
Underlying Funds".
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
No specific fee or expenses are deducted when determining the rate we credit to a Fixed Allocation. However, for some of the same
reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration
mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations.
Any CDSC or Tax Charge applies to amounts that are taken from the variable investment options or the Fixed Allocations. A Market
Value Adjustment may also apply to transfers, certain withdrawals, surrender or annuitization from a Fixed Allocation.
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?
In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The amount payable will
depend on the applicable jurisdiction and on the annuity payment option you select. If you select a fixed payment option, the
amount of each fixed payment will depend on the Account Value of your Annuity when you elected to annuitize. There is no specific
charge deducted from these payments; however, the amount of each annuity payment reflects assumptions about our insurance
expenses. If you select a variable payment option that we may offer, then the amount of your benefits will reflect changes in the
value of your Annuity and will continue to be subject to an insurance charge.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is deducted. For
example, we may reduce the amount of the CDSC or the length of time it applies, reduce or eliminate the amount of the Annual
Maintenance Fee or reduce the portion of the Insurance Charge for administrative costs. Generally, these types of changes will be
based on a reduction to our sales, maintenance or administrative expenses due to the nature of the individual or group purchasing
the Annuity. Some of the factors we might consider in making such a decision are: (a) the size and type of group; (b) the number
of Annuities purchased by an Owner; (c) the amount of Purchase Payments or likelihood of additional Purchase Payments; and/or (d)
other transactions where sales, maintenance or administrative expenses are likely to be reduced. We will not discriminate
unfairly between Annuity purchasers if and when we reduce the portion of the Insurance Charge attributed to the charge covering
administrative costs.
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?
Initial Purchase Payment: You must make a minimum initial Purchase Payment of $1,000. However, if you decide to make payments
under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase Payment provided that, within
the first Annuity Year, you make at least $1,000 in total Purchase Payments.
Where allowed by law, initial Purchase Payments in excess of $1,000,000 require our approval prior to acceptance. We may apply
certain limitations and/or restrictions on the Annuity as a condition of our acceptance, including limiting the liquidity features
or the Death Benefit protection provided under the Annuity, changing the number of transfers allowable under the Annuity or
restricting the Sub-accounts that are available to the Contract owner. Other limitations and/or restrictions may apply.
Age Restrictions: The Owner must be age 80 or under as of the Issue Date of the Annuity. If the Annuity is owned jointly, the
oldest of the Owners must be age 80 or under on the Issue Date. If the Annuity is owned by an entity, the Annuitant must be age
80 or under as of the Issue Date. You should consider your need to access the value in your contract and whether the Annuity's
liquidity features will satisfy that need. If you take a distribution prior to age 591/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain.
Additional Purchase Payments may be made at any time before the Annuity Date as long as the oldest Owner or Annuitant (if the
Annuity is entity owned) is not over age 80.
Special Considerations for Purchasers of Bonus or Credit Products
- -> This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities and does not
charge an additional amount for the XTra CreditSM feature. However, if you make a withdrawal that exceeds the free withdrawal
amount or choose to surrender your Annuity, the contingent deferred sales charge (CDSC) on this Annuity is higher and is
deducted for a longer period of time as compared to our other variable annuities. If you expect that you will need to access
your Account Value during the CDSC period and the liquidity provisions are insufficient to satisfy that need, then this
Annuity may be more expensive than other variable annuities.
- -> The XTra CreditSM amount is included in your Account Value. However, American Skandia may take back the original XTra
CreditSM amount applied to your Purchase Payment if you die, or elect to withdraw all or a portion of your Account Value under
the medically-related waiver provision, within 12 months of having received an XTra CreditSM amount. In either situation, the
value of the XTra CreditSM amount could be substantially reduced. However, any investment gain on the XTra CreditSM amount
will not be taken back. Additional conditions and restrictions apply.
Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s), Annuitant and one or
more Beneficiaries for your Annuity.
|X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case all ownership
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rights are held jointly. However, this Annuity does not provide a right of survivorship. Refer to the Glossary of Terms
for a complete description of the term "Owner."
|X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we continue to make such
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payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during
the accumulation period. Where allowed by law, you may name one or more Contingent Annuitants. A Contingent Annuitant will
become the Annuitant if the Annuitant dies before the Annuity Date. Please refer to the discussion of "Considerations for
Contingent Annuitants" in the Tax Considerations section of the Prospectus.
|X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no beneficiary is
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named the death benefit will be paid to you or your estate.
Your right to make certain designations may be limited if your Annuity is to be used as an IRA or other "qualified" investment
that is given beneficial tax treatment under the Code. You should seek competent tax advice on the income, estate and gift tax
implications of your designations.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where allowed by law, such
changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to:
|X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death;
|X| a new Annuitant subsequent to the Annuity Date;
|X| for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and
|X| a change in Beneficiary if the Owner had previously made the designation irrevocable.
Spousal Owners/Spousal Beneficiaries
If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse unless you elect an
alternative Beneficiary designation. Unless you elect an alternative Beneficiary designation, upon the death of either spousal
Owner, the surviving spouse may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. The Death
Benefit that would have been payable will be the new Account Value of the Annuity as of the date of due proof of death and any
required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the
rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of
determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the initial Purchase
Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the
assumption is effective will be subject to all provisions of the Annuity.
Spousal Contingent Annuitant
If the Annuity is owned by an entity and the surviving spouse is named as a Contingent Annuitant, upon the death of the Annuitant,
the surviving spouse will become the Annuitant. No Death Benefit is payable upon the death of the Annuitant. However, the
Account Value of the Annuity as of the date of due proof of death of the Annuitant (and any required proof of the spousal
relationship) will reflect the amount that would have been payable had a Death Benefit been paid.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
(The right to return the Annuity is often referred to as the "free-look" right or "right to cancel.")
If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain
period of time known as a right to cancel period. Depending on the state in which you purchased your Annuity and, in some states,
if you purchased the Annuity as a replacement for a prior contract, the right to cancel period may be ten (10) days, twenty-one
(21) days or longer, measured from the time that you received your Annuity. If you return your Annuity during the applicable
period, we will refund your current Account Value plus any tax charge deducted. This amount may be higher or lower than your
original Purchase Payment. Where required by law, we will return your current Account Value or the amount of your initial
Purchase Payment, whichever is greater. The same rules may apply to an Annuity that is purchased as an IRA. In any situation
where we are required to return the greater of your Purchase Payment or Account Value, we may allocate your Account Value to the
AST Money Market Sub-account during the right to cancel period and for a reasonable additional amount of time to allow for
delivery of your Annuity. If you return your Annuity, we will not return any additional amounts we applied to your Annuity based
on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in American Skandia's
Systematic Investment Plan or a periodic purchase payment program. We will allocate any additional Purchase Payments you make
according to your most recent allocation instructions, unless you request new allocations when you submit a new Purchase Payment.
Additional Purchase Payments may be paid at any time before the Annuity Date as long as the oldest Owner or Annuitant (if the
Annuity is entity owned) is not over age 80.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and
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applying it to your Annuity. This type of program is often called "bank drafting". We call our bank drafting program "American
Skandia's Systematic Investment Plan." Purchase Payments made through bank drafting may only be allocated to the variable
investment options when applied. Bank drafting allows you to invest in an Annuity with a lower initial Purchase Payment, as long
as you authorize payments that will equal at least $1,000 during the first 12 months of your Annuity. We may suspend or cancel
bank drafting privileges if sufficient funds are not available from the applicable financial institution on any date that a
transaction is scheduled to occur.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of qualified investments. If your employer sponsors such a program,
we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to
variable investment options and the periodic Purchase Payments received in the first year total at least $1,000.
MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.)
Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity. The net Purchase
Payment is your initial Purchase Payment minus any tax charges that may apply. On your application we ask you to provide us with
instructions for allocating your Account Value. You can allocate Account Value to one or more variable investment options or
Fixed Allocations.
In those states where we are required to return your Purchase Payment if you exercise your right to return the Annuity, we
initially allocate all amounts that you choose to allocate to the variable investment options to the AST Money Market
Sub-account. At the end of the right to cancel period we will reallocate your Account Value according to your most recent
allocation instructions. Where permitted by law, we will allocate your Purchase Payments according to your initial instructions,
without temporarily allocating to the AST Money Market Sub-account. To do this, we will ask that you execute our form called a
"return waiver" that authorizes us to allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the
"return waiver" and then decide to return your Annuity during the right to cancel period, you will receive your current Account
Value which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my Mind?").
Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation
instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program.
We assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those
allocations or request new allocations when you submit a new Purchase Payment.
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment. The amount of the Credit is payable
from our general account. The amount of the Credit depends on the cumulative amount of Purchase Payments you have made to your
Annuity, payable as a percentage of each specific Purchase Payment, according to the tables below:
The Credits shown below are in effect as of October 23, 2000 in those states where approved.
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Cumulative Purchase Payments Credit
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Between $1,000 and $9,999.99 1.5%
Between $10,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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The Credits shown below apply to all Annuities issued before October 23, 2000 and to Annuities issued after October 23, 2000 in
those states where the above table has not been approved.
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Cumulative Purchase Payments Credit
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Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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Credits Applied to Purchase Payments for Designated Class of Annuity Owner
Where allowed by state law, on Annuities owned by a member of the class defined below, the table of Credits we apply to Purchase
Payments is deleted. The Credit applied to all Purchase Payments on such Annuities will be 8.5%.
The designated class of Annuity Owners includes: (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) the
child(ren) or other legal dependent under the age of 21 of any such person noted in (b) through (h); and (j) the siblings of any
such persons noted in (b) through (h) above.
All other terms and conditions of the Annuity apply to Owners in the designated class, except that we will not provide any
Additional Amounts for any such contracts (see "Additional Amounts in the Fixed Allocations"). Any Target Value Credits applied
under the Performance Advantage benefit are not affected by an Owner's inclusion in the designated class of Annuity Owners.
You must notify us at the time you apply for an Annuity if you are a member of the designated class. American Skandia is not
responsible for monitoring whether you qualify as a member of the designated class. Failure to inform us that you qualify as a
member of the designated class may result in your Annuity receiving fewer Credits than would otherwise be applied to your Annuity.
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?
Each Credit is allocated to your Account Value at the time the Purchase Payment is applied to your Account Value. The amount of
the Credit is allocated to the investment options in the same ratio as the applicable Purchase Payment is applied.
Examples of Applying Credits
Initial Purchase Payment
Assume you make an initial Purchase Payment of $2,500. We would apply a 1.5% Credit to your Purchase Payment and allocate the
amount of the Credit ($375 = $2,500 X .015) to your Account Value in the proportion that your Account Value is allocated.
Additional Purchase Payment (at same breakpoint)
Assume that you make an additional Purchase Payment of $5,000. Because your cumulative Purchase Payments are less than the next
breakpoint ($10,000), we would apply a 1.5% Credit to your Purchase Payment and allocate the amount of the Credit ($750 = $5,000 X
.015) to your Account Value.
Additional Purchase Payment (at higher breakpoint)
Assume that you make an additional Purchase Payment of $400,000. Because your cumulative Purchase Payments are now $407,500
(greater than the next breakpoint), we would apply a 4.0% Credit to your Purchase Payment and allocate the amount of the Credit
($16,000 = $400,000 X .04) to your Account Value.
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This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities and does not charge an
additional amount for the XTra CreditSM feature. However, the amount of any Credits applied to your Account Value can be
recovered by American Skandia under certain circumstances:
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|X| any Credits applied to your Account Value on Purchase Payments made within the 12 months before the date of death will be
recovered.
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|X| the amount available under the medically-related surrender portion of the Annuity will not include the amount of any
Credits payable on Purchase Payments made within 12 months of the date the Annuitant first became eligible for the
medically-related surrender.
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|X| if you elect to "free-look" your Annuity, the amount returned to you will not include the amount of any Credits.
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The value of the XTra CreditSM amount will be substantially reduced if American Skandia recovers the XTra CreditSM amount under
these circumstances. However, any investment gain on the XTra CreditSM amount will not be taken back.
Examples of Recovering Credits
The following are hypothetical examples of how Credits could be recovered by American Skandia. These examples do not cover every
potential situation.
Recovery from payment of Death Benefits
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 4.0% Credit, for a total of $2,400. If the
Death Benefit becomes payable in the 9th month after the Issue Date, the amount of the Death Benefit would be reduced by the
entire amount of the prior Credits ($2,400).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 4.0% Credit, for a total of $2,400. If death
occurs in the 16th month after the Issue Date, the amount of the Death Benefit would be reduced but only in the amount of
those Credits applied within the previous 12-months. Since the initial Purchase Payment (and the Credits that were applied)
occurred more than 12-months before the date of death, the Death Benefit would not be reduced by the amount of the Credits
applied to the initial Purchase Payment. However, the $10,000 additional Purchase Payment was made within 12-months of the
date of death. Therefore, the amount of the Death Benefit would be reduced by the amount of the Credits payable on the
additional Purchase Payment ($400).
3. NOTE: If the Death Benefit would otherwise have been equal to the Purchase Payments minus any withdrawals due to poor
investment performance, we will not reduce the amount of the Death Benefit by the amount of the Credits as shown in Example 2
above.
Recovery from Medically-Related Surrenders
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You receive a Credit of $2,000 ($50,000 X
.04). The Annuitant is diagnosed as terminally ill in the 6th month after the Issue Date and we grant your request to
surrender your Annuity under the medically-related surrender provision. Assuming the Credits were applied within 12-months of
the date of diagnosis of the terminal illness, the amount that would be payable under the medically-related surrender
provision would be reduced by the entire amount of the Credits ($2,000).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 4.0% Credit, for a total of $2,400. The
Annuitant is diagnosed as terminally ill in the 16th month after the Issue Date and we grant your request to surrender your
Annuity under the medically-related surrender provision. Since the initial Purchase Payment (and the Credits that were
applied) occurred more than 12-months before the diagnosis, the amount that would be payable upon the medically-related
surrender provision would not be reduced by the amount of the Credits applied to the initial Purchase Payment. However, the
$10,000 additional Purchase Payment was made within 12-months of the date of diagnosis. Therefore, the amount of the Death
Benefit would be reduced by the amount of the Credits payable on the additional Purchase Payment ($400).
Credits applied to estimated Purchase Payments
Under certain circumstances, we may determine the amount of Credits payable on two or more separate Purchase Payments based on the
Credit percentage that would have applied had all such Purchase Payments been made at the same time. To make use of this
procedure, often referred to as a "letter of intent", you must provide evidence of your intention to submit the cumulative
additional Purchase Payments within a 13-month period. A letter of intent must be provided to us prior to the Issue Date to be
effective. Acceptance of a letter of intent is at our sole discretion and may be subject to restrictions as to the minimum
initial Purchase Payment that must be submitted to receive the next higher breakpoint.
Failure to inform us that you intend to submit two or more Purchase Payments within a 13-month period may result in your Annuity
receiving fewer Credits than would otherwise be added to your Annuity.
If you submit a letter of intent and receive Credits on Purchase Payments at a higher Credit percentage than would have applied
BUT do not submit the required Purchase Payments during the 13-month period as required by your letter of intent, we may recover
the "excess" Credits. "Excess" Credits are Credits in excess of the Credits that would have been payable without the letter of
intent. If we determine that you have received "excess" Credits, any such amounts will be taken pro-rata from the investment
options based on your Account Values as of the date we act to recover the excess. If the amount of the recovery exceeds your then
current Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
General Information about Credits
|X| We do not consider Credits to be "investment in the contract" for income tax purposes.
|X| You may not withdraw the amount of any Credits under the Free Withdrawal provision without assessment of the contingent
deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
|X| These Credits are separate and distinct from the Target Value Credits discussed below in the section entitled "American
Skandia's Performance Advantage."
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation on
any gain. We currently limit the number of Sub-accounts you can invest in at any one time to twenty (20). However, you can
invest in an unlimited number of Fixed Allocations. We may require a minimum of $500 in each Sub-account you allocate Account
Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be
less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro rata to the other investment
options to which you transferred.
We may impose specific restrictions on financial transactions for certain Portfolios based on the Portfolio's investment
restrictions. Currently, any purchase, redemption or transfer involving the Rydex or ProFunds VP Sub-accounts must be received by
us no later than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time)
to be processed on the current Valuation Day. The "cut-off" time for such financial transactions involving a Rydex or ProFunds VP
Sub-account will be extended to1/2hour prior to any announced closing (generally, 3:30 p.m. Eastern time) for transactions
submitted electronically through American Skandia's Internet website (www.americanskandia.com).
Currently, we charge $10.00 for each transfer after the twentieth (20th) in each Annuity Year, including transfers made as part of
any rebalancing, market timing, asset allocation or similar program which you have authorized. Transfers made as part of a dollar
cost averaging program do not count toward the twenty free transfer limit. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may reduce the number of free transfers
allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic
means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted electronically or
through other means that reduce our processing costs.
We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We also reserve the
right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if:
(a) we believe that excessive trading or a specific transfer request or group of transfer requests may have a detrimental effect
on Unit Values or the share prices of the Portfolios; or (b) we are informed by one or more of the Portfolios that the purchase or
redemption of shares must be restricted because of excessive trading or a specific transfer or group of transfers is deemed to
have a detrimental effect on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where
either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of
the total assets of a particular Portfolio. Under such a circumstance, we will process transfers according to our rules then in
effect and provide notice if the transfer request was denied. If a transfer request is denied, a new transfer request may be
required.
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer
an amount each month from one investment option to one or more other investment options. You can choose to transfer earnings
only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging allows you to invest regularly each month,
regardless of the current unit value (or price) of the Sub-account(s) you invest in. This enables you to purchase more units when
the market price is low and fewer units when the market price is high. This may result in a lower average cost of units over
time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining
market. We do not deduct a charge for participating in a Dollar Cost Averaging program.
You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program.
You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from Fixed Allocations
is subject to a number of rules that include, but are not limited to the following:
|X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years.
|X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the
program must be designed to last the entire Guarantee Period for the Fixed Allocation.
|X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment.
NOTE: When a Dollar Cost Averaging program is established from a Fixed Allocation, the fixed rate of interest we credit to your
Account Value is applied to a declining balance due to the transfers of Account Value to the Sub-accounts during the Guarantee
Period. This will reduce the effective rate of return on the Fixed Allocation over the Guarantee Period.
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?
Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you choose. You can
choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the appropriate date, your variable
investment options are rebalanced to the allocation percentages you request. For example, over time the performance of the
variable investment options will differ, causing your percentage allocations to shift. With automatic rebalancing, we transfer
the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the
percentages you request. If you request a transfer from or into any variable investment option participating in the automatic
rebalancing program, we will assume that you wish to change your rebalancing percentages as well, and will automatically adjust
the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from you.
You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing transfers made on
the same day as part of an automatic rebalancing program are considered as one transfer when counting the number of transfers each
year toward the maximum number of free transfers. We do not deduct a charge for participating in an automatic rebalancing program.
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?
Yes. We offer two different programs for investors who wish to invest in the variable investment options but also wish to protect
their principal, at least as of a specific date in the future. You may not want to use either of these programs if you expect to
begin taking annuity payments before the program would be completed.
Balanced Investment Program
We offer a balanced investment program where a portion of your Account Value is allocated to a Fixed Allocation and the remaining
Account Value is allocated to the variable investment options that you select. When you enroll in the Balanced Investment
program, you choose the duration that you wish the program to last. This determines the duration of the Guarantee Period for the
Fixed Allocation. Based on the fixed rate for the Guarantee Period chosen, we calculate the portion of your Account Value that
must be allocated to the Fixed Allocation to grow to a specific "principal amount" (such as your initial Purchase Payment). We
determine the amount based on the rates then in effect for the Guarantee Period you choose. If you continue the program until the
end of the Guarantee Period and make no withdrawals or transfers, at the end of the Guarantee Period, the Fixed Allocation will
have grown to equal the "principal amount". Withdrawals or transfers from the Fixed Allocation before the end of the Guarantee
Period will terminate the program and may be subject to a Market Value Adjustment. You can transfer the Account Value that is not
allocated to the Fixed Allocation between any of the Sub-accounts available under the Annuity. Account Value you allocate to the
variable investment options is subject to market fluctuations and may increase or decrease in value. We do not deduct a charge for
participating in the Balanced Investment Program.
Example
Assume you invest $100,000. You choose a 10-year program and allocate a portion of your Account Value to a Fixed
Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 5.33%*. Based on the fixed
interest rate for the Guarantee Period chosen, the factor is 0.594948 for determining how much of your Account Value will
be allocated to the Fixed Allocation. That means that $59,495 will be allocated to the Fixed Allocation and the
remaining Account Value ($41,505) will be allocated to the variable investment options. Assuming that you do not make
any withdrawals from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we
cannot predict the value of the remaining Account Value that was allocated to the variable investment options.
* The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration.
Guaranteed Return OptionSM
We also offer a seven-year program where we monitor your Account Value daily and systematically transfer amounts between Fixed
Allocations and the variable investment options you choose. American Skandia guarantees that at the end of the seventh (7th) year
from commencement of the program, you will receive no less than the original amount invested (such as your initial Purchase
Payment). Account Value is only transferred to and maintained in Fixed Allocations to the extent we, in our sole discretion, deem
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is necessary to support our guarantee under the program. This differs from the Balanced Investment program where a set amount is
allocated to a Fixed Allocation regardless of the performance of the underlying Sub-accounts. With the Guaranteed Return Option,
your Annuity is able to participate in the upside potential of the Sub-accounts while only transferring amounts to Fixed
Allocations to protect against significant market downturns.
Each business day we monitor the performance of your Account Value to determine whether it is greater than, equal to or below our
"reallocation trigger", described below. Based on the performance of the Sub-accounts in which you choose to allocate your
Account Value relative to the reallocation trigger, we may transfer some or all of your Account Value to or from a Fixed
Allocation. You have complete discretion over the allocation of your Account Value that remains allocated in the variable
investment options. However, we reserve the right to restrict certain Portfolios if you participate in the program.
|X| Account Value greater than or equal to reallocation trigger: Account Value in variable investment options remains
allocated according to your most recent instructions. If a portion of Account Value was previously allocated to a Fixed
Allocation, those amounts may be transferred from the Fixed Allocation and re-allocated to the variable investment
options pro-rata according to your current allocations. A Market Value Adjustment will apply.
|X| Account Value below reallocation trigger: A portion of your Account Value in the variable investment options is
transferred to a new Fixed Allocation. These amounts are transferred on a pro-rata basis from the variable investment
options. The new Fixed Allocation will have a Guarantee Period equal to the remaining duration in the Guaranteed Return
Option. The Account Value applied to the new Fixed Allocation will be credited with the fixed interest rate then being
applied to a new Fixed Allocation of the next higher yearly duration. The Account Value will remain invested in the
Fixed Allocation until the maturity date of the program unless, at an earlier date, your Account Value is at or above the
reallocation trigger and amounts can be transferred to the variable investment options (as described above) while
maintaining the guarantee protection under the program.
American Skandia uses an allocation mechanism based on assumptions of expected and maximum market volatility to determine the
reallocation trigger. The allocation mechanism is used to determine the allocation of Account Value between Fixed Allocations and
the Sub-accounts you choose. American Skandia reserves the right to change the allocation mechanism and the reallocation trigger
at its discretion.
Program Termination
The Guaranteed Return Option will terminate on its maturity date. You can elect to participate in a new Guaranteed Return Option
or re-allocate your Account Value at that time. Any Account Value allocated to the Fixed Allocations will be transferred to the
AST Money Market Sub-account, unless you provide us with alternative instructions. On the program maturity date, if your Account
Value is below the initial investment, American Skandia will apply additional amounts to your Account Value so that it is equal to
the initial investment in the program. Any amounts added to your Account Value will be applied to the AST Money Market
Sub-account, unless you provide us with alternative instructions. We will notify you of any amounts added to your Account Value
under the program. We do not consider amounts added to your Account Value to be "investment in the contract" for income tax
purposes.
Special Considerations under the Guaranteed Return Option
This program is subject to certain rules and restrictions, including, but not limited to the following:
|X| You may terminate the Guaranteed Return Option at any time. American Skandia does not provide any guarantees upon
termination of the program.
|X| Withdrawals from your Annuity while the program is in effect will reduce the guaranteed amount under the program in
proportion to the Account Value at the time of the withdrawal. Withdrawals will be subject to all other provisions of the
Annuity, including any Contingent Deferred Sales Charge or Market Value Adjustment that would apply.
|X| Additional Purchase Payments applied to the Annuity while the program is in effect will only increase the amount
guaranteed; however, all or a portion of any additional Purchase Payments may be allocated to the Fixed Allocations.
|X| Annuity Owners cannot transfer Account Value to or from a Fixed Allocation while participating in the program and cannot
participate in any dollar cost averaging program that transfers Account Value from a Fixed Allocation to the variable
investment options.
|X| Transfers from Fixed Allocations will be subject to the Market Value Adjustment formula under the Annuity; however, the
0.10% "cushion" feature of the formula will not apply. A Market Value Adjustment may be either positive or negative.
Transfer amounts will be taken from the most recently applied Fixed Allocation.
|X| Transfers from the Sub-accounts to Fixed Allocations or from Fixed Allocations to the Sub-accounts under the program will
not count toward the maximum number of free transfers allowable under the Annuity.
|X| The Guaranteed Return Option will terminate: (a) upon the death of the Owner or the Annuitant (in an entity owned
contract); and (b) as of the date Account Value is applied to begin annuity payments.
|X| You can elect to restart the seven (7) year program duration on any anniversary of the Issue Date of the Annuity. The
Account Value on the date the restart is effective will become the new guaranteed amount under the program. You can only
elect the program once per Annuity Year.
Charges under the Program
We charge a fee of 0.25% of Account Value per year to participate in the Guaranteed Return Option. The charge is deducted to
compensate American Skandia for: (a) the risk that your Account Value on the maturity date of the program is less than the amount
guaranteed; and (b) administration of the program. The charge is deducted in arrears on an annual basis on each anniversary of
the Issue Date of the Annuity. If you choose to begin the program on a date other than the Issue Date of the Annuity or an
anniversary of the Issue Date of the Annuity, we will charge a pro-rata portion of the annual charge for the remaining portion of
the Annuity Year. If the program terminates before completion for any reason other than death or medically-related surrender, we
will assess a pro-rata portion of the annual charge. We will deduct the annual charge for participating in the program pro-rata
from the variable investment options.
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?
Yes. You may authorize your financial professional to direct the allocation of your Account Value and to request financial
transactions between investment options while you are living, subject to our rules. We require that you provide us with written
proof that you have authorized your financial professional to request financial transactions on your behalf. You must contact us
immediately if and when you revoke such authority. We will not be responsible for acting on instructions from your financial
professional if you fail to inform us that such person's authority has been revoked. We may also suspend or cancel these
privileges at any time. We will notify you if we do.
We or an affiliate of ours may provide administrative support to licensed, registered financial professionals or investment
advisors who you authorize to make financial transactions on your behalf. These financial professionals may be firms or persons
who also are appointed by us as authorized sellers of the Annuity. However, we do not offer advice about how to allocate your
Account Value under any circumstance. Any financial professionals you engage to provide advice and/or make transfers for you is
not acting on our behalf. We are not responsible for any recommendations such financial professionals make, any market timing or
asset allocation programs they choose to follow or any specific transfers they make on your behalf.
We may require financial professionals or investment advisors, who are authorized by multiple contract owners to make financial
transactions, to enter into an administrative agreement with American Skandia as a condition of our accepting transactions on your
behalf. The administrative agreement may impose limitations on the financial professional's or investment advisor's ability to
request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of a financial
professional who is in a position to transfer large amounts of money for multiple clients in a particular Portfolio or type of
portfolio or to comply with specific restrictions or limitations imposed by a Portfolio(s) on American Skandia. The
administrative agreement may limit the available investment options, require advance notice of large transactions, or impose other
trading limitations on your financial professional. Your financial professional will be informed of all such restrictions on an
ongoing basis. We may also require that your financial professional transmit all financial transactions using the electronic
trading functionality available through our Internet website (www.americanskandia.com). Limitations that we may impose on your
financial professional or investment advisor under the terms of the administrative agreement do not apply to financial
transactions requested by an Owner on their own behalf, except as otherwise described in this Prospectus.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
(Fixed Allocations may not be available in all states and may not be available for certain durations.)
We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." Fixed
Allocations currently are offered with Guarantee Periods from 1 to 10 years. We may make Fixed Allocations of different durations
available in the future, including Fixed Allocations offered exclusively for use with certain optional investment programs. The
interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the
Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee
Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your
Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. Any change in interest rate does
not affect Fixed Allocations that were in effect before the date of the change. To inquire as to the current rates for Fixed
Allocations, please call 1-800-766-4530.
A Guarantee Period for a Fixed Allocation begins:
|X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period;
|X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or
|X| when you "renew" a Fixed Allocation by electing a new Guarantee Period.
To the extent permitted by law, we may establish different interest rates for Fixed Allocations offered to a class of Owners who
choose to participate in various optional investment programs we make available. This may include, but is not limited to, Owners
who elect to use Fixed Allocations under a dollar cost averaging program (see "Do You Offer Dollar Cost Averaging?") or a balanced
investment program (see "Do You Offer a Program to Balance Fixed and Variable Investments?"). The interest rate credited to Fixed
Allocations offered to this class of purchasers may be different than those offered to other purchasers who choose the same
Guarantee Period but who do not participate in an optional investment program. Any such program is at our sole discretion.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we
offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed
rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its
agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements,
asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee
Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make,
commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic
trends and competition. Some of these considerations are similar to those we consider in determining the Insurance Charge that we
deduct from Account Value allocated to the Sub-accounts.
We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to
Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class.
The interest rate we credit for a Fixed Allocation is subject to a minimum. Please refer to the Statement of Additional
Information.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will adjust the value
of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market Value Adjustment formula compares
the interest rates credited for Fixed Allocations at the time you invested, to interest rates being credited when you make a
transfer or withdrawal. The amount of any Market Value Adjustment can be either positive or negative, depending on the rates that
are currently being credited on Fixed Allocations.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation to determine the Account Value of the Fixed Allocation on a
particular date. The formula is as follows:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the fixed interest rate we guaranteed to credit to the Fixed Allocation as of its starting
date;
J is the fixed interest rate for your class of annuities at the time of the withdrawal for a
new Fixed Allocation with a Guarantee Period equal to the remaining number of years in your
original Guarantee Period;
N is the number of months remaining in the original Guarantee Period.
If you surrender your Annuity under the right to cancel provision, the MVA formula is [(1 + I)/(1 + J)]N/12.
If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed Allocation, the
numbers used in `J' and `N' will be rounded to the next highest integer.
MVA Examples
The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following:
|X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years.
|X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%).
|X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after exactly three (3)
years, therefore 24 months remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of
24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $59,456.20.
Example of Negative MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of
24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $56,687.28.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. Before the Maturity Date, you may choose to
renew the Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that
Fixed Allocation's Account Value to another Fixed Allocation or to one or more Sub-accounts. We will notify you before the end of
the Guarantee Period about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being
offered. The rates being credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you
choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options.
If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, we will then transfer the Account
Value of the Fixed Allocation to the AST Money Market Sub-account. You can then elect to allocate the Account Value to any of the
Sub-accounts or to a new Fixed Allocation.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
Do you provide any guarantees on my investment?
The Annuity provides variable investment options and fixed investment options. Only the fixed investment options provide a
guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity includes a feature at no
additional cost that provides certain benefits if your Account Value has not reached or exceeded a "target value" on its 10th
anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your Account Value has not reached the target value (as
defined below) you can choose either of the following benefits:
|X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit to your Account
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Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of the average of your Annuity's
Account Value for the preceding four complete calendar quarters. This credit is applied to your investment options pro-rata
based on the allocation of your then current Account Value.
OR
|X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity equal to 10% of the
net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all Purchase Payments allocated in the
prior five years. The annuity option you select must initially guarantee payments for not less than seven years.
Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not meet or exceed the
Target Value. We will assume that you have elected to receive the annual credit to your Account Value unless, not less than 30
days prior to the next anniversary of the Annuity, we receive at our home office your election to begin receiving Annuity
payments.
Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase your Annuity as part
of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue.
What is the "Target Value" and how is it calculated?
The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described above. The Target
Value does not impact the Account Value available if you surrender your Annuity or make a partial withdrawal and does not impact
the Death Benefit available to your Beneficiary(ies). The Target Value assumes a rate of return over ten (10) Annuity Years that
will allow your initial investment to double in value, adjusted for any withdrawals and/or additional Purchase Payments you make
during the 10 year period. We calculate the "Target Value" as follows:
1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of the Annuity's
Issue Date; plus
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2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied until the 10th
anniversary of the Annuity's Issue Date; minus
-----
3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of 7.2% from the
date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We determine each "proportional
reduction" by determining the percentage of your Account Value then withdrawn and reducing the Target Value by that same
percentage. We include any withdrawals under your Annuity in this calculation, as well as the charge we deduct for any
optional benefits you elect under the Annuity, but not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee.
Examples
1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The Target Value on the
10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals are made. This is equal to $10,000
accumulating at an annual rate of 7.2% for the 10-year period.
2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at the end of Year
6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target Value on the 10th
anniversary would be $18,722. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period, minus
the proportional reduction accumulating at an annual interest rate of 7.2%.
Can I restart the 10-year Target Value calculation?
Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of the Issue Date.
If you elect to restart the calculation period, we will treat your Account Value on the restart date as if it was your Purchase
Payment when determining if your Annuity's Account Value meets or exceeds the Target Value on the appropriate tenth (10th)
anniversary. You may elect to restart the calculation more than once, in which case, the 10-year calculation period will begin on
the date of the last restart date. We must receive your election to restart the calculation at our home office not later than 30
days after each anniversary of the Issue Date.
What are Target Value Credits?
Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that your Account Value
will meet or exceed the Target Value. We add Target Value Credits to your Account Value at the time a Purchase Payment is applied
to your Annuity. Only those Purchase Payments made before the first anniversary of the Issue Date of your Annuity are eligible to
receive Target Value Credits. Target Value Credits are separate and distinct from other Credits we apply to all Purchase Payments.
The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits are only payable
on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue Date. If the Annuity is
owned by an entity, the age restriction applies to the age of the Annuitant on the Issue Date. The Target Value Credit is payable
from our general account and is allocated to the investment options in the same ratio that the qualifying Purchase Payment is
allocated.
Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or transfer, in whole
or in part, of an Annuity we issued that has the same or a similar benefit.
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The amount of any Target Value Credits are not immediately vested and can be recovered by American Skandia under the circumstances
and for the time periods shown below. If American Skandia exercises its right to recover the amount of any Target Value Credit,
any investment gain on the Target Value Credit will not be taken back.
1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity.
2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date.
3. If a person on whose life we pay the Death Benefit dies, or if a "contingency event" occurs which triggers a
medically-related surrender:
|X| within 12 months after the date a Target Value Credit was allocated to your Account Value; or
|X| within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on
the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date.
Following completion of the above time periods, the amount of any Target Value Credits are vested in the Owner.
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ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation period you can access your Account Value through Partial Withdrawals, Systematic Withdrawals, and where
required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. We may deduct a portion of
the Account Value being withdrawn or surrendered as a CDSC. If you surrender your Annuity, in addition to any CDSC, we may deduct
the Annual Maintenance Fee, any Tax Charge that applies and the charge for any optional benefits. We may also apply a Market
Value Adjustment to any Fixed Allocations. Certain amounts may be available to you each Annuity Year that are not subject to a
CDSC. These are called "Free Withdrawals." In addition, under certain circumstances, we may waive the CDSC for surrenders made
for qualified medical reasons or for withdrawals made to satisfy Minimum Distribution requirements. Unless you notify us
differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your
withdrawal request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of
your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any
investment gain unless the distribution qualifies as a non-taxable exchange or transfer. If you take a distribution prior to the
taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult
a professional tax advisor for advice before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to
at the time of the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each
annuity payment should be treated as a return of any tax basis you have in the Annuity. Once the tax basis in the Annuity has
been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in the Annuity may be based on the
tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation period.
|X| To meet liquidity needs, you can withdraw a limited amount of your Account Value during each of Annuity Year 1-8 without
a CDSC being applied. We call this the "Free Withdrawal" amount. The Free Withdrawal amount is not available if you
choose to surrender your Annuity. The minimum Free Withdrawal you may request is $100.
|X| You can also make withdrawals in excess of the Free Withdrawal amount. We call this a "Partial Withdrawal." The amount
that you may withdraw will depend on the Annuity's Surrender Value. The Surrender Value is equal to your Account Value
minus any CDSC, the Annual Maintenance Fee, the Tax Charge, any charges for optional benefits and any Market Value
Adjustment that may apply to any Fixed Allocations. After any Partial Withdrawal, your Annuity must have a Surrender
Value of at least $1,000, or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity.
The minimum Partial Withdrawal you may request is $100.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine what, if any,
amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawals or Systematic Withdrawals
of amounts greater than the maximum Free Withdrawal amount will be subject to a CDSC.
Partial Withdrawals may also be available following annuitization but only if you choose certain annuity payment options.
To request the forms necessary to make a withdrawal from your Annuity, contact our Customer Service Team at 1-800-752-6342 or
visit our Internet Website at www.americanskandia.com.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 10% of Purchase Payments that, as of the date of the withdrawal, have been invested for less than the CDSC period (with
your Annuity, eight (8) years). The 10% amount is not cumulative.
"Growth" equals the current Account Value less all Purchase Payments that have been invested for less than the CDSC period and
have not been previously withdrawn. "Growth" does not include any additional amounts we applied to your Annuity based on your
Purchase Payments (see "How Do I Receive Credits" and "What Are Target Value Credits").
NOTE: Free withdrawals do not reduce the amount of any CDSC that would apply upon a partial withdrawal or subsequent surrender.
The minimum Free Withdrawal you may request is $100.
We may reduce or eliminate the amount available as a Free Withdrawal if your Annuity is used in connection with certain plans that
receive special tax treatment under the Code. As of the date of this Prospectus, the Free Withdrawal privilege has been
eliminated for Annuities purchased as funding vehicles for retirement plans under Section 401 or 403(b) of the Code.
Examples
Assume you make an initial Purchase Payment of $10,000 and make no additional Purchase Payments. Assume that in Annuity Year 2,
due to positive investment performance, your Account Value is $12,500. The maximum Free Withdrawal amount would be the greater of
Growth (Account Value minus Purchase Payments = $2,500) or 10% of Purchase Payments ($1,000). Your maximum Free Withdrawal amount
would therefore be $2,500.
Further assume that in your third Annuity Year, you choose to surrender your Annuity. Assume that after taking your $2,500 Free
Withdrawal in Year 2, your Account Value has increased to $11,000 due to positive investment performance. Upon surrender, we will
deduct a CDSC of 8.5% based on the number of years that your Purchase Payment has been invested times the amount of your Purchase
Payment that has not been previously withdrawn (8.5% of $10,000 = $850). The amount of the previous Free Withdrawal was not
subject to a CDSC when withdrawn. Therefore, upon surrender, the amount of the entire Purchase Payment is subject to the CDSC.
You would receive $10,150 minus the Annual Maintenance Fee and any Target Value Credits.
These examples do not reflect the effect of any Credits or Target Value Credits. These amounts are not available as a free
withdrawal.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine what, if any,
amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawal or Systematic Withdrawal of
amounts greater than the maximum Free Withdrawal amount will be subject to a CDSC.
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
A CDSC may be assessed against a Partial Withdrawal during the accumulation period. Whether a CDSC applies and the amount to be
charged depends on whether the Partial Withdrawal exceeds any Free Withdrawal amount and, if so, the number of years that have
elapsed since the Purchase Payment being withdrawn has been invested in the Annuity.
1. If you request a Partial Withdrawal we determine if the amount you requested is available as a Free Withdrawal (in which case
it would not be subject to a CDSC);
2. If the amount requested exceeds the available Free Withdrawal amount:
|X| First, we withdraw the amount from Purchase Payments that have been invested for longer than the CDSC period, if any
(with your Annuity, eight (8) years);
|X| Second, we withdraw the remaining amount from the Purchase Payments that are still subject to a CDSC. We withdraw the
"oldest" of your Purchase Payments first so that the lowest CDSC will apply to the amount withdrawn.
Any CDSC will only apply to the amount withdrawn that exceeds the Free Withdrawal amount.
3. If the amount requested exceeds the amounts available under Item#2 above, we withdraw the remaining amount from any other
Account Value (including Account Value due to Credits and Target Value Credits).
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal plus earnings or
a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine whether a CDSC applies and the amount
in the same way as we would for a Partial Withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed Allocations.
Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic
Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on
a monthly, quarterly, semi-annual or annual basis. The Surrender Value of your Annuity must be at least $20,000 before we will
allow you to begin a program of Systematic Withdrawals.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100, we may
postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic
Withdrawal.
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE?
Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections
401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made
prior to age 59 1/2if you elect to receive distributions as a series of "substantially equal periodic payments". Distributions
received under this provision in any Annuity Year that exceed the maximum amount available as a free withdrawal will be subject to
a CDSC. To request a program that complies with Section 72(t), you must provide us with certain required information in writing
on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender
Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t).
The minimum amount for any such withdrawal is $100.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means
of receiving income payments before age 59 1/2that are not subject to the 10% penalty.
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?
(See "Tax Considerations" for a further discussion of Minimum Distributions.)
Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or
408 of the Code. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we
will allow you to make Systematic Withdrawals in amounts that satisfy the minimum distribution rules under the Code. We do not
assess a CDSC on Minimum Distributions from your Annuity if you are required by law to take such Minimum Distributions from your
Annuity at the time it is taken. However, a CDSC may be assessed on that portion of a Systematic Withdrawal that is taken to
satisfy the minimum distribution requirements in relation to other savings or investment plans under other qualified retirement
plans not maintained with American Skandia.
The amount of the required Minimum Distribution for your particular situation may depend on other annuities, savings or
investments. We will only calculate the amount of your required Minimum Distribution based on the value of your Annuity. We
require three (3) days advance written notice to calculate and process the amount of your payments. We may charge you for
calculating required Minimum Distributions. You may elect to have Minimum Distributions paid out monthly, quarterly,
semi-annually or annually. The $100 minimum that applies to Systematic Withdrawals does not apply to Minimum Distributions.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means
of receiving income payments and satisfying the Minimum Distribution requirements under the Code.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender
Value. Upon surrender of your Annuity, you will no longer have any rights under the Annuity.
Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value.
To request the forms necessary to surrender your Annuity, contact our Customer Service Team at 1-800-752-6342 or visit our
Internet Website at www.americanskandia.com.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity prior to the Annuity Date without application of any CDSC upon
occurrence of a medically-related "Contingency Event". The amount payable will be your Account Value minus: (a) the amount of any
Credits applied within 12 months of the applicable "Contingency Event" as defined below; (b) the amount of any Credits added in
conjunction with any Purchase Payments received after our receipt of your request for a medically-related surrender (i.e. Purchase
Payments received at such time pursuant to a salary reduction program; and (c) the amount of any Target Value Credits under
certain circumstances.
This waiver of any applicable CDSC is subject to our rules, including but not limited to the following:
|X| the Annuitant must be named or any change of Annuitant must be accepted by us, prior to the "Contingency Event" described
below;
|X| the Annuitant must be alive as of the date we pay the proceeds of such surrender request;
|X| if the Owner is one or more natural persons, all such Owners must also be alive at such time;
|X| we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal Illness in writing
on a form satisfactory to us; and
|X| this benefit is not available if the total Purchase Payments received exceed $500,000 for all annuities issued by us with
this benefit where the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
|X| first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at least 90 days in a
row; or
|X| first diagnosed as having a "Fatal Illness" while your Annuity is in force.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are provided in your
Annuity. Specific details and definitions in relation to this benefit may differ in certain jurisdictions.
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?
We currently make annuity options available that provide fixed annuity payments, variable payments or adjustable payments. Fixed
options provide the same amount with each payment. Variable options generally provide a payment which may increase or decrease
depending on the investment performance of the Sub-accounts. However, currently, we also make a variable payment option that has
a guarantee feature. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates.
We do not guarantee to make any Annuity Payment Options available in the future.
When you purchase an Annuity, or at a later date, you may choose an Annuity Date, an annuity option and the frequency of annuity
payments. You may change your choices up to 30 days before the Annuity Date. A maximum Annuity Date may be required by law. Any
change to these options must be in writing. The Annuity Date may depend on the annuity option you choose. Certain annuity
options may not be available depending on the age of the Annuitant.
Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit proceeds as a series of
payments instead of a lump sum payment.
Option 1
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Payments for Life: Under this option, income is payable periodically until the death of the "key life". The "key life" (as used
in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made
after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of
periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of
the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. This
Option is currently available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 2
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Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and
thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum
number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the
key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. This Option
is currently available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 3
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Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life. However, if the
key life dies before the end of the period selected (5, 10, 15, or 20 years), the remaining payments are paid to the Beneficiary
until the end of such period. This Option is currently available on a fixed or variable basis. If you elect to receive payments
on a variable basis under this option, you can request partial or full surrender of the annuity and receive its then current cash
value (if any) subject to our rules.
Option 4
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Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the
payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such
period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of
the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting
this option. Under this option, you cannot make a partial or full surrender of the annuity.
Option 5
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Variable Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. The
number of years cannot be less than 5 or more than 50. Payments may increase or decrease depending on the investment performance
of the Sub-Accounts. If the payee dies before the end of the specified number of years, the remaining payments are paid to the
Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life
expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations
provides no benefit to an Owner selecting this option. If this option is selected, full surrenders may be made from the Annuity
prior to the last guaranteed Payment Date. No partial surrenders are permitted if this option is selected.
Option 6
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Variable Payments for Life with a Cash Value: Under this option, benefits are payable periodically until the death of the key
life. Benefits may increase or decrease depending on the investment performance of the Sub-accounts. This option has a cash
value that also varies with the investment performance of the Sub-account. The cash value provides a "cushion" from volatile
investment performance so that negative investment performance does not automatically result in a decrease in the annuity payment
each month, and positive investment performance does not automatically result in an increase in the annuity payment each month.
The cushion generally "stabilizes" monthly annuity payments. Any cash value remaining on the death of the key life is paid to the
Beneficiary in a lump sum or as periodic payments. Under this option, you can request partial or full surrender of the annuity
and receive its then current cash value (if any) subject to our rules.
Option 7
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Variable Payments for Life with a Cash Value and Guarantee: Under this option, benefits are payable as described in Option 6;
except that, while the key life is alive, the annuity payment will not be less than a guaranteed amount, which generally is equal
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to the first annuity payment. We charge an additional amount for this guarantee. Under this option, any cash value remaining on
the death of the key life is paid to the Beneficiary in a lump sum or as periodic payments. Under this option, you can request
partial or full surrender of the annuity and receive its then current cash value (if any) subject to our rules.
We may make additional annuity payment options available in the future.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of at least 5 years
if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Therefore, making a purchase payment within eight
years of the Annuity Date limits your annuity payment options. Certain annuity payment options may not be available if your
Annuity Date occurs during the period that a CDSC would apply.
If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then:
|X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th birthday or the
fifth anniversary of our receipt of your request to purchase an Annuity; and
|X| the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments for Life with 10
years certain.
HOW ARE ANNUITY PAYMENTS CALCULATED?
Fixed Annuity Payments (Options 1-4)
If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select.
The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally,
the first annuity payment is determined by multiplying the Account Value, minus any state premium taxes that may apply, by the
factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the
frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are
derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or
regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates
will differ according to the gender of the key life.
Variable Annuity Payments
We offer three different types of variable annuity payment options. The first annuity payment will be calculated based upon the
assumed investment return ("AIR"). You select the AIR before we start to make Annuity Payments. The remaining annuity payments
will fluctuate based on the performance of the Portfolios relative to the AIR, as well as, other factors described below. The
greater the AIR, the greater the first annuity payment. A higher AIR may result in smaller potential growth in the annuity
payments. A lower AIR results in a lower initial annuity payment.
|X| Variable Payments (Options 1-3 & 5)
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We calculate each annuity payment amount by multiplying the number of units scheduled to be redeemed under a schedule of
units for each Sub-account by the Unit Value of each Sub-Account on the annuity payment date. We determine the schedule
of units based on your Account Value (minus any premium tax that applies) at the time you elect to begin receiving
annuity payments. The schedule of units will vary based on the annuity payment option selected, the length of any
certain period (if applicable), the Annuitant's age and gender (if annuity payments are due for the life of the
Annuitant) and the Unit Value of the Sub-Accounts you initially selected on the Issue Date. The calculation is performed
for each Sub-Account, and the sum of the Sub-Account calculations equals the amount of your annuity payment. Other than
to fund annuity payments, the number of units allocated to each Sub-Account will not change unless you transfer among the
Sub-Accounts or make a withdrawal (if allowed). You can select one of three AIRs for these options: 3%, 5% or 7%.
|X| Stabilized Variable Payments (Option 6)
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This option provides guaranteed payments for life, a cash value for the Annuitant (while alive) and a variable period of
time during which annuity payments will be made whether or not the Annuitant is still alive. We calculate the initial
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annuity payment amount by multiplying the number of units scheduled to be redeemed under a schedule of units by the Unit
Values determined on the annuitization date. The schedule of units is established for each Sub-account you choose on the
annuitization date based on the applicable benchmark rate and the annuity factors. The annuity factors reflect our
assumptions regarding the costs we expect to bear in guaranteeing payments for the lives of the Annuitant and will depend
on the benchmark rate, the annuitant's attained age and gender (where permitted). Unlike variable payments (described
above) where each payment can vary based on Sub-account performance, this payment option cushions the immediate impact of
Sub-account performance by adjusting the length of the time during which annuity payments will be made whether or not the
Annuitant is alive while generally maintaining a level annuity payment amount. Sub-account performance that exceeds a
benchmark rate will generally extend this time period, while Sub-account performance that is less than a benchmark rate
will generally shorten the period. If the period reaches zero and the Annuitant is still alive, Annuity Payments
continue, however, the annuity payment amount will vary depending on Sub-account performance, similar to conventional
variable payments. The AIR for this option is 4%.
|X|
Stabilized Variable Payments with a Guaranteed Minimum (Option7)
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This option provides guaranteed payments for life in the same manner as Stabilized Variable Payments (described above).
In addition to the stabilization feature, this option also guarantees that variable annuity payments will not be less
than the initial annuity payment amount regardless of Sub-account performance. The AIR for this option is 3%.
Adjustable Annuity Payments
We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity
payments except that on every fifth (5th) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward
or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount
does not affect the duration of remaining annuity payments, only the amount of each payment.
DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
The Annuity provides a Death Benefit during its accumulation period. If the Annuity is owned by one or more natural persons, the
Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an entity, the Death Benefit is payable
upon the Annuitant's death, if there is no Contingent Annuitant. If a Contingent Annuitant was designated before the Annuitant's
death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that
time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent."
The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct from Account Value allocated
to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic Death Benefit guarantee under the
Annuity. The Annuity also offers two different optional Death Benefits. Either benefit can be purchased for an additional
charge. The additional charge is deducted to compensate American Skandia for providing increased insurance protection under the
optional Death Benefits. Notwithstanding the additional protection provided under the optional Death Benefits, the additional
cost has the impact of reducing the net performance of the investment options. Under certain circumstances, your Death Benefit
may be reduced by the amount of any Credits or Target Value Credits we applied to your Purchase Payments (see "How are Credits
Applied to My Account Value" and "Recovery of Target Value Credits").
Basic Death Benefit
The basic Death Benefit depends on the decedent's age on the date of death:
If death occurs during the first ten (10) Annuity Years: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit is your Account Value.
OPTIONAL DEATH BENEFITS
You can purchase either of two optional Death Benefits with your Annuity to provide an enhanced level of protection for your
beneficiaries. We do not currently offer the Annuity with both optional Death Benefits.
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Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We may, at a later
date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to our rules and any changes or
restrictions in the benefits. Certain terms and conditions may differ if you purchase your Annuity as part of an exchange,
replacement or transfer, in whole or in part, from any other Annuity we issue.
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Enhanced Beneficiary Protection Optional Death Benefit
The Enhanced Beneficiary Protection Optional Death Benefit can provide additional amounts to your Beneficiary that may be used to
offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Whether this benefit is
appropriate for you may depend on your particular circumstances, including other financial resources that may be available to your
Beneficiary to pay taxes on your Annuity should you die during the accumulation period. No benefit is payable if death occurs on
or after the Annuity Date.
The Enhanced Beneficiary Protection Optional Death Benefit provides a benefit that is payable in addition to the basic Death
Benefit. If the Annuity has one Owner, the Owner must be age 75 or less at the time the benefit is purchased. If the Annuity has
joint Owners, the oldest Owner must be age 75 or less. If the Annuity is owned by an entity, the Annuitant must be age 75 or less.
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The Enhanced Beneficiary Protection Optional Death Benefit is being offered in those jurisdictions where we have received
regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The benefit is currently only
offered to Owners who purchase the Annuity as a "non-qualified" investment. We may make the benefit available to Owners who
purchase the Annuity as an IRA or other "qualified" investment at a later date. Please refer to the section entitled "Tax
Considerations" for a discussion of special tax considerations for purchasers of this benefit.
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Calculation of Enhanced Beneficiary Protection Optional Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as follows:
1. the basic Death Benefit described above
PLUS
2. 50% of the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Death Benefit Amount includes your Account Value and any amounts added to your Account Value under the basic Death Benefit when
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the Death Benefit is calculated. Under the basic Death Benefit, amounts are added to your Account Value when the Account Value is
less than Purchase Payments minus proportional withdrawals.
The amount calculated in Items 1 & 2 above may be reduced by any Credits or Target Value Credits under certain circumstances.
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The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 50% of all Purchase Payments applied to the
Annuity at least 12 months prior to the death of the decedent that triggers the payment of the Death Benefit.
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See Appendix C for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated.
Guaranteed Minimum Death Benefit
If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is purchased. If the
Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the Annuitant must be
age 80 or less.
Key Terms Used with the Guaranteed Minimum Death Benefit
|X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest
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of either joint Owner or the Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the
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Owner's date of death and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all Purchase Payments
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on or after such anniversary less the sum of all "Proportional Reductions" since such anniversary.
|X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of
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the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is
$10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by
Purchase Payments increasing at the appropriate interest rate by 20%.
Calculation of Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit depends on whether death occurs before or after the Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of:
1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the date we receive
in writing "due proof of death"; and
2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily until the Owner's
date of death at a rate of 5.0%, subject to a limit of 200% of the difference between the sum of all Purchase
Payments and the sum of all withdrawals as of the Owner's date of death; and
3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death.
The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death
and decreased by any Proportional Reductions since such date. The amount calculated in Items 1 & 3 above may be reduced
by any Credits or Target Value Credits under certain circumstances.
If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of:
1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to amounts in any
Fixed Allocations); and
2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of
all Proportional Reductions since the Death Benefit Target Date.
The amount calculated in Item 1 above may be reduced by any Credits or Target Value Credits under certain circumstances.
Annuities with joint Owners
For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest of the Joint
Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly, we will pay the
Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to
assume ownership of the Annuity and continue the contract instead of receiving the Death Benefit.
Annuities owned by entities
For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the Annuitant is used to
determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent
Annuitant, if applicable).
Can I terminate the optional Death Benefits? Do the optional Death Benefits terminate under other circumstances?
You can terminate the Enhanced Beneficiary Protection Optional Death Benefit at any time. Upon termination, you will be required
to pay a pro-rata portion of the annual charge for the benefit. The Guaranteed Minimum Death Benefit cannot be terminated once it
is elected. Both optional Death Benefits will terminate automatically on the Annuity Date. We may also terminate the optional
Death Benefit if necessary to comply with our interpretation of the Code and applicable regulations.
How much do you charge for the optional Death Benefit?
We deduct a charge from your Account Value if you elect to purchase either optional Death Benefit. No charge applies after the
Annuity Date. We deduct the charge:
1. on each anniversary of the Issue Date;
2. when Account Value is transferred to our general account prior to the Annuity Date;
3. if you surrender your Annuity; and
4. if you choose to terminate the benefit (Enhanced Beneficiary Protection Optional Death Benefit only)
If you surrender the Annuity, elect to begin receiving annuity payments or terminate the benefit on a date other than an
anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date, the charge will be
prorated from the Issue Date. In all subsequent years, it would be prorated from the last anniversary of the Issue Date.
We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We only deduct the
charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in the variable investment options to
pay the charge. If your Annuity's Account Value is insufficient to pay the charge, we may deduct your remaining Account Value and
terminate your Annuity. We will notify you if your Account Value is insufficient to pay the charge and allow you to submit an
additional Purchase Payment to continue your Annuity.
Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the optional Death Benefit.
AMERICAN SKANDIA'S ANNUITY REWARDS
What is the Annuity Rewards benefit?
The Annuity Rewards benefit offers Owners the ability to capture any market gains since the Issue Date of their Annuity as an
enhancement to their current Death Benefit so their Beneficiaries will not receive less than the Annuity's value as of the date
the Owner elects the benefit.
Under the Annuity Rewards benefit, American Skandia guarantees that the Death Benefit on or before the cut-off date applicable to
the minimum death benefit under the Annuity, will not be less than:
your Account Value in the variable investment options plus the Interim Value in any Fixed Allocations as of the effective
date of the Owner's election
MINUS any proportional withdrawals* following the date of election
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PLUS any additional Purchase Payments applied to the Annuity following the date of election.
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* "Proportional withdrawals" are determined by calculating the percentage of the Account Value that each withdrawal represented
when withdrawn. For example, a withdrawal of 50% of your Account Value would be treated as a 50% reduction in the amount
payable under the Death Benefit.
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If you elect the Annuity Rewards benefit, the cut-off date under the basic Death Benefit is amended and will depend on the
decedent's age on the date of death.
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If death occurs before the decedent's age 90: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
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|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations.
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If death occurs after the decedent's age 90: The Death Benefit is your Account Value.
The Annuity Rewards Death Benefit enhancement does not affect any Optional Death Benefits available under the Annuity. If the
Death Benefit amount payable under your Annuity's basic Death Benefit or any Optional Death Benefits you purchase is greater than
the enhanced Death Benefit under the Annuity Rewards benefit on the date the Death Benefit is calculated, your Beneficiary will
receive the higher amount. If your Annuity includes the Enhanced Beneficiary Protection Optional Death Benefit, the enhanced
Death Benefit under the Annuity Rewards program will be considered when calculating the amount due under the Enhanced Beneficiary
Protection Optional Death Benefit.
Who is eligible for the Annuity Rewards benefit?
Owners can elect the Annuity Rewards Death Benefit enhancement following the eighth (8th) anniversary of the Annuity's Issue
Date. However, the election is subject to the requirement that their Account Value on the election date is greater than the
amount that would be payable to their Beneficiary under the Death Benefit provided under the Annuity as of the election date
(including any Optional Death Benefits other than the Enhanced Beneficiary Protection Optional Death Benefit). If an Owner is
ineligible when he or she applies for the optional benefit, the Owner can elect the Annuity Rewards Death Benefit enhancement on
any subsequent date if they otherwise qualify. The election must occur before the cut-off date applicable to the minimum death
benefit under the Annuity and before annuity payments begin. An Owner can only elect the Annuity Rewards Death Benefit
enhancement once. There is no additional charge for electing the Annuity Rewards Death Benefit enhancement.
PAYMENT OF DEATH BENEFITS
Payment of Death Benefit to Beneficiary
Except in the case of a spousal Beneficiary, in the event of your death, the death benefit must be distributed:
|X| as a lump sum amount at any time within five (5) years of the date of death; or
|X| as a series of annuity payments not extending beyond the life expectancy of the Beneficiary or over the life of the
Beneficiary. Payments under this option must begin within one year of the date of death.
Unless you have made an election prior to death benefit proceeds becoming due, a Beneficiary can elect to receive the Death
Benefit proceeds as a series of fixed annuity payments (Annuity Payment Option 1-4) or as a series of variable annuity payments
(Annuity Payment Option 1-3 or 5-7). See the section entitled "What Types of Annuity Options are Available."
Spousal Beneficiary - Assumption of Annuity
You may name your spouse as your Beneficiary. If you and your spouse own the Annuity jointly, we assume that the sole primary
Beneficiary will be the surviving spouse unless you elect an alternative Beneficiary designation. Unless you elect an alternative
Beneficiary designation, the spouse Beneficiary may elect to assume ownership of the Annuity instead of taking the Death Benefit
payment. Any Death Benefit (including any optional Death Benefits) that would have been payable to the Beneficiary will become
the new Account Value as of the date we receive due proof of death and any required proof of a spousal relationship. As of the
date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the
Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the surviving
spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value.
However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of
the Annuity.
See the section entitled "Managing Your Annuity - Spousal Contingent Annuitant" for a discussion of the treatment of a spousal
Contingent Annuitant in the case of the death of the Annuitant in an entity owned Annuity.
Inherited IRA Death Benefit Payout
The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or other "qualified
investment" that requires Minimum Distributions. The available payment options will depend on whether the Owner died on or before
the date he or she was required to begin receiving Minimum Distributions under the Code and whether the Beneficiary is the
surviving spouse.
|X| If death occurs before the date Minimum Distributions must begin under the Code, the Death Benefit can be paid out in
either a lump sum, within five years from the date of death, or over the life or life expectancy of the designated
Beneficiary (as long as payments begin by December 31st of the year following the year of death). However, if the spouse
is the Beneficiary, the Death Benefit can be paid out over the life or life expectancy of the spouse with such payments
beginning no earlier than December 31 of the year following the year of death or December 31st of the year in which the
deceased would have reached age 70 1/2, which ever is later.
|X| If death occurs after the date Minimum Distributions must begin under the Code, the Death Benefit must be paid out at
least as rapidly as under the method then in effect.
A Beneficiary has the flexibility to take out more each year than required under the Minimum Distribution rules. Until withdrawn,
amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts withdrawn each year, including
amounts that are required to be withdrawn under the Minimum Distribution rules, are subject to tax. You may wish to consult a
professional tax advisor for tax advice as to your particular situation. See the section entitled "How are Distributions From
Qualified Contracts Taxed? - Minimum Distributions after age 70 1/2."
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if
the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or Annuitant due to the prior
Owner's or Annuitant's death. Any minimum Death Benefit that applies will be suspended for a two-year period from the date he or
she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this
person had been an Owner or Annuitant on the Issue Date.
When do you determine the Death Benefit?
We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written representations
we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a
certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of
death or other satisfactory proof of death. Upon our receipt of "due proof of death" we automatically transfer the Death Benefit
to the AST Money Market Sub-Account until we further determine the universe of eligible Beneficiaries. Once the universe of
eligible Beneficiaries has been determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit
to the Sub-Accounts according to our rules.
Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit. Absent an
election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may require written
acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period from the date of death until we
receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations.
VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for each Sub-account
allocation and for each Fixed Allocation. The Account Value is the sum of the values of each Sub-account allocation and the value
of each Fixed Allocation. The Account Value does not reflect any CDSC that may apply to a withdrawal or surrender. The Account
Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your
Annuity. When determining the Account Value on any day other than a Fixed Allocation's Maturity Date, the Account Value may
include any Market Value Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value
is equal to your Account Value minus any CDSC, the Annual Maintenance Fee, the charge for any optional Death Benefit and any
additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The
Surrender Value will also include any Market Value Adjustment that may apply.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account invests
exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market fluctuations of the
Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge.
Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for
determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any
transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000
buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that
Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original
Sub-account has increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477
Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the
new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal
to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the date calculated.
The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from a
Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before
they were withdrawn. To determine the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply
the Account Value of the Fixed Allocation times the Market Value Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) days
after we receive all of our requirements to issue the Annuity. If we do not have all the required information to allow us to
issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our
requirements. If we are unable to obtain all of our required information within five (5) days, we are required to return the
Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the
required information. Once we obtain the required information, we will invest the Purchase Payment and issue the Annuity within
two (2) days. During any period that we are trying to obtain the required information, your money is not invested.
Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase
Payment with satisfactory instructions.
Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing, or asset
allocation program, Systematic Withdrawals, Minimum Distributions or annuity payments. Scheduled transactions are processed and
valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be
processed and valued on Valuation Day prior to the scheduled transaction date.
Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial
Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we
receive the request at our Office in good order.
Medically-related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims require our review
and evaluation before processing. We price such transactions as of the date we receive at our Office all materials we require for
such transaction and that are satisfactory to us.
Transactions in Rydex and ProFunds VP Sub-accounts: Generally, purchase or redemption orders or transfer requests must be received
by us by no later than the close of the New York Stock Exchange to be processed on the current Valuation Day. However, any
purchase or redemption order or transfer request involving the Rydex or ProFunds VP Sub-accounts must be received by us no later
than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be
processed on the current Valuation Day. The "cut-off" time for such financial transactions involving a Rydex or ProFunds VP
Sub-account will be extended to1/2hour prior to any announced closing (generally, 3:30 p.m. Eastern time) for transactions
submitted electronically through American Skandia's Internet website (www.americanskandia.com). You cannot request a transaction
involving the purchase, redemption or transfer of Units in one of the Rydex or ProFunds VP Sub-accounts between the applicable
"cut-off" time and 4:00 p.m. Transactions received after 4:00 p.m. will be treated as received by us on the next Valuation Day.
TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?
Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since the tax laws are
complex and tax consequences are affected by your individual circumstances, this summary of our interpretation of the relevant tax
laws is not intended to be fully comprehensive nor is it intended as tax advice. Therefore, you may wish to consult a
professional tax advisor for tax advice as to your particular situation.
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?
The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance company under Part I,
subchapter L of the Code. No taxes are due on interest, dividends and short-term or long-term capital gains earned by the
Separate Accounts with respect to the Annuities.
IN GENERAL, HOW ARE ANNUITIES TAXED?
Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in large part on:
1. whether the Annuity is used by:
|X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for special treatment
under the Code (for purposes of this discussion, a "Qualified Contract"); or
|X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and
2. whether the Owner is:
|X| an individual person or persons; or
|X| an entity including a corporation, trust or partnership.
Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed on any increase
in the value of the Annuity until an amount is received (a "distribution"). This is commonly referred to as "tax deferral". A
distribution can be in the form of a lump sum payment including payment of a Death Benefit, or in annuity payments under one of
the annuity payment options. Certain other transactions may qualify as a distribution and be subject to taxation.
Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of the Annuity must
currently include any increase in the value of the Annuity during a tax year in its gross income. An exception from current
taxation applies for annuities held by an employer with respect to a terminated tax-qualified retirement plan, a trust holding an
annuity as an agent for a natural person, or by a decedent's estate by reason of the death of the decedent. A tax-exempt entity
for Federal tax purposes will not be subject to income tax as a result of this provision.
HOW ARE DISTRIBUTIONS TAXED?
Distributions from an Annuity are taxed as ordinary income and not as capital gains.
Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as coming first
from "income on the contract" and then as a return of the "investment in the contract". The amount of any distribution that is
treated as receipt of "income on the contract" is includible in the taxpayer's gross income and taxable in the year it is
received. The amount of any distribution treated as a return of the "investment in the contract" is not includible in gross
income.
|X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from the aggregate
value of all "related contracts" (discussed below).
|X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any previous
distributions or portions of such distributions from such "related contracts" that were not includible in gross income.
"Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a
tax-free exchange of life insurance, endowment, or annuity contracts under Section 1035 of the Code. The "investment in the
contract" for a Qualified Contract will be considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will generally be
taxable. The taxable portion of each annuity payment is determined by a formula which establishes the ratio that the "investment
in the contract" bears to the total value of annuity payments to be made. This is called the "exclusion ratio." The investment
in the contract is excluded from gross income. Any portion of an annuity payment received that exceeds the exclusion ratio will
be entirely includible in gross income. The formula for determining the exclusion ratio differs between fixed and variable
annuity payments. When annuity payments cease because of the death of the person upon whose life payments are based and, as of
the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the
"investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by the beneficiary in
the tax year of such death.
Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a Qualified Contract
(Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount includible in gross income. This
penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 591/2;
|X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death of the annuitant;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a series of substantially equal periodic payments for the life (or life expectancy) of
the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary);
|X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14, 1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the
employer until the employee separates from service.
Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner within the same
calendar year (other than certain contracts owned in connection with a tax-qualified retirement arrangement) are to be treated as
one annuity contract when determining the taxation of distributions before annuitization. We refer to these contracts as "related
contracts." In situations involving related contracts we believe that the values under such contracts and the investment in the
contracts will be added together to determine the proper taxation of a distribution from any one contract described under the
section "Distributions before Annuitization." Generally, distributions will be treated as coming first from income on the
contract until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the
contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view related contracts when
one or more contracts are immediate annuities or are contracts that have been annuitized. The Internal Revenue Service has not
issued guidance clarifying this issue as of the date of this Prospectus. You are particularly cautioned to seek advice from your
own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)" distributions) Any
modification to a program of distributions which are part of a series of substantially equal periodic payments that occur before
the later of the taxpayer reaching age 59 1/2or five (5) years from the first of such payments will result in the requirement to pay
the 10% premature distribution penalty that would have been due had the payments been treated as subject to the 10% premature
distribution penalty in the years received, plus interest. This does not apply when the modification is by reason of death or
disability. American Skandia does not currently support a section 72(q) program.
Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the immediate annuity exception to the
10% penalty described above under "Penalty Tax on Distributions" for "non-qualified" immediate annuities as defined under the Code
may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant
to an exchange of a contract if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed
more than one year prior to the annuity starting date under the immediate annuity; and (b) the annuity payments under the
immediate annuity do not meet the requirements of any other exception to the 10% penalty.
Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain tax-free exchanges of
a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased through a tax-free exchange of a life
insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any distributions other than as annuity
payments will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into the annuity;
|X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to August 14, 1982
(including income on such original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982.
Therefore, to the extent a distribution is equal to or less than the remaining investment in the contract made prior to August 14,
1982, such amounts are not included in taxable income. Further, distributions received that are considered to be a return of
investment on the contract from purchase payments made prior to August 14, 1982, such distributions are not subject to the 10% tax
penalty. In all other respects, the general provisions of the Code apply to distributions from annuities obtained as part of such
an exchange.
Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current
taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2withdrawals. The IRS has reserved the
right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. We do not know
what transactions may be considered abusive. For example, we do not know how the IRS may view early withdrawals or annuitizations
after a partial exchange. As of the date of this prospectus, we will treat a partial surrender of this type involving a
non-qualified annuity contract as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a
reporting and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some insurance
companies may not recognize these partial surrenders as tax-free exchanges and may report them as taxable distributions to the
extent of any gain distributed as well as subjecting the taxable portion of the distribution to the 10% IRS early distribution
penalty. We strongly urge you to discuss any transaction of this type with your tax advisor before proceeding with the
transaction.
There is no guidance from the Internal Revenue Service as to whether a partial exchange from a life insurance contract is eligible
for non-recognition treatment under Section 1035 of the Code. We will continue to report a partial surrender of a life insurance
policy as subject to current taxation to the extent of any gain. In addition, please be cautioned that no specific guidance has
been provided as to the impact of such a transaction for the remaining life insurance policy, particularly as to the subsequent
methods to be used to test for compliance under the Code for both the definition of life insurance and the definition of a
modified endowment contract.
Special Considerations for Purchasers of the Enhanced Beneficiary Protection Optional Death Benefit: As of the date of this
Prospectus, it is our understanding that the charges related to the optional Death Benefit are not subject to current taxation and
we will not report them as such. However, the IRS could take the position that these charges should be treated as partial
withdrawals subject to current taxation to the extent of any gain and, if applicable, the 10% tax penalty. We reserve the right
to report charges for the optional Death Benefit as partial withdrawals if we, as a reporting and withholding agent, believe that
we would be expected to report them as such.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have provided summaries
of the types of tax-qualified retirement plans with which we may issue an Annuity. These summaries provide general information
about the tax rules and are not intended to be complete discussions. The tax rules regarding qualified plans are complex. These
rules may include limitations on contributions and restrictions on distributions, including additional taxation of distributions
and additional penalties. The terms and conditions of the tax-qualified retirement plan may impose other limitations and
restrictions that are in addition to the terms of the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice, both as to the
tax treatment and suitability of such an investment. American Skandia does not offer all of its annuities to all of these types of
tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate pension and
profit-sharing plans established by corporate employers under Section 401(a) of the Code including 401(k) plans. Contributions
to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations
on the amount that may be contributed and the timing of distributions. The tax treatment of distributions is subject to special
provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to
participation, nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for
themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of
the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations
and requirements may differ from those for corporate plans.
Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into which contributions
may be made by certain qualifying employers such as public schools and certain charitable, educational and scientific
organizations specified in Section 501(c)(3) for the benefit of their employees. Such contributions are not taxable to the
employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions.
Nondiscrimination requirements also apply.
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Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made pursuant to a
salary reduction agreement unless the distribution is made:
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|X| After the participating employee attains age 59 1/2;
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|X| Upon separation from service, death or disability; or
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|X| In the case of financial hardship (subject to restrictions).
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Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and certain other tax
exempt employers for their employees may invest in annuity contracts. The Code limits contributions and distributions, and
imposes eligibility requirements as well. Contributions are not taxable to employees until distributed from the plan. However,
plan assets remain the property of the employer and are subject to the claims of the employer's general creditors until such
assets are made available to participants or their beneficiaries.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an individual retirement
account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the amount that may be contributed, the
contributions that may be deducted from taxable income, the persons who may be eligible to establish an IRA and the time when
distributions must commence. Further, an Annuity may be established with "roll-over" distributions from certain tax-qualified
retirement plans and maintain the tax-deferred status of these amounts.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax deductible. However,
distributions from a Roth IRA are free from Federal income taxes and are not subject to the 10% penalty tax if five (5) tax years
have passed since the first contribution was made or any conversion from a traditional IRA was made and the distribution is made
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(a) once the taxpayer is age 59 1/2or older, (b) upon the death or disability of the taxpayer, or (c) for qualified first-time home
buyer expenses, subject to certain limitations. Distributions from a Roth IRA that are not "qualified" as described above may be
subject to Federal income and penalty taxes.
Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on eligibility,
contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and
qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis and the conditions under which distributions
from traditional IRAs may be rolled over to, or the traditional IRA itself may be converted into, a Roth IRA.
SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP IRAs. Employer
contributions that may be made to employee SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be
deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a portion of each
distribution may be excludable from income. The excludable amount is the proportion of a distribution representing after-tax
contributions. Generally, a 10% penalty tax applies to the taxable portion of a distribution from a Qualified Contract made prior
to age 59 1/2. However, the 10% penalty tax does not apply when the distribution:
|X| is part of a properly executed transfer to another IRA or another eligible qualified account;
|X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7)
of the Code);
|X| is part of a series of substantially equal periodic payments to be paid not less frequently than annually for the
taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary;
|X| is subsequent to a separation from service after the taxpayer attains age 55*;
|X| does not exceed the employee's allowable deduction in that tax year for medical care*;
|X| is made to an alternate payee pursuant to a qualified domestic relations order*; and
|X| is made pursuant to an IRS levy.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be available.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be distributed, or begin to
be distributed, by the "required beginning date". This is April 1st of the calendar year following the later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the employer sponsoring the plan. The retirement
option is not available to IRAs.
The IRS has released proposed Treasury regulations containing new Minimum Distribution rules. Under the new rules, the Minimum
Distribution amount will be lower for the vast majority of individuals. The new rules are available, at the option of the
individual, for Minimum Distributions required in the year 2001. For Minimum Distributions required in 2002 and beyond, the
individual must utilize the new Minimum Distribution rules.
Under existing Minimum Distribution rules, the participant's entire interest must be distributed beginning no later than the
required beginning date over a period which may not extend beyond a maximum of the life or life expectancy of the participant (or
the life expectancies of the owner and a designated beneficiary). Each annual distribution must equal or exceed a "minimum
distribution amount" which is determined by dividing the account value by the applicable life expectancy or pursuant to an annuity
payout. If the account balance is used, it generally is based upon the Account Value as of the close of business on the last day
of the previous calendar year.
If the participant dies before reaching his or her "required beginning date", his or her entire interest must generally be
distributed within five (5) years of death. However, this rule will be deemed satisfied if distributions begin before the close
of the calendar year following death to a designated beneficiary (or over a period not extending beyond the life expectancy of the
beneficiary). If the Beneficiary is the individual's surviving spouse, distributions may be delayed until the deceased owner would
have attained age 701/2. A surviving spouse would also have the option to assume the IRA as his or her own if he or she is the
sole designated beneficiary. If a participant dies after reaching his or her required beginning date or after distributions have
commenced, the individual's interest must generally be distributed at least as rapidly as under the method of distribution in
effect at the time of the individual's death.
If the amount distributed is less than the minimum required distribution for the year, the participant is subject to a 50% tax on
the amount that was not properly distributed.
Under the new Minimum Distribution rules, a uniform life expectancy table will be utilized by all participants except those with a
spouse who is more than ten (10) years younger than the participant. In that case, the new rules permit the participant to
utilize the actual life expectancies of the participant and the spouse. In addition, the designated beneficiary under the new
rules is not determined until December 31 of the year following the year of the participant's death. In most cases, the
beneficiary may be changed during the participant's lifetime with no affect on the Minimum Distributions. At death, the
designated Beneficiary may take Minimum Distributions over his/her life expectancy or in a lump sum. In the absence of a
designated beneficiary, the beneficiary may take a lump sum or distributions over five (5) years.
It is important to note that the new Minimum Distribution rules may not apply to certain qualified retirement plans (at this
time), but currently generally apply to IRA's and 403(b)'s.
GENERAL TAX CONSIDERATIONS
Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an annuity, must
have an "adequately diversified" segregated asset account (including investments in a mutual fund by the segregated asset account
of insurance companies). If the diversification requirements under the Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain in the contract. The Treasury Department's regulations
prescribe the diversification requirements for variable annuity contracts. We believe the underlying mutual fund portfolios should
comply with the terms of these regulations.
Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The Treasury Department
may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with
ownership rights have excessive control over the investments underlying such variable annuity. Such guidelines may or may not
address the number of investment options or the number of transfers between investment options offered under a variable annuity.
It is not known whether such guidelines, if in fact promulgated, would have retroactive effect. It is also not known what effect,
if any, such guidelines may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus.
We will take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such guidelines if
promulgated.
Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the portion of a
distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the
distribution. However, under most circumstances a recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by filing a completed election form with us.
Certain distributions, known as eligible rollover distributions, from Qualified Contracts, are subject to automatic 20%
withholding for Federal income taxes. The following distributions are not eligible rollover distributions and not subject to 20%
withholding::
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual retirement annuity;
|X| distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the
retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan;
|X| distributions that are part of a series of substantial periodic payments pursuant to Section 72(q) or 72(t) of the Code;
and
|X| certain other distributions where automatic 20% withholding may not apply.
Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or pledge of any
portion of the value of, an annuity before annuity payments have begun are treated as a distribution subject to taxation under the
distribution rules set forth above. Any gain in an annuity on or after the assignment or pledge of an entire annuity and while
such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For
annuities not issued as Qualified Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge
includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by
payment of any interest thereon.
Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a divorce) is treated,
for income tax purposes, as a distribution.
Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and state estate and
gift tax consequences flowing from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is transferred to, or a
death benefit is paid to, an individual two or more generations younger than the contract holder. These generation-skipping
transfers generally include those subject to federal estate or gift tax rules. There is an aggregate $1 million exemption from
taxes for all such transfers. We may be required to determine whether a transaction is a direct skip as defined in the Code and
the amount of the resulting tax. We will deduct from your Annuity or from any applicable payment treated as a direct skip any
amount of tax we are required to pay.
Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant succeeds an annuitant
when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred treatment under certain sections of
the Code. In general, the Code is designed to prevent indefinite deferral of tax. Continuing the benefit of tax deferral by
naming one or more contingent annuitants when the Annuity is owned by a non-qualified trust might be deemed an attempt to extend
the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as
contingent annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a
contingent annuitant if you expect to use an Annuity in such a fashion.
GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to you at your last known address of record. You
should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to
your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by
applicable law or regulation to you through our Internet Website at http://www.americanskandia.com or any other electronic means,
including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value,
such as making additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing the
activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge
up to $50 for each such additional report. Instead of immediately confirming transactions made pursuant to some type of periodic
transfer program (such as a dollar cost averaging program) or a periodic Purchase Payment program, such as a salary reduction
arrangement, we may confirm such transactions in quarterly statements. You should review the information in these statements
carefully.
All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to your Annuity.
For transactions that are confirmed immediately, we assume all transactions are accurate unless you notify us otherwise within 10
days from the date you receive the confirmation. For transactions that are only confirmed on the quarterly statement, we assume
all transactions are accurate unless you notify us within 10 days from the date you receive the quarterly statement. All
transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 10-day period. We may
also send an annual report and a semi-annual report containing applicable financial statements, as of December 31 and June 30,
respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or
other electronic means.
WHO IS AMERICAN SKANDIA?
American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in Connecticut with
licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned subsidiary of American Skandia, Inc.,
formerly known as American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a
Swedish company. American Skandia markets its products to broker-dealers and financial planners through an internal field
marketing staff. In addition, American Skandia markets through and in conjunction with financial institutions such as banks that
are permitted directly, or through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American Skandia currently
offers the following products: (a) flexible premium deferred annuities and single premium fixed deferred annuities that are
registered with the SEC; (b) certain other fixed deferred annuities that are not registered with the SEC; (c) certain group
variable annuities that are exempt from registration with the SEC that serve as funding vehicles for various types of qualified
pension and profit sharing plans; (d) a single premium variable life insurance policy that is registered with the SEC; and (e) a
flexible premium life insurance policy that is registered with the SEC.
WHAT ARE SEPARATE ACCOUNTS?
The assets supporting our obligations under the Annuities may be held in various accounts, depending on the obligation being
supported. In the accumulation period, assets supporting Account Values are held in separate accounts established under the laws
of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout phase, assets supporting
fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Income, gains and
losses from assets allocated to these separate accounts are credited to or charged against each such separate account without
regard to other income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be
charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance Corporation. The amount
of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts.
However, the obligations themselves are our general corporate obligations.
Separate Account B
During the accumulation period, the assets supporting obligations based on allocations to the variable investment options are held
in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account
B". Separate Account B consists of multiple Sub-accounts. The name of each Sub-account generally corresponds to the name of the
underlying Portfolio. The names of each Sub-account are shown in the Statement of Additional Information. Separate Account B was
established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values
and benefits that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to this
Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate Account B has a different
level of charges assessed against such Sub-accounts. You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds.
Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit
investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the investment
policies, management or practices of Separate Account B. Each Sub-account invests only in a single mutual fund or mutual fund
portfolio.
We reserve the right to make changes to the Sub-accounts available under the Annuity as we determine appropriate. We may offer
new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may also close Sub-accounts to
additional Purchase Payments on existing Annuity contracts or close Sub-accounts for Annuities purchased on or after specified
dates. We may also substitute an underlying mutual fund or portfolio of an underlying mutual fund for another underlying mutual
fund or portfolio of an underlying mutual fund, subject to our receipt of any exemptive relief that we are required to obtain
under the Investment Company Act of 1940. We will notify Owners of changes we make to the Sub-accounts available under the
Annuity.
Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual
funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value
allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk.
Separate Account D
During the accumulation period, assets supporting our obligations based on Fixed Allocations are held in American Skandia Life
Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations are based on the fixed
interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment
performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law.
There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who
allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets
maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in
Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate
Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we
will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to
our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in
Separate Account D supporting a number of annuities we offer.
We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account D. Each manager
we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional
investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or
continue to employ any investment manager(s).
We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other
state insurance laws.
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares
of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and
variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules,
you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio
requests a vote of shareholders, we will vote our shares in the manner directed by Owners with Account Value allocated to that
Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not
receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the
shares for which we have received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account
whose underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their
instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental
investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying
mutual fund that require a vote of shareholders.
American Skandia Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its
investment adviser, American Skandia Investment Services, Incorporated ("ASISI"), subject to approval by the Board of Trustees of
the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder
approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized
in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by ASISI
and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders
following these types of changes.
Material Conflicts
It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their
respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur
surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts
that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would
take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance
policies against persons with voting rights under other insurance companies' variable insurance products. If a "material
conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would
take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to
differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or
different companies. We monitor any potential conflicts that may exist.
Service Fees Payable by Underlying Funds
American Skandia or our affiliates have entered into agreements with the investment adviser or distributor of many of the
underlying Portfolios. Under the terms of these agreements, American Skandia provides administrative and support services to the
Portfolios for which a fee is paid that is generally based on a percentage of the average assets allocated to the Portfolios under
the Annuity. Any fees payable will be consistent with the services rendered or the expected cost savings resulting from the
arrangement. These agreements may be different for each underlying mutual fund whose portfolios are offered as Sub-accounts.
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the distributor and
principal underwriter of the securities offered through this prospectus. ASM acts as the distributor of a number of annuity and
life insurance products we offer and both American Skandia Trust and American Skandia Advisor Funds, Inc., a family of retail
mutual funds. ASM also acts as an introducing broker-dealer through which it receives a portion of brokerage commissions in
connection with purchases and sales of securities held by portfolios of American Skandia Trust which are offered as underlying
investment options under the Annuity.
ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer under the
Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent broker-dealers who are
registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration. Applications for
the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance
agents under state insurance law. In addition, ASM may offer the Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual representative will
receive a portion of the compensation, depending on the practice of the firm. Compensation is generally based on a percentage of
Purchase Payments made, up to a maximum of 7.0%. Alternative compensation schedules are available that provide a lower initial
commission plus ongoing annual compensation based on all or a portion of Account Value. We may also provide compensation for
providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity
do not result in any additional charge to you or to the Separate Account. No compensation is payable on Annuities purchased by a
member of the designated class of Owners (see "Credits Applied to Purchase Payments for Designated Class of Annuity Owner").
In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel,
marketing or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain
firms. These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules
and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or
other compensation.
Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we
calculate performance for the Sub-accounts are found in the Statement of Additional Information, including how we account for
Credits in these performance measures. This information may help you review the performance of the investment options and provide
a basis for comparison with other annuities. This information's usefulness may be limited because of the Credits, since, as of
the date of this Prospectus, we were not aware of many annuities with variable and/or market value adjusted fixed investment
options that included this type of feature. This information also may be less useful when comparing the performance of the
investment options with other savings or investment vehicles. Such other investments may not provide some of the benefits of
annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment vehicles may not be
receive the beneficial tax treatment given to annuities under the Code.
We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and "Non-standard" Total
Returns. "Standard Total Return" figures assume that all charges and fees are applicable, including any contingent deferred sales
charge that may apply for the period shown but it does not take into consideration any Credits. "Non-standard Total Return"
figures may be used that do not reflect all fees and charges and may assume Credits of 1.5%, 3.0%, 4.0% or 5.0%, respectively,
depending on the cumulative amount of Purchase Payments being illustrated. The amount of credits illustrated may be more or less
than the Credits applicable to your Annuity (see "What are Credits and how do I Receive Them?"). Non-standard Total Returns are
calculated in the same manner as standardized returns except that the calculations may assume no redemption at the end of the
applicable periods. These figures may not take into consideration the Annuity's contingent deferred sales charge. Standard and
Non-standard Total returns will not reflect charges that apply to either Optional Death Benefit. Non-standard Total Returns must
be accompanied by Standard Total Returns. Any performance advertisements will not reflect the impact of any Target Value Credits.
Performance information on the Sub-accounts is based on past performance only and is not an indication or representation of future
performance. Performance of the Sub-accounts is not fixed. Actual performance will depend on the type, quality and, for some of
the Sub-accounts, the maturities of the investments held by the underlying mutual funds or portfolios and upon prevailing market
conditions and the response of the underlying mutual funds to such conditions. Actual performance will also depend on changes in
the expenses of the underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest
in such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account will affect
performance.
Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance quoted in
advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in existence but prior to the
initial offering of the Annuities, or periods during which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical historical performance is calculated using the same assumptions employed in calculating
actual performance since inception of the Sub-accounts. Hypothetical historical performance of the underlying mutual fund
portfolios prior to the existence of the Sub-accounts may only be presented as Non-Standard Total Returns.
The information we may advertise regarding the Fixed Allocations may include the then current interest rates we are crediting to
new Fixed Allocations. Information on current rates will be as of the date specified in such advertisement. Rates will be
included in advertisements to the extent permitted by law. Given that the actual rates applicable to any Fixed Allocation are as
of the date of any such Fixed Allocation's Guarantee Period begins, the rate credited to a Fixed Allocation may be more or less
than those quoted in an advertisement.
Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged market indices,
including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, the Shearson Lehman Bond
Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital International Index of Europe, Asia and Far East
Funds, and the Morgan Stanley Capital International World Index; and/or (b) other management investment companies with investment
objectives similar to the mutual fund or portfolio underlying the Sub-accounts being compared. This may include the performance
ranking assigned by various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's,
Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual Funds Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund Sourcebook and
the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial ratings services.
Such rankings may help you in evaluating our ability to meet our obligations in relation to Fixed Allocations, pay minimum death
benefits, pay annuity payments or administer Annuities. Such rankings and ratings do not reflect or relate to the performance of
Separate Account B.
AVAILABLE INFORMATION
A Statement of Additional Information is available from us without charge upon your request. This Prospectus is part of the
registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available
in those registration statements and the exhibits thereto. You may obtain copies of these materials at the prescribed rates from
the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those registration
statements and exhibits thereto at the SEC's public reference facilities at the above address, Room 1024, and at the SEC's
Regional Offices, 7 World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, IL. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified
or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or
superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 2000 previously filed
by the Company with the SEC under the Exchange Act is incorporated by reference in this Prospectus.
We will furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including
any exhibits to such documents which have been specifically incorporated by reference. We will do so upon receipt of your written
or oral request.
HOW TO CONTACT US
You can contact us by:
|X| calling our Customer Service Team at 1-800-752-6342 or our automated telephone access and response system (STARS) at
1-800-766-4530
|X| writing to us at American Skandia Life Assurance Corporation, Attention: Customer Service, P.O. Box 7038, Bridgeport,
Connecticut 06601-7038
|X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at www.americanskandia.com
|X| accessing information about your Annuity through our Internet Website at www.americanskandia.com
You can obtain account information through our automated telephone access and response system (STARS) and at
www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during business hours to
provide you with information about your account. You can request certain transactions through our telephone voice response
system, our Internet Website or through a customer service representative. You can provide authorization for a third party,
including your attorney-in-fact acting pursuant to a power of attorney or a financial professional, to access your account
information and perform certain transactions on your account. You will need to complete a form provided by us which identifies
those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party
to perform any such transactions. We require that you or your representative provide proper identification before performing
transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that
will be provided to you upon issue of your Annuity or you may establish or change your PIN through our automated telephone access
and response system (STARS) and at www.americanskandia.com, our Internet Website. Any third party that you authorize to perform
financial transactions on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims,
loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such
transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of
electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such
procedures.
American Skandia does not guarantee access to telephonic and electronic information or that we will be able to accept transaction
instructions via the telephone or electronic means at all times. American Skandia reserves the right to limit, restrict or
terminate telephonic and electronic transaction privileges at any time.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed
that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary course of business,
and know of no material claims.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and certain significant employees, their ages, positions with us and principal occupations are
indicated below. The immediately preceding work experience is provided for officers that have not been employed by us or an
affiliate for at least five years as of the date of this Prospectus.
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
- --- -------------------------- --------------------
Patricia J. Abram Senior Vice President Senior Vice President:
49 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer with Mutual
Service Corporation. Ms. Abram was employed there since 1982.
Lori Allen Vice President Vice President:
31 American Skandia
Marketing, Incorporated
Robert M. Arena Vice President Vice President:
32 American Skandia Life
Assurance Corporation
Gordon C. Boronow Deputy Chief Executive Officer Deputy Chief Executive Officer:
48 and Director (since July, 1991) American Skandia Life
Assurance Corporation
Robert W. Brinkman Senior Vice President Senior Vice President:
36 American Skandia
Marketing, Incorporated
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
45 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Carl Cavaliere Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc. since 1989.
Y.K. Chan Senior Vice President Senior Vice President
43 and Director (since September, 2000) and Chief Information Officer:
American Skandia Information
Services and Technology Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg Pincus from January
1995 until April 1999 and the position of Vice President, Client Server Application Development with Scudder, Stevens and Clark
from January 1991 until January 1995.
Lucinda C. Ciccarello Vice President Vice President:
42 American Skandia
Marketing, Incorporated
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff & Phelps since
1984.
Lincoln R. Collins Senior Vice President Senior Vice President:
40 Director (since February, 1996) American Skandia Life
Assurance Corporation
Tim Cronin Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle Investors since
1995.
Harold Darak Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche since 1998 and
the positions of Second Vice President with The Guardian since 1996 and The Travelers from October, 1982 until December, 1995.
Wade A. Dokken President and Chief Executive Officer President and
41 and Chairman of the Board Chief Executive Officer:
American Skandia, Inc.
Elaine C. Forsyth Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance:
54 American Skandia Life
Assurance Corporation
Maureen Gulick Director, Business Operations Director, Business Operations:
38 American Skandia Life
Assurance Corporation
Ian Kennedy Senior Vice President Senior Vice President:
53 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice President, Customer
Service with SunLife of Canada from September, 1968 to August, 1995.
N. David Kuperstock Vice President Vice President:
49 American Skandia Life
Assurance Corporation
Robert K. Leach Vice President and Vice President,
46 Chief Actuary Chief Actuary:
American Skandia Life
Assurance Corporation
Mr. Robert K. Leach joined us in 2000. He previously was employed in the U.S. Retirement Products and Services Division of Sun
Life of Canada and held the position of Vice President, Finance and Product.
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
48 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,
46 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
39 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Michael A. Murray Senior Vice President Senior Vice President:
32 American Skandia
Marketing, Incorporated
Polly Rae Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Rebecca Ray Vice President Senior Vice President:
45 American Skandia
Marketing, Incorporated
Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities since 1997 and
Vice President with Merrill Lynch since 1995.
Rodney D. Runestad Vice President Vice President:
51 American Skandia Life
Assurance Corporation
Hayward L. Sawyer Senior Vice President Senior Vice President:
56 American Skandia
Marketing, Incorporated
Lisa Shambelan Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Karen Stockla Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with Citizens Utilities
Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since 1993.
William H. Strong Vice President Vice President:
57 American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems from June 1994 to
October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June 1994.
Guy Sullivan Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Sullivan joined us in 2000. He previously held the positions of Managing Director, Wholesale Distribution with Allmerica
Financial Services since 1999 and Managing Director and Member of the Executive Committee with Putnam Investments since 1995.
Leslie S. Sutherland Vice President Vice President:
47 American Skandia
Marketing, Incorporated
Amanda C. Sutyak Vice President Vice President:
43 Director (since July, 1991) American Skandia Life
Assurance Corporation
Christian W. Thwaites Senior Vice President Senior Vice President:
43 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mary Toumpas Vice President Vice President and
49 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb Life/Chubb Securities
since 1973.
Bayard F. Tracy Senior Vice President and Senior Vice President:
53 Director (since September, 1994) American Skandia
Marketing, Incorporated
Deborah G. Ullman Senior Vice President Senior Vice President:
46 and Director (since September, 2000) American Skandia Life
Assurance Corporation
Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977.
Jeffrey M. Ulness Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Kirk Wickman General Counsel General Counsel:
44 American Skandia Life
Assurance Corporation
Mr. Wickman joined us in 2001. He previously held the position of Senior Vice President and General Counsel with Aetna Financial
Services since 1992.
Brett M. Winson Senior Vice President and Senior Vice President:
45 Director (since March 2000) American Skandia, Inc.
Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd. since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about American Skandia
|X| American Skandia Life Assurance Corporation
|X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
|X| American Skandia Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated
How Performance Data is Calculated
|X| Current and Effective Yield
|X| Total Return
How the Unit Price is Determined
Additional Information on Fixed Allocations
|X| How We Calculate the Market Value Adjustment
General Information
|X| Voting Rights
|X| Modification
|X| Deferral of Transactions
|X| Misstatement of Age or Sex
|X| Ending the Offer
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
- ----------------------------
Revenues:
Annuity and life insurance charges and fees* $424,578 $289,989 $186,211 $121,158 $69,780
Fee income
130,610 83,243 50,839 27,593 16,420
Net investment income
11,656 10,441 11,130 8,181 1,586
Premium income and other revenues
4,778 3,688 1,360 1,082 265
----- ----- ----- ----- ---
Total revenues $ 571,622 $ 387,361 $ 249,540 $ 158,014 $ 88,051
====== ========= ======= ========= ============
Benefits and Expenses:
Annuity and life insurance benefits $ 751 $ 612 $ 558 $ 2,033 $ 613
Change in annuity and life insurance 45,018 3,078 1,053 37 635
policy reserves
Cost of minimum death benefit reinsurance - 2,945 5,144 4,545 2,867
Return credited to contractowners
9,046 (1,639) (8,930) (2,018) 673
Underwriting, acquisition and other insurance
expenses
335,213 206,350 167,790 90,496 49,887
Interest expense 85,998 69,502 41,004 24,895 10,791
--------- --------- --------- --------- ------------
Total benefits and expenses $ 476,026 $ 280,848 $ 206,619 $ 119,988 $ 65,466
====== ============= ============= ============= ===========
Income tax expense (benefit) $ 30,779 $ 30,344 $ 8,154 $ 10,478 $ (4,038)
======== ============== ========== ============== =
Net income $ 64,817 $ 76,169 $ 34,767 $ 27,548 $ 26,623
======== ======== ======== ============== ===========
STATEMENT OF FINANCIAL CONDITION DATA
- -------------------------------------
Total Assets $31,702,705 $30,881,579 $18,848,273 $12,894,290 $8,268,696
=========== =========== =========== =========== ==========
Future fees payable to parent $ 934,410 $ 576,034 $ 368,978 $ 233,034 $ 47,112
====== ============= ============= ============= ============
Surplus Notes $ 159,000 $ 179,000 $ 193,000 $ 213,000 $ 213,000
========== ============= ========== ============= ===========
Shareholder's Equity $ 496,911 $ 359,434 $ 250,417 $ 184,421 $ 126,345
====== ============= ====== ============= ===========
* On annuity and life insurance sales of $8,216,167, $6,862,968, $4,159,662, $3,697,990, and $2,795,114 during the
years ended December 31, 2000, 1999, 1998, 1997, and 1996, respectively, with contractowner assets under management
of $29,751,822, $29,396,693, $17,854,761, $12,119,191, and $7,764,891 as of December 31, 2000, 1999, 1998, 1997 and
1996, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the consolidated financial statements and the notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking
statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ
materially due to factors not currently known. These factors include significant changes in financial markets and
other economic and business conditions, state and federal legislation and regulation, ownership and competition.
Results of Operations
---------------------
Annuity and life insurance sales increased 20% in 2000 to $8,216,167,000 as compared to 65% in 1999. Overall sales
growth in 2000 was driven by significant sales volume in the first quarter of 2000 due to the strong equity market
performance. However, the decline in the equity markets during the remainder of the year negatively impacted sales as
the first quarter growth rate was not sustained. The Company continues to focus on increasing sales through innovative
product development activities, the recruitment and retention of top producers, high quality customer service and
improvements in web-based technology. All three major distribution channels achieved sales growth in 2000.
Average assets under management totaled $31,413,809,000 in 2000 and $21,984,759,000 in 1999, representing an increase
of 43%. As a result of the growth in sales and average assets under management, annuity and life insurance charges and
fees increased 46% in 2000 and 56% in 1999. Fee income generated from transfer agency-type and investment support
activities increased 57% in 2000 and 64% in 1999.
Net investment income increased 12% in 2000 compared to 1999 and decreased 6% in 1999 compared to 1998. The increase
in 2000 is primarily due to a higher level of investments, partially offset by $6,939,000 of amortization of premiums
paid on derivative instruments. The decrease in 1999 was primarily the result of $1,036,000 of amortization of the
premium paid on a derivative instrument purchased during 1999. See Note 2D to the consolidated financial statements
for information related to derivative instruments used to hedge the guaranteed minimum death benefit ("GMDB") reserve
fluctuations. Excluding the derivative amortization, net investment income increased 62% in 2000 and increased 3% in
1999 as a result of increased bond holdings that support the Company's risk-based capital objectives.
Premium income represents premiums earned on the sale of ancillary contracts such as immediate annuities with life
contingencies, supplementary contracts with life contingencies and certain life insurance products. Increased sales of
these products led to an increase in premium income in 2000. The increase in 2000 and 1999 was primarily due to higher
sales of supplementary contracts. Management expects supplementary contracts to grow over time with the maturing of
core business lines.
Net realized investment losses totaled $688,000 in 2000, compared to gains of $578,000 in 1999 and $99,000 in 1998.
The change from 1999 to 2000 is primarily due to realized losses on sales of securities in the fixed maturity
portfolio. These losses were partially offset by realized gains on sales of fixed maturities and mutual funds. The
increase in realized gains in 1999 compared to 1998 is due to higher gains on sales of mutual fund investments.
The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as
well as the Company's GMDB liability. In 2000, equity markets declined and the underlying fund performance was lower
than the prior year. In contrast, the equity markets and underlying fund performance were up significantly in 1999
compared to 1998. The combination of these events resulted in an increase in GMDB reserves of $39,866,000 in 2000.
This compares to an increase in GMDB reserves of $2,323,000 in 1999.
In 1999, the Company began to develop a program utilizing equity put options to manage the risks embedded in the GMDB
in annuity contracts that would result from significant declines in the equity markets. Prior to the implementation of
the hedge strategies utilizing equity put options, the Company had reinsured substantially all of its exposure on the
GMDB liability. The reinsurance was terminated during the second quarter of 1999 as the reinsurer had exited this
market.
Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and changes in reserves required on this business. Market value
adjusted annuity activity has the largest impact on this benefit. In 2000 and 1999, the Separate Account investment
returns on the market value adjusted annuities were less than the expected returns as calculated in the reserves,
contributing to the significant increase in the return credited to contractholders benefit. In addition, this benefit
increased as a result of the amortization of unearned Performance Advantage target value credits, which increased
$6,826,000 in 2000 over 1999. Other significant contributors to the change from 1999 to 2000 include guaranteed
minimum death benefit payments on variable annuities which were driven up due to the market declines in 2000 as well as
increased costs associated with processing of backdated financial transactions. These increased costs were partially
offset by a 2000 experience refund on certain reinsurance treaties in the amount of $4,339,000.
Underwriting, acquisition and other insurance expenses for 2000, 1999 and 1998 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Commissions and purchase credits $ 393,494 $ 358,279 $ 201,008
General operating expenses 252,206 214,269 141,586
Acquisition costs deferred during the year (495,103) (450,059) (261,432)
Acquisition costs amortized during the year 184,616 83,861 86,628
------- - ------ - ------
Net capitalization of deferred acquisition costs (310,487) (366,198) (174,804)
- --------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 335,213 $ 206,350 $ 167,790
========= ========= =========
Underwriting, acquisition and other insurance expenses increased 62% and 23% in 2000 and 1999, respectively.
Increased commissions and purchase credits reflect the increase in sales in both 2000 and 1999. Significant
investments in new product development and internet-based technology contributed to general operating expense
increases in both 2000 and 1999. The amortization of acquisition costs increased substantially in 2000 compared to
1999 as the associated costs from record sales in late 1999 and early 2000 were recognized in accordance with
accounting principles generally accepted in the United States profit and expense recognition models.
Interest expense increased $16,496,000 in 2000 and $28,498,000 in 1999 as a result of additional securitized financing
transactions, which consist of the transfer of rights to receive future fees to the Parent ("securitization
transactions"). In addition, the Company retired surplus notes on December 10, 2000 and December 31, 1999 of
$20,000,000 and $14,000,000, respectively. Surplus notes outstanding as of December 31, 2000 and 1999 totaled
$159,000,000 and $179,000,000, respectively.
The effective income tax rates for the years ended December 31, 2000, 1999 and 1998 were 32%, 28% and 19%,
respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most
significant item being the dividend received deduction. Management believes that based on the taxable income produced
in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable
income in future years to realize its deferred tax assets.
The Company generated net income after tax of $64,817,000, $76,169,000 and $34,767,000 in 2000, 1999 and 1998,
respectively. Revenue increases in 2000 were more than offset by higher benefits and expenses driven primarily from
the increase in the reserve requirement related to the GMDB as a result of the decline in the equity markets.
Investments in new product development and technology also contributed to the increase in expenses. These factors
resulted in the 15% decline in net income. Net income increased 119% in 1999 due to strong sales growth and favorable
market conditions which led to higher asset-based revenue. The Company considers Mexico an emerging market and has
invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. The Company expects to transfer ownership of Skandia Vida to an
upstream affiliate during 2001.
On March 22, 2001, the Company announced that it will begin an aggressive operating expense reduction program to better
align its operating infrastructure with the current investment environment. The planned moves include a reduction of
approximately 150 positions, representing 13% of the Company's workforce, reductions in the compensation and benefit
programs and the curtailment of certain discretionary expenses.
Total assets grew 3% in 2000 partially as a result of the modest increase in separate account assets reflecting the
impact of strong sales which were almost entirely offset by the decline in equity markets. Increased deferred
acquisition costs also contributed to the increase in assets. Liabilities grew 2% in 2000 due to higher reserves
required to support the increase in annuity and life insurance business, and increased financing activity related to
the transfer of rights to receive future fees and charges.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from
ASI and the securitization transactions with ASI.
The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products that
carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the
proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the
acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by
insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions,
securitization transactions and modified coinsurance reinsurance arrangements:
o During 2000 and 1999, the Company received $69,000,000 and $34,800,000, respectively, from ASI to support the
capital needs and anticipated growth in business of its U.S. operations. In addition, the Company received
$2,450,000 and $1,690,000 from ASI in 2000 and 1999, respectively, to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to $476,288,000 in 2000 and $265,710,000 in 1999
(see Note 8 to the consolidated financial statements).
o During 2000 and 1999, the Company extended its reinsurance agreements. The Company also entered into an
agreement with SICL in 2000. The reinsurance agreements are modified coinsurance arrangements where the reinsurer
shares in the experience of a specific book of business.
The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain
anticipated from the acquisition costs on the coming years' sales volume.
As of December 31, 2000 and 1999, shareholder's equity totaled $496,911,000 and $359,434,000, respectively. The
increases were driven by the previously mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI.
The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information
regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance
regulators to identify companies that may need regulatory attention. The RBC model law requires that insurance
companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula
includes components for asset risk, insurance risk, interest rate risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital.
Effects of Inflation
--------------------
The rate of inflation has not had a significant effect on the Company's financial statements.
Outlook
- -------
The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial
products for long-term savings and retirement purposes as well as to address the economic impact of premature death,
estate and business planning concerns and supplemental retirement needs. The Company continues to focus on offering
innovative long-term savings and income products and providing superior customer service in order to gain market share
and improve profitability in an increasingly competitive market.
The Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) permits affiliation among banks,
securities firms and insurance companies. This legislative change has created opportunities for continued
consolidation in the financial services industry and increased competition as large companies offer a wide array of
financial products and services.
Various other legislative initiatives could impact the Company such as pension reform, capital gains and estate tax
changes, privacy standards and internet regulation. Pension reform may change current tax deferral rules and allow
increased contributions to retirement plans, which may lead to higher investments in tax-deferred products and create
growth opportunities for the Company. A capital gains tax reduction may cause tax-deferred products to be less
attractive to consumers, which could adversely impact the Company. New privacy standards and internet regulation may
impact the Company's strategic initiatives especially related to potential partnerships with web-based technology
providers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and
liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices.
The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and
describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market
risks and is not intended to be a complete discussion of all of the risks to which the Company is exposed.
Interest Rate Risk
------------------
Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97%
of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not
significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets, the
interest rate risk from contracts that carry interest rate exposure is managed through an asset/liability matching
program which takes into account the risk variables of the insurance liabilities supported by the assets.
At December 31, 2000, the Company held fixed maturity investments in its general account that are sensitive to changes
in interest rates. These securities are held in support of the Company's fixed immediate annuities, supplementary
contracts, the fixed components of variable life insurance contracts, and in support of the Company's target solvency
capital. The Company has a conservative investment philosophy with regard to these investments. All investments are
investment grade corporate securities, government agency or U.S. government securities.
The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period
options available range from one to ten years. Withdrawal of funds before the end of the guarantee period subjects the
contractowner to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed
maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining
interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should
substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the
default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of
failing to maintain the asset/liability matching program with respect to duration and convexity.
Liabilities held in the Company's general account and guaranteed separate account as of December 31, 2000 totaled
$1,095,100,000. Fixed income investments supporting those liabilities had a fair value of $1,098,500,000. The Company
performed a sensitivity analysis on these interest-sensitive liabilities and assets at December 31, 2000. The analysis
showed that an immediate decrease of 100 basis points in interest rates would result in a net increase in liabilities
and the corresponding assets of approximately $37,300,000 and $41,500,000, respectively. An analysis of a 100 basis
point decline in interest rates at December 31, 1999 showed a net increase in interest-sensitive liabilities and the
corresponding assets of approximately $10,200,000 and $24,800,000, respectively.
Equity Market Exposure
----------------------
The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products
sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of
assets under management. In a market decline, this income would be reduced. This could be further compounded by
customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option
discussed above. A 10% decline in the market value of the assets under management at December 31, 2000, sustained
throughout 2001, would result in an approximate drop in related annual fee income of $54,000,000. This result was not
materially different than the result obtained from the analysis performed as of December 31, 1999.
Another equity market risk exposure of the Company relates to the guaranteed minimum death benefit liability. Declines
in equity markets and correspondingly the performance of the underlying mutual funds, increases the guaranteed minimum
death benefit liabilities. As discussed in Note 2D of the consolidated financial statements, the Company utilizes
derivative instruments to hedge against the risk of significant decreases in equity markets. Prior to the
implementation of this program the Company utilized reinsurance to transfer this risk.
The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred
compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio
would decline, however the accrued benefits payable under the related deferred compensation program would decline by a
corresponding amount.
Estimates of interest rate risk and equity price risk were obtained using computer models that take into consideration
various assumptions about the future. Given the uncertainty of future interest rate movements, volatility in the
equity markets and consumer behavior, actual results may vary from those predicted by the Company's models.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the
"Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholder's equity and cash flows for the three year period ended
December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of American Skandia Life Assurance Corporation at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young
February 2, 2001
Hartford, Connecticut
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
See notes to consolidated financial statements.
As of December 31,
2000 1999
--------------- ----------------
ASSETS
- ------
Investments:
Fixed maturities - at fair value 285,708 $ 198,165 $
Fixed maturities - at amortized cost 3,360
-
Equity securities - at fair value 20,402 16,404
Derivative instruments
3,015 189
Policy loans 3,746 1,270
-------------- --------------
-------------- --------------
Total investments 312,871 219,388
Cash and cash equivalents 76,499 89,212
Accrued investment income 5,209 4,054
Deferred acquisition costs 1,398,192 1,087,705
Reinsurance receivable 3,642 4,062
Receivable from affiliates 3,327
-
Income tax receivable
34,620 -
Income tax receivable - deferred 51,726
-
State insurance licenses 4,113 4,263
Fixed assets 10,737 3,305
Other assets 96,403 36,698
Separate account assets 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total assets $ 31,702,705 $ 30,881,579
=============== ================
=============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities:
Reserves for future insurance policy and contract benefits 135,545 $ 73,292 $
Drafts outstanding 63,758 51,059
Accounts payable and accrued expenses 137,040 158,590
Income tax payable 24,268
-
Income tax payable - deferred
8,949 -
Payable to affiliates
- 68,736
Future fees payable to parent 934,410
576,034
Short-term borrowing 10,000 10,000
Surplus notes 159,000 179,000
Separate account liabilities 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total liabilities 31,205,794 30,522,145
--------------- ----------------
--------------- ----------------
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 287,329 215,879
Retained earnings 205,979 141,162
Accumulated other comprehensive income (loss) 1,103 (107)
--------------- ----------------
--------------- ----------------
Total shareholder's equity 496,911 359,434
--------------- ----------------
--------------- ----------------
Total liabilities and shareholder's equity 31,702,705 $ 30,881,579 $
=============== ================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
---------------- --------------- ---------------
---------------- --------------- ---------------
REVENUES
- --------
Annuity and life insurance charges and fees $ $ $
424,578 289,989 186,211
Fee income 130,610 83,243 50,839
Net investment income 11,656 10,441 11,130
Premium income 3,118 1,278 874
Net realized capital (losses) gains (688) 578 99
Other 2,348 1,832 387
---------------- --------------- ---------------
---------------- --------------- ---------------
Total revenues 571,622 387,361 249,540
---------------- --------------- ---------------
---------------- --------------- ---------------
EXPENSES
- --------
Benefits:
Annuity and life insurance benefits 751 612 558
Change in annuity and life insurance policy reserves 45,018 3,078 1,053
Cost of minimum death benefit reinsurance
- 2,945 5,144
Return credited to contractowners 9,046 (1,639) (8,930)
---------------- --------------- ---------------
---------------- --------------- ---------------
54,815 4,996 (2,175)
Expenses:
Underwriting, acquisition and other insurance
expenses 335,213 206,350 167,790
Interest expense 85,998 69,502 41,004
---------------- --------------- ---------------
---------------- --------------- ---------------
421,211 275,852 208,794
---------------- --------------- ---------------
---------------- --------------- ---------------
Total benefits and expenses 476,026 280,848 206,619
---------------- --------------- ---------------
---------------- --------------- ---------------
Income from operations before income tax 95,596 106,513 42,921
Income tax expense
30,779 30,344 8,154
---------------- --------------- ---------------
---------------- --------------- ---------------
Net income $ $ $
64,817 76,169 34,767
================ =============== ===============
================ =============== ===============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Common stock:
Beginning balance $ $ $
2,500 2,000 2,000
Increase in par value
- 500 -
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
2,500 2,500 2,000
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Additional paid in capital:
Beginning balance 215,879 179,889 151,527
Transferred to common stock
- (500) -
Additional contributions 71,450 36,490 28,362
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 287,329 215,879 179,889
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Retained earnings:
Beginning balance 141,162 64,993 30,226
Net income 64,817 76,169 34,767
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 205,979 141,162 64,993
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Accumulated other comprehensive income (loss):
Beginning balance
(107) 3,535 668
Other comprehensive income (loss)
1,210 (3,642) 2,867
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
1,103 (107) 3,535
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Total shareholder's equity $ $ $
496,911 359,434 250,417
=============== ================= =================
=============== ================= =================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flow
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
------------- -------------- -------------
Cash flow from operating activities:
Net income $ $ $
64,817 76,169 34,767
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation
7,565 1,495 251
Deferred tax expense
60,023 (10,903) (14,242)
Change in unrealized losses on derivatives
(2,935) 3,749 -
Increase in policy reserves
50,892 4,367 1,130
(Decrease) increase in payable to affiliates
(72,063) 69,897 166
Change in income tax payable/receivable
(58,888) 17,611 7,704
Increase in other assets
(59,987) (32,954) (1,173)
Increase in accrued investment income
(1,155) (1,174) (438)
Decrease in reinsurance receivable
420 129 2,152
Net increase in deferred acquisition costs
(310,487) (366,198) (174,804)
(Decrease) increase in accounts payable and accrued
expenses (21,550) 66,763 20,637
Increase in drafts outstanding
12,699 22,118 9,663
Change in foreign currency translation, net
(101) 701 (22)
Net realized capital gain on expiration of derivatives
(500) - -
Net realized capital losses (gains)
688 (578) (99)
------------- -------------- -------------
Net cash used in operating activities (330,562) (148,808) (114,308)
------------- -------------- -------------
Cash flow from investing activites:
Purchase of fixed maturity investments
(380,737) (99,250) (31,828)
Proceeds from sale and maturity of fixed
maturity investments
303,736 36,226 4,049
Purchase of derivatives
(6,722) (4,974) -
Purchase of shares in mutual funds
(18,136) (17,703) (7,158)
Proceeds from sale of shares in mutual funds
8,345 14,657 6,086
Purchase of fixed assets
(7,348) (3,178) (18)
Increase in policy loans
(2,476) (701) 118
------------- -------------- -------------
Net cash used in investing activities
(103,338) (17,703) (28,751)
------------- -------------- -------------
Cash flow from financing activities:
Capital contribution from parent
51,450 22,490 8,362
Increase in future fees payable to parent, net
358,376 207,056 135,944
Net deposits to (withdrawals from) contractowner
accounts 11,361 5,872 (5,696)
- -------------------------------------------------------------------------- -------------- -------------
Net cash provided by financing activities
421,187 235,418 138,610
------------- -------------- -------------
Net (decrease) increase in cash and cash
equivalents
(12,713) 11,687 (4,449)
Cash and cash equivalents at beginning of period
89,212 77,525 81,974
------------- -------------- -------------
Cash and cash equivalents at end of period $ $ $
76,499 89,212 77,525
============= ============== =============
Income taxes paid $ $ $
29,644 23,637 14,651
============= ============== =============
Interest paid $ $ $
85,551 69,697 35,588
============= ============== =============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia,
Inc. ("ASI") whose ultimate parent is Skandia Insurance Company Ltd., ("SICL") a Swedish Corporation.
The Company develops long-term savings and retirement products which are distributed through its affiliated
broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable
and term life insurance and variable, fixed, market value adjusted and immediate annuities for individuals,
groups and qualified pension plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance
company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,402,000 and $4,592,000 as of
December 31, 2000, and 1999, respectively. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
------------------
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. 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 Standard
-----------------------
The FASB has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138 (collectively, "SFAS 133").
SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000;
accordingly, the Company adopted SFAS 133 on January 1, 2001. This statement establishes accounting
and reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 requires that all derivative financial
instruments be measured at fair value and recognized in the statement of condition as either assets or
liabilities. Changes in the fair value of the derivative financial instruments will be reported in
either earnings or comprehensive income, depending on the use of the derivative and whether or not it
qualifies for hedge accounting.
Special hedge accounting treatment is permitted only if specific criteria are met, including that the
hedging relationship be highly effective both at inception and on an ongoing basis. Accounting for
hedges varies based on the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive income for cash flow
hedges. Ineffective portions of hedges are recognized immediately in earnings.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The derivative instruments held by the Company in 2000 and 1999 consisted of equity put options
utilized to manage the market risk and reserve fluctuations associated with the guaranteed minimum
death benefit ("GMDB"). The adoption of SFAS No. 133 did not have a material effect on the Company's
financial statements.
C. Investments
The Company has classified its fixed maturity investments as either held-to-maturity or
available-for-sale. Investments classified as held-to-maturity are investments that the Company has
the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those
investments which are classified as available-for-sale are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
The Company has classified its mutual fund investments held in support of a deferred compensation plan
(see Note 13) as available-for-sale. Such investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined by the specific identification
method and are included in revenues.
D. Derivative Instruments
----------------------
The Company uses derivative instruments which consist of equity option contracts for risk management
purposes, and not for trading or speculation. The Company hedges the market value fluctuations of the
GMDB exposure embedded in its policy reserves. Premiums paid on option contracts are amortized into
net investment income over the terms of the contracts. The options are carried at amortized cost plus
intrinsic value, if any, at the valuation date. An option has intrinsic value if it is
"in-the-money." For a put option to be "in-the-money," the exercise price must be greater than the
value of the underlying index. Changes in intrinsic value are recorded as a component of the change
in annuity and life insurance policy reserves consistent with changes in the GMDB reserve.
E. Cash Equivalents
----------------
The Company considers all highly liquid time deposits, commercial paper and money market mutual funds
purchased with a maturity at date of acquisition of three months or less to be cash equivalents.
F. Fair Values of Financial Instruments
------------------------------------
The methods and assumptions used to determine the fair value of financial instruments are as follows:
Fair values of fixed maturities with active markets are based on quoted market prices. For fixed
maturities that trade in less active markets, fair values are obtained from an independent pricing
service.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair values of investments in mutual funds are based on quoted market prices.
The intrinsic value portion of the derivative instrument is determined based on the current value of
the underlying index.
The carrying value of cash and cash equivalents (cost) approximates fair value due to the short-term
nature of these investments.
The carrying value of short-term borrowings (cost) approximates fair value due to the short-term
nature of these liabilities.
Fair values of certain financial instruments, such as future fees payable to parent and surplus notes
are not readily determinable and are excluded from fair value disclosure requirements.
G. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized and reflected at the purchase price of
$6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a
straight-line basis over 40 years.
H. Software Capitalization
-----------------------
The Company capitalizes certain costs associated with internal use software in accordance with the
American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which was
adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the
Company expensed all internal use software related costs as incurred. Details of the capitalized
software costs, which are included in fixed assets, and related amortization for the years ended
December 31, are as follows:
(in thousands) 2000 1999
---- ----
Balance at beginning of year $2,920 $ -
------ ----
Software costs capitalized during the year 4,804 3,035
Software costs amortized during the year (512) (115)
----- -----
4,292 2,920
----- -----
Balance at end of year $7,212 $2,920
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Income Taxes
------------
The Company is included in the consolidated federal income tax return and combined state income tax
return of an upstream company, Skandia AFS Development Holding Corporation and certain of its
subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax
provisions are computed on a separate return basis as adjusted for consolidated items such as net
operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
J. Recognition of Revenue and Contract Benefits
--------------------------------------------
Revenues for variable deferred 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 variable immediate annuity contracts with and without life contingencies consist of
certain charges against contractowner account values including mortality and expense risks and
administration fees. Benefit reserves for variable immediate annuity contracts represent the account
value of the contracts and are included in the separate account liabilities.
Revenues for market value adjusted fixed annuity contracts consist of separate account investment
income reduced by benefit payments and changes in reserves in support of contractowner obligations,
all of which are included in return credited to contractowners. Benefit reserves for these contracts
represent the account value of the contracts, and are included in the general account reserve for
future contractowner benefits to the extent in excess of the separate account assets.
Revenues for immediate annuity contracts without life contingencies consist of net investment income.
Revenues for immediate annuity contracts with life contingencies consist of single premium payments
recognized as annuity considerations when received. Benefit reserves for these contracts are based on
the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed
interest rates ranged from 6.25% to 8.25% at December 31, 2000 and 1999.
Revenues for variable life insurance contracts consist of charges against contractowner account values
for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium taxes. Benefit reserves for
variable life insurance contracts represent the account value of the contracts and are included in the
separate account liabilities.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are primarily related to the production of
new business, are being deferred, net of reinsurance. These costs include commissions, costs of
contract issuance, and certain selling expenses that vary with production. These costs are being
amortized generally in proportion to expected gross profits from surrender charges, policy and asset
based fees and mortality and expense margins. This amortization is adjusted retrospectively and
prospectively when estimates of current and future gross profits to be realized from a group of
products are revised.
Details of the deferred acquisition costs and related amortization for the years ended December 31,
are as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Balance at beginning of year $1,087,705 $721,507 $546,703
---------- -------- --------
Acquisition costs deferred during the year 495,103 450,059 261,432
Acquisition costs amortized during the year (184,616) (83,861) (86,628)
--------- ------------ ---------
310,487 366,198 174,804
---- ------- ------- --------
Balance at end of year $1,398,192 $1,087,705 $721,507
========== ========== ========
L. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance
arrangements provide additional capacity for growth in supporting the cash flow strain from the
Company's variable annuity and variable life insurance business. The reinsurance is effected under
quota share contracts.
The Company reinsured its exposure to market fluctuations associated with its GMDB liability
in the first half of 1999 and in 1998. Under this reinsurance agreement, the Company ceded premiums
of $2,945,000 and $5,144,000; received claim reimbursements of $242,000 and $9,000; and, recorded
increases/(decreases) in reserves of ($2,763,000) and $323,000 in 1999 and 1998, respectively.
At December 31, 2000 and 1999, in accordance with the provisions of modified coinsurance agreements, the Company
accrued $4,339,000 and $41,000, respectively, for amounts receivable from favorable reinsurance experience on certain
blocks of variable annuity business.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
M. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of Skandia Vida are measured using local currency as
the functional currency. Assets and liabilities are translated at the exchange rate in effect at each
year-end. Statements of income and shareholder's equity accounts are translated at the average rate
prevailing during the year. Translation adjustments arising from the use of differing exchange rates
from period to period are reported as a component of other comprehensive income.
N. Separate Accounts
-----------------
Assets and liabilities in Separate Accounts are included as separate captions in the consolidated
statements of financial condition. Separate Account assets consist principally of long term bonds,
investments in mutual funds, short-term securities and cash and cash equivalents, all of which are
carried at fair value. The investments are managed predominately through the Company's investment
advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are managed by independent investment firms. The
contractowner has the option of directing funds to a wide variety of mutual funds. The investment
risk on the variable portion of a contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The Company is responsible for the credit risk
associated with these investments.
Included in Separate Account liabilities are reserves of $1,059,987,000 and $896,205,000 at December
31, 2000 and 1999, respectively, relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of $1,059,987,000 and $896,205,000 at
December 31, 2000 and 1999, respectively, consisting of long term bonds, short-term securities,
transfers due from the general account and cash and cash equivalents are held in support of these
annuity contracts, pursuant to state regulation.
O. Estimates
---------
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires that management make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The more significant estimates and assumptions are
related to deferred acquisition costs and involve policy lapses, investment return and maintenance
expenses. Actual results could differ from those estimates.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Net income $64,817 $76,169 $34,767
Other comprehensive income:
Unrealized investment (losses) gains on
available for sale securities (1,681) (3,438) 2,801
Reclassification adjustment for realized losses (gains)
included in investment income 2,957 (660) 88
--------- ----- ----- ----------
Net unrealized gains (losses) on securities 1,276 (4,098) 2,889
Foreign currency translation (66) 456 (22)
------- ---------- -----------
Other comprehensive income (loss) 1,210 (3,642) 2,867
--------- ------- ------
Comprehensive income $66,027 $72,527 $37,634
======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31 were as follows:
(in thousands) 2000 1999
---- ----
Unrealized investment gains (losses) $1,021 ($255)
Foreign currency translation 82 148
------ ------
Accumulated other comprehensive income (loss) $1,103 ($107)
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and
held-to-maturity fixed maturities and investments in mutual funds as of December 31, 2000 and 1999 are shown
below. All securities held at December 31, 2000 and 1999 were publicly traded.
Investments in fixed maturities as of December 31, 2000 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $206,041 $4,445 $ (11) $210,475
Foreign government obligations 2,791 195 - 2,986
Obligations of state and political
subdivisions 253 1 - 254
Corporate securities 72,237 1,565 (1,809) 71,993
------ ----- ------- ------
Totals $281,322 $6,206 $(1,820) $285,708
======== ====== ======== ========
The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 2000 are shown
below.
(in thousands) Available-for-Sale
------------------
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 7,005 $ 7,018
Due after one through five years 157,111 158,344
Due after five through ten years 107,729 110,469
Due after ten years 9,477 9,877
-------- ---------
Total $281,322 $285,708
======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $ 81,183 $ - $(678) $ 80,505
Obligations of state and political
subdivisions 253 - (3) 250
Corporate securities 121,859 - (4,449) 117,410
------- ------- -------
Totals $203,295 $ - $(5,130) $198,165
======== === ======== ========
(in thousands) Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
------- -- ---- ------
Totals $3,360 $ - $(16) $3,344
====== === ===== ======
Proceeds from sales of fixed maturities during 2000, 1999 and 1998 were $302,632,000, $32,196,000, and
$999,000, respectively. Proceeds from maturities during 2000, 1999 and 1998 were $1,104,000, $4,030,000, and
$3,050,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 2000 and 1999 are shown
below:
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2000 $23,218 $ 372 $(3,188) $20,402
======= ===== ======== =======
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
Net realized investment gains (losses) were as follows for the years ended December 31:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities:
Gross gains $1,002 $ 253 $ -
Gross losses (3,450) (228) (1)
Investment in mutual funds:
Gross gains 1,913 990 281
Gross losses (153) (437) (181)
--- ----- -- ----- -----
Totals $ (688) $ 578 $ 99
======= ===== ====
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities $13,502 $ 9,461 $ 8,534
Cash and cash equivalents 5,154 2,159 1,717
Investment in mutual funds 99 32 1,013
Policy loans 97 31 45
Derivative instruments (6,939) (1,036) -
------- -------
Total investment income 11,913 10,647 11,309
Investment expenses 257 206 179
------ ------ ------
Net investment income $11,656 $10,441 $11,130
======= ======= =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Current tax (benefit) expense ($29,244) $41,248 $22,384
Deferred tax expense (benefit) 60,023 (10,904) (14,230)
------- -------- -------
Total income tax expense $30,779 $30,344 $8,154
======= ======= ======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 2000 and
1999 are as follows:
(in thousands) 2000 1999
---- ----
Deferred tax liabilities:
Deferred acquisition costs ($411,417) ($321,873)
Payable to reinsurers (29,985) (26,733)
Future contractowner benefits (11,526)
-
Internal use software (2,524)
(1,022)
Policy fees (1,551) (1,146)
Net unrealized gains (550)
-
Foreign exchange translation (45) (80)
--------- ---- --------- ----
Total (457,598) (350,854)
--------- ---------
Deferred tax assets:
Net separate account liabilities
421,662 333,521
Future contractowner benefits
- 3,925
Other reserve differences
2,675 39,645
Deferred compensation
17,869 18,844
Surplus notes interest
5,536 5,030
Net unrealized losses
- 137
Other
907 1,478
-------- --- -----
Total
-
448,649 402,580
------- -------
Income tax (payable) receivable - deferred ($ 8,949) $51,726
=========== =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35%
to pre-tax income from continuing operations as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Income (loss) before taxes
Domestic $98,136 $109,036 $45,435
Foreign (2,540) (2,523) (2,514)
------- --- ------- -------
Total 95,596 106,513 42,921
Income tax rate 35% 35% 35%
------- ------ --------
Tax expense at federal statutory income tax rate 33,459 37,280 15,022
Tax effect of:
Dividend received deduction (7,350) (9,572) (9,085)
Losses of foreign subsidiary 889 883 880
Meals and entertainment 841 664 487
State income taxes (524) 1,071 673
Other 3,464 18 177
-------- ---------- ---------
Income tax expense $ 30,779 $ 30,344 $ 8,154
======== ======== =======
7. COST ALLOCATION AGREEMENTS WITH AFFILIATES
Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been
charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"),
an affiliated company. The Company has also charged operating costs to ASISI. The total cost to the Company
for these items was $13,974,000, $11,136,000, and $7,722,000 for the years ended December 31, 2000, 1999 and
1998, respectively. Income received for these items was $11,186,000, $3,919,000 and $1,355,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the
sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed were $5,842,000 and $1,441,000 for the years ended December 31, 2000 and
1999. As of December 31, 2000 and 1999, amounts receivable under this agreement were $492,000 and $245,000,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, the Company transferred certain rights to receive future fees and
contract charges expected to be realized on variable portions of designated blocks of deferred annuity
contracts.
The proceeds from the transfers 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 Company did not transfer
the right to receive future fees and charges after the expiration of the surrender charge period.
In connection with these transactions, ASI issued collateralized notes in private placements, 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 transferred provide for ASI to receive a percentage
(60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender
charge period of the designated contracts (6 to 8 years).
Payments representing fees and charges in the aggregate amount of $219,454,000, $131,420,000 and $69,226,000
were made by the Company to the Parent for the years ended December 31, 2000, 1999 and 1998, respectively.
Related interest expense of $70,667,000, $52,840,000 and $22,978,000 has been included in the statement of
income for the years ended December 31, 2000, 1999 and 1998, respectively.
The Commissioner of the State of Connecticut has approved the transfer 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.
The present values of the transactions as of the respective effective date were as follows:
Closing Effective Contract Issue Discount Present
Transaction Date Date Period Rate Value
----------- ---- ---- ------ ---- -----
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 7.5% $50,221
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 7.5% 58,767
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 7.5% 77,552
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 7.5% 58,193
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 7.5% 61,180
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 7.0% 68,573
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 7.0% 40,128
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 7.5% 120,632
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99 7.5% 145,078
2000-1 3/22/00 2/1/00 8/1/99 - 1/31/00 7.5% 169,459
2000-2 7/18/00 6/1/00 2/1/00 - 4/30/00 7.25% 92,399
2000-3 12/28/00 12/1/00 5/1/00 - 10/31/00 7.25% 107,291
2000-4 12/28/00 12/1/00 1/1/98 - 10/31/00 7.25% 107,139
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 2000 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ------
2001 $164,892
2002 169,511
2003 165,626
2004 151,516
2005 128,053
2006 and thereafter 154,812
-- -------
Total $934,410
========
9. LEASES
The Company leases office space under a lease agreement established in 1989 with ASIST. The Company entered
into a lease agreement for office space in Westminster, Colorado, effective January 1, 2001. Lease expense for
2000, 1999 and 1998 was $6,593,000, $5,003,000 and $3,588,000 respectively. Future minimum lease payments per
year and in aggregate as of December 31, 2000 are as follows:
(in thousands) 2001 $6,487
2002 8,032
2003 8,098
2004 8,209
2005 8,756
2006 and thereafter 51,922
-----------
Total $91,504
===========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes
on deposit with various states. The carrying value of these deposits amounted to $4,636,000 and $4,868,000 as
of December 31, 2000, and 1999, respectively. These deposits are required to be maintained for the protection
of contractowners within the individual states.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $342,804,000 and $286,385,000 at December 31, 2000 and 1999,
respectively.
The statutory basis net income for the year ended December 31, 2000 was $11,550,000, as compared to losses of
$17,672,000 and $13,152,000 for the years ended December 31, 1999 and 1998, respectively.
Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without
prior approval of the state insurance department is subject to restrictions relating to statutory surplus and
net gain from operations. At December 31, 2000, no amounts may be distributed without prior approval.
On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital
stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the
California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and
contributed surplus of $500,000 and had no effect on capital and surplus.
12. STATUTORY ACCOUNTING PRACTICES
The National Association of Insurance Commissioners ("NAIC") revised the Accounting Practices and Procedures
Manual in a process referred to as Codification. The State of Connecticut has adopted the provisions of the
revised manual, which is effective January 1, 2001. The revised manual has changed, to some extent, prescribed
statutory accounting practices and will result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The adoption of the revised accounting practices is not
expected to have a material adverse effect on the Company's statutory-basis capital and surplus.
13. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company
contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up
to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants
were $3,734,000, $3,164,000 and $2,115,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company has a deferred compensation plan, which is available to the internal field marketing staff and
certain officers. Company contributions to this plan on behalf of the participants were $399,000, $193,000 and
$342,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company and certain affiliates cooperatively have a long-term incentive program under which units are
awarded to executive officers and other personnel. The Company and certain affiliates also have a profit
sharing program which benefits all employees below the officer level. These programs consist of multiple plans
with new plans instituted each year. Generally, participants must remain employed by the Company or its
affiliates at the time such units are payable in order to receive any payments under the programs. The accrued
liability representing the value of these units was $31,632,000 and $42,619,000 as of December 31, 2000 and
1999, respectively. Payments under these programs were $13,542,000, $4,079,000 and $2,407,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. REINSURANCE
The effect of reinsurance for the years ended December 31, 2000, 1999 and 1998 is as follows:
(in thousands) 2000
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $477,802 $45,784 $13,607
Ceded (53,224) (766) (4,561)
-------- ------ -------
Net $424,578 $45,018 $ 9,046
======== ======= =======
1999
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $326,670 $4,151 ($1,382)
Ceded (36,681) (1,073) (257)
-------- ------- -----
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- --- ---------
Net $186,211 $1,053 ($8,930)
======== ====== ========
In December 2000, the Company entered into a modified coinsurance agreement with SICL effective January 1996.
During 2000, ceded premiums received net of commission expenses and reserve adjustments were $10,360,000. At
December 31, 2000, $6,109,000 was payable to SICL under this agreement.
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains
liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its
obligations assumed under the reinsurance agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 2000
and 1999 were as follows:
(in thousands)
Interest for the
---------------------------------
Interest 2000 1999 Years Ended December 31,
---------------------------------
Issue Date Rate Amount Amount 2000 1999 1998
---------- ---- ------ ------ ---- ---- ----
---------------------------------
---------------------------------
December 29, 1993 6.84% - - - - 1,387
---------------------------------
February 18, 1994 7.28% 10,000 732 738 738
-
---------------------------------
March 28, 1994 7.90% 10,000 794 801 801
-
---------------------------------
September 30, 1994 9.13% 15,000 15,000 1,392 1,389 1,389
---------------------------------
December 28, 1994 9.78% - - 1,308 1,388
-
---------------------------------
December 19, 1995 7.52% 10,000 10,000 765 762 762
---------------------------------
December 20, 1995 7.49% 15,000 15,000 1,142 1,139 1,139
---------------------------------
December 22, 1995 7.47% 9,000 9,000 684 682 682
---------------------------------
June 28, 1996 8.41% 40,000 40,000 3,420 3,411 3,411
---------------------------------
December 30, 1996 8.03% 70,000 70,000 5,715 5,698 5,699
--- ------ --- ------ --- ----- --- ----- --- -----
---------------------------------
Total $159,000 $179,000 $14,644 $15,928 $17,396
======== ======== ======= ======= =======
---------------------------------
Surplus notes for $10,000,000 dated February 18, 1994 and $10,000,000 dated March 28, 1994 were converted to
additional paid-in capital on December 27, 2000. A surplus note for $14,000,000 dated December 28, 1994 was
converted to additional paid-in capital on December 10, 1999. All surplus notes mature seven years from the
issue date.
Payment of interest and repayment of principal for these notes is subject to certain conditions and require
approval by the Insurance Commissioner of the State of Connecticut. At December 31, 2000 and 1999, $15,816,000
and $14,372,000, respectively, of accrued interest on surplus notes was not approved for payment under these
criteria.
16. SHORT-TERM BORROWING
The Company had a $10,000,000 short-term loan payable to ASI at December 31, 2000 and 1999 as part of a
revolving loan agreement. The loan has an interest rate of 7.13% and matures on March 12, 2001. The total
interest expense to the Company was $687,000, $585,000 and $622,000 and for the years ended December 31, 2000,
1999 and 1998, respectively. Accrued interest payable was $222,000 and $197,000 as of December 31, 2000 and
1999, respectively.
17. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by
contractowners at market value or with market value adjustment. Separate account assets which are carried at
fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from
10% to 1% for contracts held less than 10 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. SEGMENT REPORTING
In recent years, in order to complete the array of products offered by the Company and its affiliates to meet a
wide variety of financial planning, the Company developed the variable life insurance and qualified retirement
plan annuity products. Assets under management and sales for the products other than variable annuities have
not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information."
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2000
Premiums and other insurance
revenues $137,255 $139,317 $147,923 $136,159
Net investment income 2,876 3,628 4,186 966
Net realized capital gains (losses) 729 (1,436) (858) 877
------- ------- ----- -------
Total revenues 140,860 141,509 151,251 138,002
Benefits and expenses 106,641 121,356 137,514 110,515
------- -------- -------- -------
Pre-tax net income 34,219 20,153 13,737 27,487
Income taxes 10,038 5,225 3,167 12,349
------ --------- ------ ------
Net income $24,181 $14,928 $10,570 $15,138
======= ======= ======= =======
1999
Premiums and other insurance
revenues $78,509 $88,435 $97,955 $111,443
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
------- --------- ------- ---------
Total revenues 81,458 91,302 100,896 113,705
Benefits and expenses 64,204 67,803 71,597 77,244
------ --------- ------- ------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
------ ------ ---------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $ 25,001
======== ======== ======== ========
1998
Premiums and other insurance
revenues $50,593 $57,946 $62,445 $67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
------- -------- ------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
------ ------ ------- -------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
----- ----- ------ -------
Net income $6,072 $13,975 $14,174 $ 546
====== ======= ======= ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2001 are shown below. All
or some of these Sub-accounts were available during the periods shown as investment options for other variable annuities we offer
pursuant to different prospectuses. The Insurance Charge assessed against the Sub-accounts under the terms of those other
variable annuities are the same as the charges assessed against such Sub-accounts under the Annuity offered pursuant to this
Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates shown, for Units in
each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to January 1, 2001 and are being offered
pursuant to this Prospectus or which we offer pursuant to certain other prospectuses; and (b) the number of Units outstanding in
each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in
parentheses. The portfolios in which a particular Sub-account invests may or may not have commenced operations prior to the date
such Sub-account commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- -----------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Founders
Passport (1)
(1994)
Unit Price $16.12 23.45 12.54 11.46 11.39 10.23 - - - -
Number of Units 16,245,805 8,818,598 9,207,623 9,988,104 9,922,698 2,601,283 - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Scudder Japan (2)
(2000)
Unit Price $8.25 - - - - - - - - -
Number of Units 84,394 - - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST AIM
International Equity
(3)
(1989) $31.88 43.99 27.18 22.95 19.70 18.23 16.80 16.60 12.37 13.69
Unit Price 19,112,622 16,903,88217,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464 1,948,773 1,092,902
Number of Units
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Overseas
Growth
(1997)
Unit Price $17.96 24.16 13.41 11.70 - - - - - -
Number of Units 57,327,711 61,117,41843,711,763 21,405,891 - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International Growth
(1997)
Unit Price $17.92 21.66 13.30 11.35 - - - - - -
Number of Units 17,007,352 6,855,601 5,670,336 2,857,188 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International
Growth II (4)
(1994)
Unit Price $13.93 17.10 13.14 11.69 11.70 10.39 9.49 - - -
Number of Units 26,340,548 28,704,92334,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST MFS Global
Equity
(1999)
Unit Price $10.08 11.01 - - - - - - - -
Number of Units 2,803,013 116,756 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Small-Cap
Growth (5)
(1994)
Unit Price $21.51 42.08 17.64 17.28 16.54 13.97 10.69 - - -
Number of Units 25,535,093 32,134,968 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Scudder Small-
Cap Growth (6)
(1999)
Unit Price $11.98 15.37 - - - - - - - -
Number of Units 63,621,279 53,349,002 - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Federated
Aggressive Growth (2)
(2000)
Unit Price $9.08 - - - - - - - - -
Number of Units 196,575 - - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Goldman Sachs
Small-Cap Value (7)
(1998)
Unit Price $13.95 10.57 9.85 - - - - - - -
Number of Units 15,193,053 6,597,544 4,081,870 - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Gabelli Small-Cap
Value (8)
(1997)
Unit Price $13.35 11.11 11.20 12.70 - - - - - -
Number of Units 23,298,524 21,340,167 24,700,211 14,612,510 - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Mid-Cap
Growth (9)
(2000)
Unit Price $6.58 - - - - - - - - -
Number of Units 9,426,102 - - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger
Berman
Mid-Cap Growth (10)
(1994)
Unit Price $25.90 28.58 19.15 16.10 13.99 12.20 9.94 - - -
Number of Units 26,517,850 13,460,525 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger
Berman
Mid-Cap Value (11)
(1993)
Unit Price $21.09 16.78 16.10 16.72 13.41 12.20 9.81 10.69 - -
Number of Units 44,558,699 37,864,586 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Alger All-Cap
Growth
(2000)
Unit Price $6.74 - - - - - - - - -
Number of Units 28,229,631 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Gabelli All-Cap
Value (2)
(2000) - - - - - - - - -
Unit Price $10.06 - - - - - - - - -
Number of Units 1,273,094
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Kinetics
Internet (2)
(2000)
Unit Price $8.01 - - - - - - - - -
Number of Units 116,363 - - - - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Natural Resources
(1995)
Unit Price $19.86 15.88 12.57 14.46 14.19 11.01 - - - -
Number of Units 6,520,983 6,201,326 5,697,453 7,550,076 6,061,852 808,605 - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Alliance
Growth (12)
(1996)
Unit Price $17.38 20.44 15.48 12.33 10.89 - - - - -
Number of Units 25,796,792 17,059,819 19,009,242 18,736,994 4,324,161 - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST MFS Growth
(1999)
Unit Price $10.38 11.27 - - - - - - - -
Number of Units 7,515,486 409,467 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
---------
AST Marsico Capital
Growth
(1997)
Unit Price $17.81 21.06 14.00 10.03 - - - - - -
Number of Units 94,627,691 78,684,942 40,757,449 714,309 - - - - - -
---------
- ---------------------------------------------------------------------------------------------------------------------------------------
AST JanCap Growth
(1992)
Unit Price $41.14 60.44 39.54 23.83 18.79 14.85 10.91 11.59 10.51 -
Number of Units 99,250,773 94,850,622 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Janus Strategic
Value (2)
(2000)
Unit Price $9.82 - - - - - - - - -
Number of Units 586,058 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Cohen & Steers
Realty
(1998)
Unit Price $10.39 8.35 8.28 - - - - - - -
Number of Units 11,891,188 6,224,365 3,771,461 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
AST Sanford Bernstein
Managed Index 500 (13)
(1998)
Unit Price $13.55 15.08 12.61 - - - - - - -
Number of Units 48,835,089 39,825,950 22,421,754 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------------
AST American Century
Income & Growth (14)
(1997)
Unit Price $14.24 16.19 13.35 12.06 - - - - - -
Number of Units 32,388,202 21,361,994 13,845,190 9,523,815 - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Alliance Growth
and Income (15)
(1992)
Unit Price $28.72 27.60 24.11 21.74 17.79 15.22 11.98 11.88 10.60 -
Number of Units 53,536,296 52,766,579 47,979,349 42,197,002 28,937,085 18,411,759 7,479,449 4,058,228 956,949 -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
AST MFS Growth with
Income
(1999)
Unit Price $10.36 10.49 - - - - - - - -
Number of Units 6,937,627 741,322 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
AST INVESCO Equity
Income
(1994)
Unit Price $22.01 21.31 19.34 17.31 14.23 12.33 9.61 - - -
Number of Units 50,171,495 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST AIM Balanced (16)
(1993)
Unit Price $19.98 21.19 17.78 15.98 13.70 12.49 10.34 10.47 - -
Number of Units 30,290,413 23,102,272 22,634,344 22,109,373 20,691,852 20,163,848 13,986,604 8,743,758 - -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
AST American Century
Strategic Balanced
(1997)
Unit Price $14.23 14.90 13.37 11.18 - - - - - -
Number of Units 14,498,180 13,944,535 6,714,065 2,560,866 - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Asset Allocation
(1994)
Unit Price $19.33 19.70 18.12 15.53 13.30 11.92 9.80 - - -
Number of Units 19,704,198 22,002,028 18,469,315 13,524,781 8,863,840 4,868,956 2,320,063 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Global Bond (17)
(1994)
Unit Price $10.49 10.69 11.82 10.45 10.98 10.51 9.59 - - -
Number of Units 11,219,503 12,533,036 12,007,692 12,089,872 8,667,712 4,186,695 1,562,364 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Federated High
Yield
(1994)
Unit Price $12.80 14.38 14.30 14.13 12.62 11.27 9.56 - - -
Number of Units 36,914,825 41,588,401 40,170,144 29,663,242 15,460,522 6,915,158 2,106,791 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Lord Abbett
Bond-Debenture (2)
(2000)
Unit Price $10.12 - - - - - - - - -
Number of Units 650,253 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Total
Return Bond
(1994)
Unit Price $14.40 13.09 13.43 12.44 11.48 11.26 9.61 - - -
Number of Units 82,545,240 73,530,506 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Limited
Maturity Bond
(1995)
Unit Price $12.79 11.96 11.73 11.26 10.62 10.37 - - - -
Number of Units 31,046,956 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Money Market
(1992)
Unit Price $12.94 12.38 12.00 11.57 11.16 10.77 10.35 10.12 10.01 -
Number of Units 172,493,206 187,609,70775,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783 457,872 -
The Montgomery
Variable Series - MV
Emerging Markets
(1996)
Unit Price $7.09 10.06 6.19 10.05 10.25 - - - - -
Number of Units 12,899,472 12,060,035 10,534,383 10,371,104 2,360,940 - - - - -
Wells Fargo Variable
Trust - Equity
Income
(1999)
Unit Price $10.05 9.96 - - - - - - - -
Number of Units 502,986 136,006 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Equity Value
(1998)
Unit Price $9.56 9.17 9.53 - - - - - - -
Number of Units 4,442,888 2,826,839 1,148,849 - - - - - - -
Rydex Variable Trust
- -
Nova
(1999) $8.50 10.82 - - - - - - - -
Unit Price 14,799,352 5,474,128 - - - - - - - -
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
Rydex Variable Trust
- -
Ursa
(1999) $10.62 9.28 - - - - - - - -
Unit Price 2,269,599 1,803,668 - - - - - - - -
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
Rydex Variable Trust
- -
OTC
(1999) $10.40 17.07 - - - - - - - -
Unit Price 32,179,793 18,520,440 - - - - - - - -
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Technology
(1999)
Unit Price $12.48 16.52 - - - - - - - -
Number of Units 29,491,113 4,622,241 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Health Sciences
(1999)
Unit Price $14.59 11.34 - - - - - - - -
Number of Units 19,381,405 786,518 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Financial Services
(1999)
Unit Price $14.04 11.41 - - - - - - - -
Number of Units 14,091,636 759,104 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Telecommunications
(1999)
Unit Price $11.05 15.17 - - - - - - - -
Number of Units 17,856,118 4,184,525 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Dynamics
(1999)
Unit Price $13.23 13.91 - - - - - - - -
Number of Units 11,409,827 2,022,584 - - - - - - - -
Evergreen VA - Omega
(2000)
Unit Price $7.98 - - - - - - - - -
Number of Units 1,637,475 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Equity
Index
(2000)
Unit Price $9.47 - - - - - - - - -
Number of Units 302,954 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Foundation
(2000)
Unit Price $9.65 - - - - - - - - -
Number of Units 755,890 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Global
Leaders
(1999)
Unit Price $10.55 11.72 - - - - - - - -
Number of Units 887,758 23,100 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Special Equity
(1999)
Unit Price $11.01 12.19 - - - - - - - -
Number of Units 1,731,145 152,341 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Capital Growth
(2000)
Unit Price $12.35 - - - - - - - - -
Number of Units 268,886 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA - Blue
Chip
(2000)
Unit Price $8.99 - - - - - - - - -
Number of Units 351,338 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Perpetual
International
(2000)
Unit Price $8.70 - - - - - - - - -
Number of Units 57,408 - - - - - - - - -
ProFund VP -
Europe 30
(1999)
Unit Price $10.52 12.24 - - - - - - - -
Number of Units 2,327,562 273,962 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraSmall-Cap (18)
(1999)
Unit Price $9.18 11.96 - - - - - - - -
Number of Units 3,258,574 813,903 - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraOTC
(1999)
Unit Price $6.19 23.58 - - - - - - - -
Number of Units 17,597,528 2,906,023 - - - - - - - -
First Trust(R)10
Uncommon Values (19)
(2000)
Unit Price $7.43 - - - - - - - - -
Number of Units 2,690,435 - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------------
1. Effective October 15, 1996, Founders Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to October 15,
1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Small Cap
Portfolio."
2. These Portfolios were first offered as Sub-accounts on October 23, 2000.
3. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and
May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam International
Equity." Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman
Henderson International Equity Portfolio."
4. Effective May 1, 2000, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1,
2000, Rowe Price-Fleming International, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price
International Equity Portfolio."
5. Effective December 31, 1998, Janus Capital Corporation became Sub-advisor of the Portfolio. Prior to December 31, 1998,
Founders Asset Management, LLC served as Sub-advisor of the Portfolio, then named "Founders Capital Appreciation Portfolio."
6. Effective May 1, 2001, the name of the portfolio changed to the "AST Scudder Small-Cap Growth Portfolio". Prior to May
1, 2001 the Portfolio was named "AST Kemper Small-Cap Growth Portfolio."
7. Effective May 1, 2001, Goldman Sachs Asset Management became Sub-advisor of the Portfolio. Prior to May 1, 2001, Lord,
Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Small Cap Value."
8. Effective October 23, 2000, GAMCO Investors, Inc. became Sub-advisor of the Portfolio. Prior to October 23, 2000, T.
Rowe Price Associates, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price Small Company Value
Portfolio."
9. This Portfolio was first offered as a Sub-account on May 1, 2000.
10. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1998,
Berger Associates, Inc. served as Sub-advisor of the Portfolio, then named "Berger Capital Growth Portfolio."
11. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1998,
Federated Investment Counseling served as Sub-advisor of the Portfolio, then named "Federated Utility Income Portfolio."
12. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Between December 31, 1998
and May 1, 2000, OppenheimerFunds, Inc. served as Sub-advisor of the Portfolio, then named "AST Oppenheimer Large-Cap Growth
Portfolio." Prior to December 31, 1998, Robertson, Stephens & Company Investment Management, L.P. served as Sub-advisor of
the Portfolio, then named "Robertson Stephens Value + Growth Portfolio."
13. Effective May 1, 2000, Sanford C. Bernstein & Co., Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000,
Bankers Trust Company served as Sub-advisor of the Portfolio, then named "AST Bankers Trust Managed Index 500 Portfolio."
14. Effective May 3, 1999, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Between October
15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam
Value Growth & Income."
15. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Prior to May 1, 2000,
Lord, Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Growth and Income Portfolio."
16. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and
May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Balanced."
Prior to October 15, 1996, Phoenix Investment Counsel, Inc. served as Sub-advisor of the Portfolio, then named "AST Phoenix
Balanced Asset Portfolio."
17. Effective August 8, 2000, T. Rowe Price International, Inc. became Sub-advisor of the Portfolio. Effective May 1, 2000,
the name of the Portfolio was changed to the "AST T. Rowe Price Global Bond". Effective May 1, 1996, Rowe Price-Fleming
International, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as
Sub-advisor of the Portfolio, then named "AST Scudder International Bond Portfolio."
18. Prior to May 1, 2000, ProFund VP UltraSmall-Cap was named "ProFund VP Small Cap" and sought daily investment results that
corresponded to the performance of the Russell 2000(R)Index.
19. This Portfolio was first offered as a Sub-account on July 3, 2000.
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS
Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation
The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each example assumes
that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes
that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment
options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American Skandia under certain
circumstances.
Example with market increase
Assume that the Owner's Account Value has been increasing due to positive market performance. On the date we receive due proof of
death, the Account Value is $75,000. The basic Death Benefit is calculated as Purchase Payments minus proportional withdrawals,
or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $75,000. The Enhanced Beneficiary
Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($75,000) PLUS 50% of the "Death
Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $75,000
Basic Death Benefit = $75,000
Death Benefit Amount = $75,000 - $50,000 = $25,000
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $75,000 + $12,500 = $87,500
Examples with market decline
Assume that the Owner's Account Value has been decreasing due to declines in market performance. On the date we receive due proof
of death, the Account Value is $45,000. The basic Death Benefit is calculated as Purchase Payments minus proportional
withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $50,000. The Enhanced
Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($50,000) PLUS 50% of
the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $40,000
Basic Death Benefit = $50,000
Death Benefit Amount = $50,000 - $50,000 = $0
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $50,000 + $0 = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary Protection Optional
Death Benefit.
Examples of Guaranteed Minimum Death Benefit Calculation
The following are examples of how the Guaranteed Minimum Death Benefit is calculated. Each example assumes that a $50,000 initial
Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes that there is one
Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American Skandia under certain
circumstances.
Example of market increase
Assume that the Owner's Account Value has generally been increasing due to positive market performance. On the date we receive
due proof of death, the Account Value is $90,000. The Highest Anniversary Value at the end of any previous period is $72,000. The
Death Benefit would be the Account Value ($90,000) because it is greater than the Highest Anniversary Value ($72,000) or the sum
of prior Purchase Payments increased by 5.0% annually ($73,872.77).
Example of market decrease
Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been decreasing since the
fifth contract anniversary. On the date we receive due proof of death, the Account Value is $48,000. The Highest Anniversary
Value at the end of any previous period is $54,000. The Death Benefit would be the sum of prior Purchase Payments increased by
5.0% annually ($73,872.77) because it is greater than the Highest Anniversary Value ($54,000) or the Account Value ($48,000).
Example of market increase followed by decrease
Assume that the Owner's Account Value increased significantly during the first six years following the Issue Date. On the sixth
anniversary date the Account Value is $90,000. During the seventh Annuity Year, the Account Value increases to as high as
$100,000 but then subsequently falls to $80,000 on the date we receive due proof of death. The Death Benefit would be the Highest
Anniversary Value at the end of any previous period ($90,000), which occurred on the sixth anniversary, although the Account Value
was higher during the subsequent period. The Account Value on the date we receive due proof of death ($80,000) is lower, as is
the sum of all prior Purchase Payments increased by 5.0% annually ($73,872.77).
APPENDIX D - SALE OF THE CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK
Some of the provisions of the Annuity are different for contracts offered to residents of the State of New York.
GLOSSARY OF TERMS
MVA: The definition for MVA is not applicable.
INVESTMENT OPTIONS
WHAT ARE THE FIXED INVESTMENT OPTIONS?
Fixed investment options are not available to residents of the State of New York. All references to Fixed Allocations are not
applicable.
FEES AND CHARGES
Tax Charges: For New York contracts a charge for taxes may also be assessed against the Sub-accounts.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
Unless you indicated that a prior choice was irrevocable or your Annuity has been endorsed to limit certain changes, you may
request to change Owner, Annuitant and Beneficiary designations by sending a request In Writing. Where allowed by law, such
changes will be subject to our acceptance. For New York contracts, some of the changes we will not accept include, but are not
limited to: (a) a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death; (b) a new Annuitant prior to the Annuity Date if the
Annuity is owned by an entity; and (c) a change in the Beneficiary if the Owner had previously made the designation irrevocable.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
For New York contracts you may exercise your right to return the Annuity within 21 days of receipt of the Annuity. The amount to
be refunded for New York contracts is the Account Value as of the date we receive your request to cancel the Annuity. Notice
received by mail is effective as of the date of the postmark. If the Annuity is returned to the agent, the effective date is the
date the Annuity is received by the agent.
MANAGING YOUR ACCOUNT VALUE
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment. The amount of the Credit is payable
from our general account. The amount of the Credit depends on the cumulative amount of Purchase Payments you have made to your
Annuity, payable as a percentage of each specific Purchase Payment, according to the table below:
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Cumulative Purchase Payments Credit
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Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
For New York contracts the minimum amount allowed in an investment option is $500. Your transfer request must be In Writing. For
New York contracts, a specific authorization form MUST be completed which authorizes us to accept transfers via phone or through
means such as electronic mail.
The following services which we may offer are not available for New York contracts: (1) authorization of an independent third
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party to transact transfers on your behalf and (2) market timing program.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
This benefit is not available to residents of the State of New York.
ACCESS TO ACCOUNT VALUE
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
The Annuity Date must be the first or the fifteenth day of a calendar month. However, for New York contracts, if the contract's
accumulated value, at the time of annuitization, is less than $2,000, or would provide an income, the initial amount of which is
less than $20 per month, in lieu of commencing the annuity payments, we reserve the right to cancel the Annuity and pay you the
total of the Account Value.
For New York contracts the Annuity Date may not exceed the first day of the calendar month following the Annuitant's 90th birthday.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
This benefit is not available to residents of the State of New York.
DEATH BENEFIT
Basic Death Benefit:
If death occurs during the first ten (10) Annuity Years: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| Your Account Value.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit is your Account Value.
Optional Death Benefits
The Optional Death Benefits described in the Prospectus are not offered in the State of New York.
AMERICAN SKANDIA'S ANNUITY REWARDS
This benefit is not available to residents of the State of New York.
TAX CONSIDERATIONS
HOW ARE DISTRIBUTIONS FROM TAX-QUALIFIED RETIREMENT PLANS TAXED?
Minimum Distributions after age 70 1/2: For New York contracts the Minimum Distribution provision is only available for annuities
issued under Section 403(b) of the IRS Code or for IRA's where Minimum Distributions are required. Minimum Distributions are not
available for any other contracts.
Deferral of Transactions: For New York contracts, if we defer a distribution or transfer from any fixed annuity payout for more
than ten days, we pay interest using our then current crediting rate for this purpose, which is not less than 3% per year on the
amount deferred.
Modification: In addition to obtaining prior approval from the insurance department of our state of domicile before making such a
combination, substitution, deletion or addition, we will also obtain prior approval from the Superintendent of Insurance for New
York.
Misstatement of Age or Sex: For New York contracts the following provision (c) is added:
(c) as to any annuity payments, we shall credit or charge interest using our then current crediting rate for this purpose, which
is not greater than 6% interest per year, calculated from the date of any underpayment or overpayment to the date actual payment
is made.
American Skandia Life Assurance Corporation
Attention: Concierge Desk
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
customerservice@americankandia.com
For Requests by Phone:
1-800-752-6342
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PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE
AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS FUSI XT-PROS (05/2001).
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(print your name)
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(address)
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(city/state/zip code)
ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
customerservice@americanskandia.com
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.americanskandia.com http://www.americanskandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: 203-926-1888
http://www.americanskandia.com
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes Stagecoach Extra Credit Variable Annuity, a flexible premium deferred annuity (the "Annuity") offered by
American Skandia Life Assurance Corporation ("American Skandia", "we", "our" or "us") exclusively through Wells Fargo Bank, N.A.
The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. This Prospectus describes the
important features of the Annuity and what you should consider before purchasing the Annuity. We have also filed a Statement of
Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional
Information are described on page 55. The Annuity or certain of its investment options and/or features may not be available in
all states. Various rights and benefits may differ between states to meet applicable laws and/or regulations. Certain terms are
capitalized in this prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular
section.
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American Skandia offers several different annuities which your financial professional may be authorized to offer to you. Each
annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how
you intend to use the annuity. The different features and benefits include variations in death benefit protection, the ability to
access your annuity's account value and the charges that you will be subject to if you choose to surrender the annuity. The fees
and charges may also be different between each annuity.
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If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you should consider
any surrender or penalty charges you may incur when replacing your existing coverage and that this Annuity may be subject to a
contingent deferred sales charge if you elect to surrender the Annuity or take a partial withdrawal. You should consider your
need to access the annuity's account value and whether the annuity's liquidity features will satisfy that need.
WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY?
This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for "qualified" investments,
including an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or 403(b)). It may also be used as an investment vehicle for
"non-qualified" investments. The Annuity allows you to invest your money in a number of variable investment options as well as in
one or more fixed investment options.
When an Annuity is purchased as a "non-qualified" investment, you generally are not taxed on any investment gains the Annuity
earns until you make a withdrawal or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be
beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each
year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a
10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. Annuities purchased as a non-qualified
investment are not subject to the maximum contribution limits that may apply to a qualified investment, and are not subject to
required minimum distributions after age 701/2.
When an Annuity is purchased as a "qualified" investment, you should consider that the Annuity does not provide any additional tax
advantages to the preferential treatment already available through your retirement plan under the Internal Revenue Code. An
Annuity may offer features and benefits in addition to providing tax deferral that other investment vehicles may not offer,
including death benefit protection for your beneficiaries, lifetime income options, and the ability to make transfers between
numerous variable investment options offered under the Annuity. You should consult with your financial professional as to whether
the overall benefits and costs of the Annuity are appropriate considering your overall financial plan.
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These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, or bank subsidiary of Wells
Fargo Bank, N.A, are NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the
Federal Reserve Board or any other agency. An investment in this annuity involves certain investment risks, including possible
loss of principal.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING
MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-680-8920.
Prospectus Dated: May 1, 2001 Statement of Additional Information Dated: May 1, 2001
WFVXTC-PROS-(05/2001) WFXTPROS
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If you purchase this Annuity, we apply an additional amount (an Extra CreditSM) to your account value with each purchase payment
you make, including your initial purchase payment and any additional purchase payments.
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This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities. However, if you
make a withdrawal that exceeds the free withdrawal amount or choose to surrender your Annuity, the contingent deferred sales
charge (CDSC) on this Annuity is higher and is deducted for a longer period of time as compared to our other variable
annuities. As with any annuity that features a CDSC, you should consider your need to access your account value during the
CDSC period and whether the liquidity provision under the Annuity will satisfy that need.
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The Extra CreditSM amount is included in your account value. However, American Skandia may take back the original Extra
CreditSM amount applied to your purchase payment if you die, or elect to withdraw all or a portion of your account value under
the medically-related waiver provision, within 12 months of having received an Extra CreditSM amount. In either situation,
the value of the Extra CreditSM amount could be substantially reduced. However, any investment gain on the Extra CreditSM
amount will not be taken back. Additional conditions and restrictions apply.
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WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
|X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable
flexibility in the timing and amount of premium payments. Generally, investors "defer" receiving annuity payments until
after an accumulation period.
|X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to variable
investment options, the value of your Annuity will vary daily to reflect the investment performance of the underlying
investment options. Fixed investment options of different durations are offered that are guaranteed by us, but may have a
Market Value Adjustment if you withdraw your Account Value before the Maturity Date.
|X| The Annuity features two distinct phases - the accumulation period and the payout period. During the accumulation period
your Account Value is allocated to one or more underlying investment options. The variable investment options, each a Class
1 Sub-account of American Skandia Life Assurance Corporation Variable Account B, invest in an underlying mutual fund
portfolio. Currently, portfolios of the following underlying mutual funds are being offered: Wells Fargo Variable Trust,
American Skandia Trust, Montgomery Variable Series and INVESCO Variable Investment Funds, Inc.
|X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2)
for life with a guaranteed minimum number of payments; (3) based on joint lives; or (4) for a guaranteed number of
payments. We currently make annuity payments available on a fixed or variable basis.
|X| This Annuity offers two different types of Credits. We add a Credit to your Annuity with each purchase payment we
receive. We also provide an additional 1% credit on Purchase Payments made within the first year and may provide certain
additional benefits if your Account Value has not reached a Target Value on its 10th anniversary.
|X| This Annuity offers a basic Death Benefit. It also offers optional Death Benefits that provide an enhanced level of
protection for your beneficiary(ies) for an additional charge.
|X| You are allowed to withdraw a limited amount of money from your Annuity on an annual basis without any charges. Other
product features allow you to access your Account Value as necessary, although a charge may apply.
|X| Transfers between investment options are tax-free. Currently, you may make twenty transfers each year free of charge.
We also offer several programs that enable you to manage your Account Value as your financial needs and investment
performance change.
HOW DO I PURCHASE THIS ANNUITY?
We sell the Annuity through licensed, registered financial professionals. You must complete an application and submit a minimum
initial purchase payment of $1,000. We may allow you to make a lower initial purchase payment provided you establish a bank
drafting program under which purchase payments received in the first Annuity Year total at least $1,000. If the Annuity is owned
by an individual or individuals, the oldest of those persons must be age 80 or under. If the Annuity is owned by an entity, the
annuitant must be age 80 or under.
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Mailing Addresses
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New Business/Additional Purchase Payments: Exchange Paperwork:
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American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
P.O. Box 7040 P.O. Box 7039
Bridgeport, CT 06601-7040 Bridgeport, CT 06601-7039
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All other correspondence: Express/Overnight Mail:
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American Skandia Life Assurance Corporation American Skandia Life Assurance Corporation
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P.O. Box 7038 Three Corporate Drive
Bridgeport, CT 06601-7038 Shelton, CT 06484
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TABLE OF CONTENTS
GLOSSARY OF TERMS..................................................................................................................6
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................7
EXPENSE EXAMPLES...................................................................................................................9
INVESTMENT OPTIONS................................................................................................................12
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................12
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................17
FEES AND CHARGES..................................................................................................................17
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................17
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................18
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?...................................................................................18
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................19
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................19
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES......................................................................................19
PURCHASING YOUR ANNUITY...........................................................................................................19
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................19
MANAGING YOUR ANNUITY.............................................................................................................20
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................20
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................20
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................20
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................20
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................21
MANAGING YOUR ACCOUNT VALUE.......................................................................................................21
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................21
HOW DO I RECEIVE CREDITS?......................................................................................................21
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?...................................................................................22
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................23
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................24
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................24
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?............................................24
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?................................................................26
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................27
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................27
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................27
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................28
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................29
ACCESS TO ACCOUNT VALUE...........................................................................................................30
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................30
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................30
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................31
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................31
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................32
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................32
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................32
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................32
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................33
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................33
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?...................................................................................33
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................35
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................35
DEATH BENEFIT.....................................................................................................................36
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................36
DEATH BENEFIT OPTIONS................................................................................ERROR! BOOKMARK NOT DEFINED.
OPTIONAL DEATH BENEFITS........................................................................................................36
PAYMENT OF DEATH BENEFITS......................................................................................................39
VALUING YOUR INVESTMENT...........................................................................................................40
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................40
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................40
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................40
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................40
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................40
TAX CONSIDERATIONS................................................................................................................41
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................41
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................41
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................41
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................41
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED
CONTRACTS?...................................................................................................................43
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................44
GENERAL TAX CONSIDERATIONS.....................................................................................................45
GENERAL INFORMATION...............................................................................................................46
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................46
WHO IS AMERICAN SKANDIA?.......................................................................................................47
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................47
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................48
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................49
AVAILABLE INFORMATION..........................................................................................................50
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................50
HOW TO CONTACT US..............................................................................................................50
INDEMNIFICATION................................................................................................................51
LEGAL PROCEEDINGS..............................................................................................................51
EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................51
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................55
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS................................................................................1
GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not
repeated in this Glossary of Terms.
Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date, plus any earnings,
and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Contingent
Deferred Sales Charge ("CDSC") and/or any Annual Maintenance Fee. The Account Value includes any additional amounts we applied to
your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is determined separately
for each Sub-account and for each Fixed Allocation, and then totaled to determine Account Value for your entire Annuity. The
Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment.
Annuitization: The application of Account Value to one of the available annuity options to begin receiving periodic payments for
life, for a guaranteed minimum number of payments or for life with a guaranteed minimum number of payments.
Annuity Date: The date you choose for annuity payments to commence. A maximum Annuity Date may apply.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified Guarantee Period
during the accumulation period.
Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation.
Interim Value: The value of the Fixed Allocation on any date other than the Maturity Date. The Interim Value is equal to the
initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less
any transfers or withdrawals from the Fixed Allocation.
Issue Date: The effective date of your Annuity.
MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on any day other than the
Maturity Date of such Fixed Allocation.
Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having
ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner"
refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate.
Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of
the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, Tax Charge, the charge for any optional
benefits and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your
Annuity.
Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission
requires mutual funds or unit investment trusts to be valued.
SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your Annuity while
others are assessed against assets allocated to the variable investment options. The charges that are assessed against the
Annuity include the Contingent Deferred Sales Charge, Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is
assessed against the variable investment options is the Insurance Charge, which is the combination of a mortality and expense risk
charge and a charge for administration of the Annuity. Each underlying mutual fund portfolio assesses a charge for investment
management and for other expenses. The prospectus for each underlying mutual fund provides more detailed information about the
expenses for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and expenses are
described in more detail within this Prospectus.
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YOUR TRANSACTION EXPENSES
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Amount Deducted/
Fee/Expense Description Of Charge When Deducted
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- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr.
9+ Upon Surrender or
Contingent Deferred Sales Partial Withdrawal
Charge
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- ------------------------------- ------- ------ ------ ------- ------ ------ ------- ------ ------ --------------------------------------
8.5% 8.5% 8.5% 8.5% 7.5% 5.5% 3.5% 1.5% 0.0%
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The charge is a percentage of each applicable purchase
payment. The period is measured from the date each purchase
payment is allocated.
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Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's
anniversary date or upon surrender
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Transfer Fee $10.00 After the 20th transfer each annuity
year
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Tax Charge Depends on the requirements of the applicable jurisdiction Various
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ANNUAL EXPENSES OF THE SUB-ACCOUNTS
(as a percentage of the average daily net assets of the Sub-accounts)
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Mortality & Expense Risk
Charge 1.25%
Daily
Administration Charge 0.15%
Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment
Sub-accounts* Options only
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* The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the "Insurance Charge"
elsewhere in this prospectus.
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OPTIONAL BENEFITS
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GUARANTEED RETURN OPTION
We offer a program that guarantees a "return of premium" at a future date, while allowing you to 0.25% of Account Value
allocate all or a portion of your Account Value to the Sub-accounts of your choice. Please refer to
the discussion of the Guaranteed Return Option for a description of restrictions under the program. (Amounts are deducted in
arrears each Annuity Year)
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ENHANCED BENEFICIARY PROTECTION DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.25% of Account Value
beneficiary(ies) by providing additional amounts that can be used to offset federal and state taxes
payable on any taxable gains in your Annuity at the time of your death. (Amounts are deducted in
arrears each Annuity Year)
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GUARANTEED MINIMUM DEATH BENEFIT
We offer an Optional Death Benefit that provides an enhanced level of protection for your 0.30% of the current Death
beneficiary(ies) by providing the greater of the current Account Value, a 5.0% annual increase on Benefit
Purchase Payments minus proportional withdrawals or the Highest Anniversary Value. (Amounts are deducted in
arrears each Annuity Year)
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Please refer to the section entitled "Death Benefit" for a complete discussion of the optional Death Benefits, including restrictions
on the age of the Owner/ Annuitant and limits on the amount payable.
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Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
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Below are the investment management fees, other expenses, and the total annual expenses for each underlying Portfolio as of
December 31, 2000, except as noted. The total annual expenses are the sum of the investment management fee, other expenses and
any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. For certain of the
underlying Portfolios, a portion of the management fee is being waived and/or other expenses are being partially reimbursed.
"N/A" indicates that no portion of the management fee and/or other expenses is being waived and/or reimbursed. Any footnotes
about expenses appear after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios
of American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual funds and has
not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios
for further details. The current prospectus and statement of additional information for the underlying Portfolios can be obtained
by calling 1-800-680-8920.
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Management Other (12b-1) Total Annual Fee Net
Fees Expenses Fees Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Fund
Expenses Expense Operating
Reimburse-mentExpenses
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Wells Fargo Variable Trust:
Asset Allocation 0.70% 0.18% 0.25% 1.13% 0.13% 1.00%
Corporate Bond 0.60% 0.40% 0.25% 1.25% 0.35% 0.90%
Equity Income 0.70% 0.22% 0.25% 1.17% 0.17% 1.00%
Equity Value 0.70% 0.62% 0.25% 1.57% 0.57% 1.00%
Growth 0.70% 0.28% 0.25% 1.23% 0.23% 1.00%
International Equity (2) 0.90% 1.25% 0.25% 2.40% 1.40% 1.00%
Large Company Growth 0.70% 0.48% 0.25% 1.43% 0.43% 1.00%
Small Cap Growth 0.90% 1.26% 0.25% 2.41% 1.21% 1.20%
Money Market 0.55% 0.35% 0.00% 0.90% 0.05% 0.85%
American Skandia Trust: (3)
AST Janus Overseas Growth 1.00% 0.18% 0.01% 1.19% N/A 1.19%
AST American Century International Growth 1.00% 0.27% 0.00% 1.27% N/A 1.27%
AST American Century International Growth 1.00% 0.26% 0.00% 1.26% N/A 1.26%
II
AST Janus Small-Cap Growth 0.90% 0.16% 0.01% 1.07% N/A 1.07%
AST Scudder Small-Cap Growth 0.95% 0.16% 0.02% 1.13% N/A 1.13%
AST Goldman Sachs Small-Cap Value 0.95% 0.20% 0.00% 1.15% N/A 1.15%
AST Gabelli Small-Cap Value 0.90% 0.21% 0.01% 1.12% N/A 1.12%
AST Janus Mid-Cap Growth 1.00% 0.28% 0.00% 1.28% N/A 1.28%
AST Neuberger Berman Mid-Cap Growth 0.90% 0.16% 0.03% 1.09% N/A 1.09%
AST Neuberger Berman Mid-Cap Value 0.90% 0.18% 0.16% 1.24% N/A 1.24%
AST Alger All-Cap Growth 0.95% 0.24% 0.05% 1.24% N/A 1.24%
AST MFS Growth 0.90% 0.30% 0.00% 1.20% N/A 1.20%
AST Marsico Capital Growth 0.90% 0.14% 0.02% 1.06% 0.02% 1.04%
AST JanCap Growth 0.90% 0.13% 0.01% 1.04% 0.04% 1.00%
AST Cohen & Steers Realty 1.00% 0.22% 0.06% 1.28% N/A 1.28%
AST American Century Income & Growth 0.75% 0.19% 0.00% 0.94% N/A 0.94%
AST INVESCO Equity Income 0.75% 0.17% 0.03% 0.95% 0.01% 0.94%
AST PIMCO Total Return Bond 0.65% 0.17% 0.00% 0.82% N/A 0.82%
AST PIMCO Limited Maturity Bond 0.65% 0.22% 0.00% 0.87% N/A 0.87%
Montgomery Variable Series:
Emerging Markets 1.25% 0.56% 0.00% 1.81% 0.25% 1.56%
INVESCO Variable Investment Funds, Inc.:
Technology 0.72% 0.30% 0.00% 1.02% N/A 1.02%
Health Sciences 0.75% 0.32% 0.00% 1.07% N/A 1.07%
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1. The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain Portfolios until
at least April 30, 2002. The caption "Total Annual Fund Operating Expenses" reflects the Portfolios' fees and expenses before
such waivers and reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects the effect of such waivers
and reimbursements.
2. This Portfolio was first offered as a Sub-account on July 3, 2000. "Other Expenses" are based on estimated amounts for
the fiscal year ended December 31, 2000.
3. American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1 of the
Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to receive brokerage commissions in
connection with purchases and sales of securities held by Portfolios of the Trust, and to use these commissions to promote the
sale of shares of such Portfolios. While the brokerage commission rates and amounts paid by the various Portfolios are not
expected to increase as a result of the Distribution Plan, the staff of the Securities and Exchange Commission takes the
position that commission amounts received under the Distribution Plan should be reflected as distribution expenses of the
Portfolios. The Distribution Fee estimates are derived and annualized from data regarding commission amounts directed to the
affiliate under the Distribution Plan for the fiscal year ended December 31, 2000. Although there are no maximum amounts
allowable, actual commission amounts directed under the Distribution Plan will vary and the amounts directed during the first
full fiscal year of the Plan's operations may differ substantially from the annualized amounts listed in the above chart.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various costs and expenses you will incur with the Annuity over
certain periods of time based on specific assumptions. The examples reflect expenses of our Sub-accounts, as well as those of the
underlying mutual fund portfolios. The Securities and Exchange Commission ("SEC") requires these examples.
The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) the Insurance Charge is assessed as
1.40% per year; (c) the Annual Maintenance Fee is reflected as a charge equal to 0.05% based on an assumed average contract size;
(d) you make no withdrawals of Account Value during the period shown; (e) you make no transfers, withdrawals, surrender or other
transactions that we charge a fee during the period shown; (f) no tax charge applies; (g) the expenses throughout the period for
the underlying mutual fund portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled
"Underlying Mutual Fund Portfolio Annual Expenses"; and (h) the Credit applicable to your Annuity is 2% of Purchase Payments. The
Credit may be less when total Purchase Payments are less then $10,000 and may be more when total Purchase Payments are at least
$1,000,000 (see "How do I receive Credits?"). The examples do not reflect the impact of any Target Value Credits that may be
applied to Purchase Payments within the first Annuity Year.
These examples do not reflect the charge for either optional Death Benefit that is offered under the Annuity or the Guaranteed
Return Option. If you purchase the Annuity with either optional Death Benefit or the Guaranteed Return Option, this charge is
deducted on an annual basis in arrears in addition to the amounts shown below. Please see the example of how we charge for the
optional Death Benefits and the Guaranteed Return Option following these tables.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING
MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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Expense Examples
(amounts shown are rounded to the nearest dollar)
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If you surrender your Annuity at the end If you do not surrender your Annuity at
of the applicable time period, you would the end of the applicable time period
pay the following expenses on a $1,000 or begin taking annuity payments at
investment, assuming 5% annual return on such time, you would pay the following
assets: expenses on a $1,000 investment,
assuming 5% annual return on assets:
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After: After:
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Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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WFVT Asset Allocation 111 164 210 287 26 79 135 287
WFVT Corporate Bond 110 161 205 277 25 76 130 277
WFVT Equity Income 111 164 210 287 26 79 135 287
WFVT Equity Value 111 164 210 287 26 79 135 287
WFVT Growth 111 164 210 287 26 79 135 287
WFVT International Equity 111 164 210 287 26 79 135 287
WFVT Large Company Growth 111 164 210 287 26 79 135 287
WFVT Small Cap Growth 113 171 221 308 28 86 146 308
WFVT Money Market 109 159 202 271 24 74 127 271
AST Janus Overseas Growth 113 170 220 307 28 85 145 307
AST American Century International Growth 114 173 224 315 29 88 149 315
AST American Century International Growth II 114 173 224 314 29 88 149 314
AST Janus Small-Cap Growth 112 167 214 295 27 82 139 295
AST Scudder Small-Cap Growth 112 168 217 300 27 83 142 300
AST Goldman Sachs Small-Cap Value 112 169 218 303 27 84 143 303
AST Gabelli Small-Cap Value 112 168 217 300 27 83 142 300
AST Janus Mid-Cap Growth 114 173 225 317 29 88 150 317
AST Neuberger Berman Mid-Cap Growth 112 167 215 297 27 82 140 297
AST Neuberger Berman Mid-Cap Value 113 172 223 313 28 87 148 313
AST Alger All-Cap Growth 113 172 223 313 28 87 148 313
AST JanCap Growth 113 171 221 308 28 86 146 308
AST MFS Growth 111 165 212 291 26 80 137 291
AST Marsico Capital Growth 111 164 210 287 26 79 135 287
AST Cohen & Steers Realty 114 173 225 317 29 88 150 317
AST American Century Income & Growth 110 162 207 281 25 77 132 281
AST INVESCO Equity Income 110 162 207 281 25 77 132 281
AST PIMCO Total Return Bond 109 158 200 268 24 73 125 268
AST PIMCO Limited Maturity Bond 109 160 203 274 24 75 128 274
MV Emerging Markets 117 182 239 344 32 97 164 344
INVESCO VIF Technology 111 165 212 290 111 165 212 290
INVESCO VIF Health Sciences 112 167 214 295 112 167 214 295
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Expenses For Optional Benefits
Guaranteed Return Option
If you elect to participate in the Guaranteed Return Option program, an annual charge of 0.25% is deducted from your Annuity's
Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed Allocations as of the date the
charge is deducted. Below is an example of how the charge for the Optional Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Enhanced Beneficiary Protection Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, an annual charge of 0.25% is deducted from your
Annuity's Account Value. The charge will be based on the Account Value of the Sub-accounts and any Fixed Allocations as of the date
the charge is deducted. Below is an example of how the charge for the Optional Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Cost of Optional Death Benefit 0.25% X $12,500 = $31.25 per year
Since charges for the Optional Death Benefit are determined based on a percentage of Account Value, you will pay more for this
benefit if your Account Value increases. The value of the Optional Death Benefit will also increase as the Account Value
increases. However, the Optional Death Benefit is also subject to a maximum benefit. See the section entitled "Optional Death
Benefits" for a description of the Enhanced Beneficiary Protection Optional Death Benefit.
Guaranteed Minimum Death Benefit
If you purchase the Guaranteed Minimum Death Benefit, an annual charge of 0.30% is deducted from your Annuity's Account Value.
The charge will be based on the current Death Benefit under the Guaranteed Minimum Death Benefit as of the date the charge is
deducted. Below is an example of how the charge for the Guaranteed Minimum Death Benefit is calculated.
Initial Purchase Payment: $10,000
Account Value on
Anniversary of Issue Date: $12,500
Current Death Benefit: $13,000
Cost of Optional Death Benefit 0.30% X Current Death Benefit = $39.00 per year
The charge for optional Death Benefits is deducted in addition to the Insurance Charge which is deducted on a daily basis from the
Account Value allocated to the Sub-accounts. The charge for the optional Death Benefits is deducted in arrears on each
anniversary of the Issue Date of the Annuity or, if you terminate the optional Death Benefit or surrender your Annuity, on the
date the termination or surrender is effective.
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B (see
"What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively in one Portfolio. You should
carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the
Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a
description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist
you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying mutual fund portfolio
will meet its investment objective.
The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose name includes the
prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is American Skandia Investment Services,
Incorporated ("ASISI"), an affiliated company of American Skandia. However, a sub-advisor, as noted below, is engaged to conduct
day-to-day investment decisions.
Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or sub-advisor as a
retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception. Certain retail mutual funds may
also have been modeled after a Portfolio. While the investment objective and policies of the funds may be substantially similar,
the actual investments made by the funds will differ to varying degrees. Differences in the performance of the funds can be
expected, and in some cases could be substantial. Details about the investment objectives, policies, risks, costs and management
of the Portfolios are found in the prospectuses for the underlying mutual funds.
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Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no longer offered as a Sub-account under the Annuity. Owners
of Contracts issued on or before January 18, 2000 may not allocate additional Account Value or make transfers into the AST Janus
Small-Cap Growth Sub-account, except that, Owners who had previously elected a bank drafting, dollar cost averaging, asset allocation
and/or rebalancing program will be allowed to continue. However, no changes involving the AST Janus Small-Cap Growth Sub-account may
be made to such programs.
Effective March 1, 2000, the AST Janus Overseas Growth portfolio is no longer offered as a Sub-account under the Annuity, except as
noted below. Owners of Contracts issued on or before February 29, 2000 with Account Value allocated to the AST Janus Overseas Growth
Sub-account may continue to allocate Account Value and make transfers into the AST Janus Overseas Growth Sub-account, including any
bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Contracts issued on or after March 1, 2000 will not
be allowed to allocate Account Value to the AST Janus Overseas Growth Sub-account.
The Portfolios may be offered as a Sub-account to Contract Owners at some future date; however, at the present time, American Skandia
has no intention to do so.
========================================================================================================================================
Please refer to Appendix B for certain required financial information related to the historical performance of the Sub-accounts.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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WFVT Money Market: seeks high current income, while preserving capital and liquidity. The
MONEY MARKET Investment Advisor actively manages a portfolio of U.S. dollar-denominated high-quality money Wells Fargo Funds
market instruments, including debt obligations. They also make certain other investments, Management, LLC
including repurchase agreements.
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WFVT Corporate Bond: seeks a high level of current income, consistent with reasonable risk.
The Portfolio pursues its objective by actively managing a diversified portfolio consisting
primarily of corporate debt securities of any maturity. Under normal market conditions, it
expects to maintain a dollar-weighted average maturity for portfolio securities of between 10 Wells Fargo Funds
and 15 years. The Portfolio may invest up to 25% of its total assets in debt securities that Management, LLC
are below investment grade (junk bonds) or in securities of foreign issuers. The Portfolio
also may invest in U.S. Government obligations.
BOND
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AST PIMCO Limited Maturity Bond: seeks to maximize total return consistent with preservation
of capital and prudent investment management. The Portfolio will invest in a diversified Pacific Investment
portfolio of fixed-income securities of varying maturities. The average portfolio duration of Management Company
the Portfolio generally will vary within a one- to three-year time frame based on the
Sub-advisor's forecast for interest rates.
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AST PIMCO Total Return Bond: seeks to maximize total return consistent with preservation of
capital and prudent investment management. The Portfolio will invest in a diversified Pacific Investment
portfolio of fixed-income securities of varying maturities. The average portfolio duration of Management Company
the Portfolio generally will vary within a three- to six-year time frame based on the
Sub-advisor's forecast for interest rates.
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WFVT Asset Allocation: seeks long-term total return, consistent with reasonable risk. The
Portfolio pursues its objective by allocating and reallocating its assets among common stocks,
ASSET ALLOCA-TION U.S. Treasury Bonds and money market instruments. The Investment Advisor manages the
allocation of investments in the Portfolio assuming a "normal" allocation of 60% stocks and Wells Fargo Funds
40% bonds. The stock portion of the Portfolio is invested to replicate the weightings of each Management, LLC
company comprising the S&P 500 Index. The bond portion of the Portfolio is invested to
replicate the Lehman Brothers 20+ Bond Index.
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AST INVESCO Equity Income: seeks capital growth and current income while following sound
investment practices. The Portfolio seeks to achieve its objective by investing in securities
that are expected to produce relatively high levels of income and consistent, stable returns. INVESCO Funds Group,
The Portfolio normally will invest at least 65% of its assets in dividend-paying common and Inc.
preferred stocks of domestic and foreign issuers. Up to 30% of the Portfolio's assets may be
EQUITY INCOME invested in equity securities that do not pay regular dividends.
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WFVT Equity Income: seeks long-term capital appreciation and above-average dividend income.
The Portfolio pursues its objective primarily by investing in the common stocks of large,
high-quality domestic companies with above-average return potential based on current market
valuations and above-average dividend income. Under normal market conditions, the Portfolio Wells Fargo Funds
invests at least 65% of its total assets in income producing equity securities and in issues Management, LLC
of companies with market capitalizations greater than the median of the Russell 1000 Index.
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AST American Century Income & Growth: seeks capital growth with current income as a secondary
objective. The Portfolio invests primarily in common stocks that offer potential for capital
GROWTH growth, and may, consistent with its investment objective, invest in stocks that offer American Century
& potential for current income. The Sub-advisor utilizes a quantitative management technique Investment
INCOME with a goal of building an equity portfolio that provides better returns than the S&P 500 Management, Inc.
Index without taking on significant additional risk and while attempting to create a dividend
yield that will be greater than the S&P 500 Index.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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AST Cohen & Steers Realty: seeks to maximize total return through investment in real estate
securities. The Portfolio pursues its investment objective by seeking, with approximately
REAL ESTATE equal emphasis, capital growth and current income. Under normal circumstances, the Portfolio
(REIT) will invest substantially all of its assets in the equity securities of real estate companies, Cohen & Steers
i.e., a company that derives at least 50% of its revenues from the ownership, construction, Capital Management,
financing, management or sale of real estate or that has at least 50% of its assets in real Inc.
estate. Real estate companies may include real estate investment trusts or REITs.
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AST JanCap Growth: seeks growth of capital in a manner consistent with the preservation of
capital. Realization of income is not a significant investment consideration and any income
realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's
objective. The Portfolio will pursue its objective by investing primarily in common stocks of Janus Capital
companies that the Sub-advisor believes are experiencing favorable demand for their products Corporation
and services, and which operate in a favorable competitive and regulatory environment. The
Sub-advisor generally takes a "bottom up" approach to choosing investments for the Portfolio.
In other words, the Sub-advisor seeks to identify individual companies with earnings growth
potential that may not be recognized by the market at large.
LARGE CAP EQUITY
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AST Marsico Capital Growth: seeks capital growth. Income realization is not an investment
objective and any income realized on the Portfolio's investments, therefore, will be
incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing
primarily in common stocks of larger, more established companies. In selecting investments
for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis Marsico Capital
with "bottom up" stock selection. The "top down" approach identifies sectors, industries and Management, LLC
companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor
then looks for individual companies with earnings growth potential that may not be recognized
by the market at large. This is called "bottom up" stock selection.
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AST MFS Growth: seeks long-term capital growth and future income. Under normal market
conditions, the Portfolio invests at least 80% of its total assets in common stocks and
related securities, such as preferred stocks, convertible securities and depositary receipts, Massachusetts
of companies that the Sub-advisor believes offer better than average prospects for long-term Financial Services
growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run Company
and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign
securities.
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WFVT Equity Value: seeks long-term capital appreciation. The Portfolio pursues its objective
by investing in a diversified portfolio composed primarily of equity securities that are
trading at low price-to-earnings ratios, as measured against the stock market as a whole or
against the individual stock's own price history. Under normal market conditions, the Wells Fargo Funds
Portfolio invests primarily in common stocks of both large, well-established companies and Management, LLC
smaller companies with market capitalization exceeding $50 million at the time of purchase.
The Portfolio may also invest in debt instruments that may be converted into the common stocks
of both U.S. and foreign companies.
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WFVT Growth: seeks long-term capital appreciation. The Portfolio pursues its objective by
investing primarily in common stocks and other equity securities of companies that have a
strong earnings growth trend that the Investment Advisor believes have above-average prospects
for future growth. Under normal market conditions, the Portfolio invests at least 65% of Wells Fargo Funds
total assets in equity securities, including common and preferred stocks and securities Management, LLC
convertible into common stocks. The investment strategy is focused on larger capitalization
stocks that fall within, but towards the higher end of, the range of the Russell 1000 Index.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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WFVT Large Company Growth: seeks long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in common stocks of large, high-quality domestic companies
LARGE CAP EQUITY that the Investment Advisor believes have superior growth potential. The Investment Advisor Wells Fargo Funds
(Cont.) looks for companies that are attractively valued with fundamental characteristics that it Management, LLC
believes are significantly better than the market average and support internal earnings growth
capability.
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AST Janus Mid-Cap Growth: seeks long-term capital growth. The Portfolio invests primarily in
common stocks, selected for their growth potential, and normally invests at least 65% of its
equity assets in medium-sized companies. For purposes of the Portfolio, medium-sized
companies are those whose market capitalizations (measured at the time of investment) fall Janus Capital
within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor Corporation
seeks to identify individual companies with earnings growth potential that may not be
recognized by the market at large.
MID-CAP EQUITY
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AST Neuberger Berman Mid-Cap Growth: seeks capital growth. The Portfolio primarily invests in
the common stocks of mid-cap companies, i.e., companies with equity market capitalizations Neuberger Berman
from $300 million to $10 billion at the time of investment. The Portfolio is normally managed Management
using a growth-oriented investment approach. The Sub-advisor looks for fast-growing companies Incorporated
that are in new or rapidly evolving industries.
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AST Neuberger Berman Mid-Cap Value: seeks capital growth. The Portfolio primarily invests in
the common stocks of mid-cap companies. Under the Portfolio's value-oriented investment
approach, the Sub-advisor looks for well-managed companies whose stock prices are undervalued Neuberger Berman
and that may rise in price before other investors realize their worth. Factors that the Management
Sub-advisor may use to identify these companies include strong fundamentals, including a low Incorporated
price-to-earnings ratio, consistent cash flow, and a sound track record through all phases of
the market cycle.
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AST Janus Small-Cap Growth: seeks capital growth. The Portfolio pursues its objective by
normally investing at least 65% of its total assets in the common stocks of small-sized
companies, i.e., those that have market capitalizations of less than $1.5 billion or annual Janus Capital
gross revenues of less than $500 million. Corporation
SMALL CAP EQUITY
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AST Scudder Small-Cap Growth (f/k/a AST Kemper Small-Cap Growth): seeks maximum growth of
investors' capital from a portfolio primarily of growth stocks of smaller companies. At least
65% of the Portfolio's total assets normally will be invested in the equity securities of
smaller companies, i.e., those having a market capitalization of $2 billion or less at the Zurich Scudder
time of investment, many of which would be in the early stages of their life cycle. The Investments, Inc.
Portfolio seeks attractive areas for investment that arise from factors such as technological
advances, new marketing methods, and changes in the economy and population.
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AST Goldman Sachs Small-Cap Value (f/k/a AST Lord Abbett Small Cap Value): seeks long-term
capital appreciation. The Portfolio will seek its objective through investments primarily in
equity securities that are believed to be undervalued in the marketplace. The Portfolio
primarily seeks companies that are small-sized, based on the value of their outstanding Goldman Sachs Asset
stock. Specifically, under normal circumstances, at least 65% of the Portfolio's total assets Management
will be invested in common stocks issued by smaller, less well-known companies (with market
capitalizations of less than $4 billion at the time of investment).
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
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- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Gabelli Small-Cap Value (f/k/a AST T. Rowe Price Small Company Value): seeks to provide
long-term capital growth by investing primarily in small-capitalization stocks that appear to
be undervalued. The Portfolio will normally invest at least 65% of its total assets in stocks
and equity-related securities of small companies ($1 billion or less in market GAMCO
capitalization). Reflecting a value approach to investing, the Portfolio will seek the stocks Investors, Inc.
of companies whose current stock prices do not appear to adequately reflect their underlying
value as measured by assets, earnings, cash flow or business franchises.
SMALL CAP EQUITY
(Cont.)
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WFVT Small Cap Growth: seeks long-term capital appreciation. The Portfolio pursues its
objective by investing in a diversified portfolio of common stocks issued by companies whose
market capitalization falls with the range of the Russell 2000 Index. The Portfolio invests
in common stocks of domestic and foreign companies that the Investment Advisor believes have Wells Fargo Funds
above-average prospects for capital growth, or that may be involved in new or innovative Management, LLC
products, services and processes. Under normal market conditions, the Portfolio invests in an
actively managed, broadly diversified portfolio of small-cap growth-oriented common stocks and
in at least 20 common stock issues spread across multiple industry groups and sectors of the
economy.
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AST American Century International Growth: seeks capital growth. The Portfolio will seek to
achieve its investment objective by investing primarily in equity securities of foreign
companies that the Sub-advisor believes will increase in value over time. Under normal
conditions, the Portfolio will invest at least 65% of its assets in equity securities of American Century
issuers from at least three countries outside of the United States. The Sub-advisor uses a Investment
growth investment strategy it developed that looks for companies with earnings and revenue Management, Inc.
growth. The Sub-advisor will consider a number of other factors in making investment
selections, including the prospects for relative economic growth among countries or regions,
economic and political conditions, expected inflation rates, currency exchange fluctuations
and tax considerations.
INTER-NATIONAL
EQUITY
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AST American Century International Growth II: The investment objective, policies and risks of American Century
the Portfolio are substantially identical to those of the AST American Century International Investment
Growth Portfolio as described immediately above. Management, Inc.
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AST Janus Overseas Growth: seeks long-term growth of capital. The Portfolio pursues its
objective primarily through investments in common stocks of issuers from at least five
different countries, excluding the United States. Securities are generally selected without Janus Capital
regard to any defined allocation among countries, geographic regions or industry sectors, or Corporation
other similar selection procedure.
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WFVT International Equity: seeks total return, with an emphasis on capital appreciation, over
the long-term. The Portfolio pursues its objective by investing primarily in a diversified
portfolio of equity securities of companies based in developed non-U.S. countries and in
emerging markets of the world. Under normal market conditions, the Portfolio invests at least Wells Fargo Funds
80% of its total assets in equity securities of companies located or operating outside the Management, LLC
U.S. and in a minimum of five countries exclusive of the U.S. The Portfolio may invest up to
50% of its total assets in any one country and up to 25% of total assets in emerging markets.
Generally, the Portfolio invests in issuers with an average market capitalization of $10
billion or more, although it may invest in equity securities of issuers with market
capitalization as low as $250 million.
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Montgomery Variable Series - Emerging Markets: seeks long-term capital appreciation, under
normal conditions by investing at least 65% of its total assets in stocks of companies of any Montgomery Asset
EMERGING MARKETS size based in the world's developing economies. Under normal conditions, investments are Management, LLC
maintained in at least six countries at all times and no more than 35% of total assets in any
single one of them.
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PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- --------------------------------------------------------------------------------------------------------------------------------------------
Sector funds generally diversify their investments across particular economic sectors. However, because those investments are limited to
a comparatively narrow segment of the economy, sector funds are generally not as diversified as most mutual funds. Sector funds tend to
be more volatile than other types of funds. The value of fund shares may go up and down more rapidly than other funds. Each sector of
the economy may also have different regulatory or other risk factors that can cause greater fluctuations in the share price. Please read
the prospectus for the underlying sector fund for further details about the risks of the particular sector of the economy.
- --------------------------------------------------------------------------------------------------------------------------------------------
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INVESCO Variable Investment Funds - Health Sciences: seeks capital appreciation. The
Portfolio invests primarily in the equity securities of companies that develop, produce or
distribute products or services related to health care. These companies include, but are not
limited to, medical equipment or supplies, pharmaceuticals, health care facilities, and INVESCO Funds Group,
applied research and development of new products or services. The investment advisor attempts Inc.
to blend well-established healthcare firms with faster-growing, more dynamic health care
SECTOR companies, which have new products or are increasing their market share of existing products.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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INVESCO Variable Investment Funds - Technology: seeks capital appreciation. The Portfolio
invests primarily in the equity securities of companies engaged in technology-related
industries. These include, but are not limited to, communications, computers, electronics,
Internet, IT services and consulting, oceanography, office and factory automation, networking,
applied technology, biotechnology, robotics and video. A core portion of the Portfolio's INVESCO Funds Group,
holdings are invested in market-leading technology companies which the investment advisor Inc.
believes will maintain or improve their market share regardless of overall economic
conditions. The remainder of the Portfolio's holdings consist of faster-growing, more
volatile technology companies which the investment advisor believes to be emerging leaders in
their fields.
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WHAT ARE THE FIXED INVESTMENT OPTIONS?
We offer fixed investment options of different durations during the accumulation period. These "Fixed Allocations" earn a
guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed
Allocations with Guarantee Periods from 1 to 10 years. We may also offer special purpose Fixed Allocations for use with certain
optional investment programs. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer
Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula,
called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the rates that
are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the Market Value Adjustment
Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than
one Fixed Allocation at a time.
Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
(The Contingent Deferred Sales Charge is often referred to as a "Surrender Charge" or "CDSC".)
Contingent Deferred Sales Charge: We may assess a Contingent Deferred Sales Charge or CDSC if you surrender your Annuity or when
you make a partial withdrawal. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn
during the applicable Annuity Year. The amount of the CDSC decreases over time, measured from the date the Purchase Payment is
applied. The CDSC percentages are shown below.
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
YEARS 1 2 3 4 5 6 7 8 9+
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
CHARGE (%) 8.5 8.5 8.5 8.5 7.5 5.5 3.5 1.5 0.0
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Each Purchase Payment has its own CDSC period. When you make a withdrawal, we assume that the oldest Purchase Payment is being
withdrawn first so that the lowest CDSC is deducted from the amount withdrawn. After eight (8) complete years from the date you
make a Purchase Payment, no CDSC will be assessed if you withdraw or surrender that Purchase Payment.
Under certain circumstances you can withdraw a limited amount of Account Value without paying a CDSC. This is referred to as a
"Free Withdrawal." We may waive the CDSC under certain medically-related circumstances or when taking a Minimum Distribution from
an Annuity purchased as a "qualified" investment. Free Withdrawals, Medically-Related Waivers and Minimum Distributions are each
explained more fully in the section entitled "Access to Your Account Value".
Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $30.00
or 2% of your Account Value invested in the variable investment options, whichever is less. This fee will be deducted annually on
the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted
at the time of surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued
after the date of the increase.
Optional Benefits: If you elect to purchase either optional Death Benefit, we will deduct the annual charge from your Account
Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date other than the anniversary date.
Under certain circumstances, we may deduct a pro-rata portion of the annual charge for the optional Death Benefit. Please refer
to the section entitled "Death Benefit" for a description of the charge for each Optional Death Benefit. If you elect to purchase
the Guaranteed Return Option, we will deduct the annual charge from your Account Value on the anniversary of your Annuity's Issue
Date. Under certain circumstances, we may deduct a pro-rata portion of the annual charge for the Guaranteed Return Option.
Please refer to the section entitled "Managing Your Account Value - Do you offer programs designed to guarantee a "return of
premium" at a future date?" for a description of the charge for the Guaranteed Return Option.
Transfer Fee: Currently, you may make twenty (20) free transfers between investment options each Annuity Year. We will charge
$10.00 for each transfer after the twentieth in each Annuity Year. We do not consider transfers made as part of a dollar cost
averaging program when we count the twenty free transfers. Transfers made as part of a rebalancing, market timing or third party
investment advisory service will be subject to the twenty-transfer limit. However, all transfers made on the same day will be
treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period
are not subject to the Transfer Fee and are not counted toward the twenty free transfers. We may reduce the number of free
transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee or unless you make use of
electronic means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted
electronically or through other means that reduce our processing costs.
Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will vary from
jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We generally will deduct the
amount of tax payable at the time the tax is imposed, but may also decide to deduct tax charges from each Purchase Payment at the
time of a withdrawal or surrender of your Annuity or at the time you elect to begin receiving annuity payments. We may assess a
charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts.
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?
Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the Sub-accounts. The charge
is equal to 1.40% on an annual basis. The Insurance Charge is intended to compensate American Skandia for providing the insurance
benefits under the Annuity, including the Annuity's basic death benefit that provides guaranteed benefits to your beneficiaries
even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The
charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract,
confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related
expenses. Finally, the charge covers the risk that our assumptions about the administrative and non-mortality expenses under this
Annuity are incorrect. We may increase the portion of the Insurance Charge for administrative costs. However, any increase will
only apply to Annuities issued after the date of the increase.
American Skandia may make a profit on the Insurance Charge if, over time, the actual cost of providing the guaranteed insurance
obligations under the Annuity are less than the amount we deduct for the Insurance Charge. To the extent we make a profit on the
Insurance Charge, such profit may be used for any other corporate purpose, including payment of other expenses that American
Skandia incurs in distributing, issuing and administering the Annuity.
The Insurance Charge is not deducted against assets allocated to a fixed investment option. However, the amount we credit to
Fixed Allocations may also reflect similar assumptions about the insurance guarantees provided to Contract Owners under the
Annuity.
WHAT CHARGES ARE ASSESSED BY THE PORTFOLIOS?
We do not assess any charges directly against the Portfolios. However, each Portfolio charges a total annual fee comprised of an
investment management fee, operating expenses and any distribution and service (12b-1) fees that may apply. More detailed
information about fees and charges can be found in the prospectuses for the Portfolios. Please also see "Service Fees Payable by
Underlying Funds".
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
No specific fee or expenses are deducted when determining the rate we credit to a Fixed Allocation. However, for some of the same
reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration
mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations.
Any CDSC or Tax Charge applies to amounts that are taken from the variable investment options or the Fixed Allocations. A Market
Value Adjustment may also apply to transfers, certain withdrawals, surrender or annuitization from a Fixed Allocation.
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?
In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The amount payable will
depend on the applicable jurisdiction and on the annuity payment option you select. If you select a fixed payment option, the
amount of each fixed payment will depend on the Account Value of your Annuity when you elected to annuitize. There is no specific
charge deducted from these payments; however, the amount of each annuity payment reflects assumptions about our insurance
expenses. If you select a variable payment option that we may offer, then the amount of your benefits will reflect changes in the
value of your Annuity and will continue to be subject to an insurance charge.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is deducted. For
example, we may reduce the amount of the CDSC or the length of time it applies, reduce or eliminate the amount of the Annual
Maintenance Fee or reduce the portion of the Insurance Charge for administrative costs. Generally, these types of changes will be
based on a reduction to our sales, maintenance or administrative expenses due to the nature of the individual or group purchasing
the Annuity. Some of the factors we might consider in making such a decision are: (a) the size and type of group; (b) the number
of Annuities purchased by an Owner; (c) the amount of Purchase Payments or likelihood of additional Purchase Payments; and/or (d)
other transactions where sales, maintenance or administrative expenses are likely to be reduced. We will not discriminate
unfairly between Annuity purchasers if and when we reduce the portion of the Insurance Charge attributed to the charge covering
administrative costs.
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?
Initial Purchase Payment: You must make a minimum initial Purchase Payment of $1,000. However, if you decide to make payments
under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase Payment provided that, within
the first Annuity Year, you make at least $1,000 in total Purchase Payments.
Where allowed by law, initial Purchase Payments in excess of $1,000,000 require our approval prior to acceptance. We may apply
certain limitations and/or restrictions on the Annuity as a condition of our acceptance, including limiting the liquidity features
or the Death Benefit protection provided under the Annuity, changing the number of transfers allowable under the Annuity or
restricting the Sub-accounts that are available to the Contract owner. Other limitations and/or restrictions may apply.
Age Restrictions: The Owner must be age 80 or under as of the Issue Date of the Annuity. If the Annuity is owned jointly, the
oldest of the Owners must be age 80 or under on the Issue Date. If the Annuity is owned by an entity, the Annuitant must be age
80 or under as of the Issue Date. You should consider your need to access the value in your contract and whether the Annuity's
liquidity features will satisfy that need. If you take a distribution prior to age 591/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain.
Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s), Annuitant and one or
more Beneficiaries for your Annuity.
|X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case all ownership
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rights are held jointly. However, this Annuity does not provide a right of survivorship. Refer to the Glossary of Terms
for a complete description of the term "Owner."
|X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we continue to make such
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payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during
the accumulation period. Where allowed by law, you may name one or more Contingent Annuitants. A Contingent Annuitant will
become the Annuitant if the Annuitant dies before the Annuity Date. Please refer to the discussion of "Considerations for
Contingent Annuitants" in the Tax Considerations section of the Prospectus.
|X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no beneficiary is
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named the death benefit will be paid to you or your estate.
Your right to make certain designations may be limited if your Annuity is to be used as an IRA or other "qualified" investment
that is given beneficial tax treatment under the Code. You should seek competent tax advice on the income, estate and gift tax
implications of your designations.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where allowed by law, such
changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to:
|X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death;
|X| a new Annuitant subsequent to the Annuity Date;
|X| for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and
|X| a change in Beneficiary if the Owner had previously made the designation irrevocable.
Spousal Owners/Spousal Beneficiaries
If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse unless you elect an
alternative Beneficiary designation. Unless you elect an alternative Beneficiary designation, upon the death of either spousal
Owner, the surviving spouse may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. The Death
Benefit that would have been payable will be the new Account Value of the Annuity as of the date of due proof of death and any
required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the
rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of
determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the initial Purchase
Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the
assumption is effective will be subject to all provisions of the Annuity.
Spousal Contingent Annuitant
If the Annuity is owned by an entity and the surviving spouse is named as a Contingent Annuitant, upon the death of the Annuitant,
the surviving spouse will become the Annuitant. No Death Benefit is payable upon the death of the Annuitant. However, the
Account Value of the Annuity as of the date of due proof of death of the Annuitant (and any required proof of the spousal
relationship) will reflect the amount that would have been payable had a Death Benefit been paid.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
(The right to return the Annuity is often referred to as the "free-look" right or "right to cancel.")
If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain
period of time known as a right to cancel period. Depending on the state in which you purchased your Annuity and, in some states,
if you purchased the Annuity as a replacement for a prior contract, the right to cancel period may be ten (10) days, twenty-one
(21) days or longer, measured from the time that you received your Annuity. If you return your Annuity during the applicable
period, we will refund your current Account Value plus any tax charge deducted. This amount may be higher or lower than your
original Purchase Payment. Where required by law, we will return your current Account Value or the amount of your initial
Purchase Payment, whichever is greater. The same rules may apply to an Annuity that is purchased as an IRA. In any situation
where we are required to return the greater of your Purchase Payment or Account Value, we may allocate your Account Value to the
WFVT Money Market Sub-account during the right to cancel period and for a reasonable additional amount of time to allow for
delivery of your Annuity. If you free-look your Annuity, we will not return any additional amounts we applied to your Annuity
based on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in "Auto Saver" or a periodic
purchase payment program. We will allocate any additional Purchase Payments you make according to your most recent allocation
instructions, unless you request new allocations when you submit a new Purchase Payment. Additional Purchase Payments may be paid
at any time before the Annuity Date as long as the oldest Owner or Annuitant (if the Annuity is entity owned) is not over age 80.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and
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applying it to your Annuity. This type of program is often called "bank drafting". We call our bank drafting program "Auto
Saver". Purchase Payments made through Auto Saver may only be allocated to the variable investment options when applied. Auto
Saver allows you to invest in an Annuity with a lower initial Purchase Payment, as long as you authorize payments that will equal
at least $1,000 during the first 12 months of your Annuity. We may suspend or cancel bank drafting privileges if sufficient funds
are not available from the applicable financial institution on any date that a transaction is scheduled to occur.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of qualified investments. If your employer sponsors such a program,
we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to
variable investment options and the periodic Purchase Payments received in the first year total at least $1,000.
MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.)
Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity. The net Purchase
Payment is your initial Purchase Payment minus any tax charges that may apply. On your application we ask you to provide us with
instructions for allocating your Account Value. You can allocate Account Value to one or more variable investment options or
Fixed Allocations.
In those states where we are required to return your Purchase Payment if you exercise your right to return the Annuity, we
initially allocate all amounts that you choose to allocate to the variable investment options to the WFVT Money Market
Sub-account. At the end of the right to cancel period we will reallocate your Account Value according to your most recent
allocation instructions. Where permitted by law, we will allocate your Purchase Payments according to your initial instructions,
without temporarily allocating to the WFVT Money Market Sub-account. To do this, we will ask that you execute our form called a
"return waiver" that authorizes us to allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the
"return waiver" and then decide to return your Annuity during the right to cancel period, you will receive your current Account
Value which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my Mind?").
Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation
instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program.
We assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those
allocations or request new allocations when you submit a new Purchase Payment.
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment. The amount of the Credit is payable
from our general account. The amount of the Credit depends on the cumulative amount of Purchase Payments you have made to your
Annuity, payable as a percentage of each specific Purchase Payment, according to the table below:
The Credits shown below are in effect as of May 3, 1999 in those states where approved.
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Cumulative Purchase Payments Credit
-------------------------------------------------------- -------------------
-------------------------------------------------------- -------------------
Between $1,000 and $9,999.99 1.0%
Between $10,000 and $999,999.99 2.0%
Between $1,000,000 and $4,999,999.99 3.0%
Greater than $5,000,000 4.0%
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The Credits shown below apply to all Annuities issued before May 3, 1999 and to Annuities issued after May 3, 1999 in those states
where the above table has not been approved.
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Cumulative Purchase Payments Credit
-------------------------------------------------------- -------------------
-------------------------------------------------------- -------------------
Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
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Credits Applied to Purchase Payments for Designated Class of Annuity Owner
Where allowed by state law, on Annuities owned by a member of the class defined below, the table of Credits we apply to Purchase
Payments is deleted. The Credit applied to all Purchase Payments on such Annuities will be 8.0%.
The designated class of Annuity Owners includes: (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) the
child(ren) or other legal dependent under the age of 21 of any such person noted in (b) through (h); and (j) the siblings of any
such persons noted in (b) through (h) above.
All other terms and conditions of the Annuity apply to Owners in the designated class, except that we will not provide any
Additional Amounts for any such contracts (see "Additional Amounts in the Fixed Allocations"). Any Target Value Credits applied
under the Performance Advantage benefit are not affected by an Owner's inclusion in the designated class of Annuity Owners.
You must notify us at the time you apply for an Annuity if you are a member of the designated class. American Skandia is not
responsible for monitoring whether you qualify as a member of the designated class. Failure to inform us that you qualify as a
member of the designated class may result in your Annuity receiving fewer Credits than would otherwise be applied to your Annuity.
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?
Each Credit is allocated to your Account Value at the time the Purchase Payment is applied to your Account Value. The amount of
the Credit is allocated to the investment options in the same ratio as the applicable Purchase Payment is applied.
Examples of Applying Credits
Initial Purchase Payment
Assume you make an initial Purchase Payment of $250,000. We would apply a 2.0% Credit to your Purchase Payment and allocate the
amount of the Credit ($5,000 = $250,000 X .02) to your Account Value in the proportion that your Account Value is allocated.
Additional Purchase Payment (at same breakpoint)
Assume that you make an additional Purchase Payment of $500,000. Because your cumulative Purchase Payments are less than the next
breakpoint ($1,000,000), we would apply a 2.0% Credit to your Purchase Payment and allocate the amount of the Credit ($10,000 =
$500,000 X .02) to your Account Value.
Additional Purchase Payment (at higher breakpoint)
Assume that you make an additional Purchase Payment of $400,000. Because your cumulative Purchase Payments are now $1,150,000
(greater than the next breakpoint), we would apply a 3.0% Credit to your Purchase Payment and allocate the amount of the Credit
($12,000 = $400,000 X .03) to your Account Value.
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This Annuity features the same Insurance Charge as many of American Skandia's other variable annuities and does not charge an
additional amount for the Extra CreditSM feature. However, the amount of any Credits applied to your Account Value can be
recovered by American Skandia under certain circumstances:
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|X| any Credits applied to your Account Value on Purchase Payments made within the 12 months before the date of death will be
recovered.
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|X| the amount available under the medically-related surrender portion of the Annuity will not include the amount of any
Credits payable on Purchase Payments made within 12 months of the date the Annuitant first became eligible for the
medically-related surrender.
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|X| if you elect to "free-look" your Annuity, the amount returned to you will not include the amount of any Credits.
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The value of the Extra CreditSM amount will be substantially reduced if American Skandia recovers the Extra CreditSM amount under
these circumstances. However, any investment gain on the Extrra CreditSM amount will not be taken back.
Examples of Recovering Credits
The following are hypothetical examples of how Credits could be recovered by American Skandia. These examples do not cover every
potential situation.
Recovery from payment of Death Benefits
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 2.0% Credit, for a total of $1,200. If the
Death Benefit becomes payable in the 9th month after the Issue Date, the amount of the Death Benefit would be reduced by the
entire amount of the prior Credits ($1,200).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 2.0% Credit, for a total of $1,200. If death
occurs in the 16th month after the Issue Date, the amount of the Death Benefit would be reduced but only in the amount of
those Credits applied within the previous 12-months. Since the initial Purchase Payment (and the Credits that were applied)
occurred more than 12-months before the date of death, the Death Benefit would not be reduced by the amount of the Credits
applied to the initial Purchase Payment. However, the $10,000 additional Purchase Payment was made within 12-months of the
date of death. Therefore, the amount of the Death Benefit would be reduced by the amount of the Credits payable on the
additional Purchase Payment ($200).
3. NOTE: If the Death Benefit would otherwise have been equal to the Purchase Payments minus any withdrawals due to poor
investment performance, we will not reduce the amount of the Death Benefit by the amount of the Credits as shown in Example 2
above.
Recovery from Medically-Related Surrenders
1. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You receive a Credit of $1,000 ($50,000 X
.02). The Annuitant is diagnosed as terminally ill in the 6th month after the Issue Date and we grant your request to
surrender your Annuity under the medically-related surrender provision. Assuming the Credits were applied within 12-months of
the date of diagnosis of the terminal illness, the amount that would be payable under the medically-related surrender
provision would be reduced by the entire amount of the Credits ($1,000).
2. Assume you purchase your Annuity with an initial Purchase Payment of $50,000. You make an additional Purchase of $10,000
in the 6th month after the Issue Date. Both of the Purchase Payments received a 2.0% Credit, for a total of $1,200. The
Annuitant is diagnosed as terminally ill in the 16th month after the Issue Date and we grant your request to surrender your
Annuity under the medically-related surrender provision. Since the initial Purchase Payment (and the Credits that were
applied) occurred more than 12-months before the diagnosis, the amount that would be payable under the medically-related
surrender provision would not be reduced by the amount of the Credits applied to the initial Purchase Payment. However, the
$10,000 additional Purchase Payment was made within 12-months of the date of diagnosis. Therefore, the amount of the Death
Benefit would be reduced by the amount of the Credits payable on the additional Purchase Payment ($200).
Credits applied to estimated Purchase Payments
Under certain circumstances, we may determine the amount of Credits payable on two or more separate Purchase Payments based on the
Credit percentage that would have applied had all such Purchase Payments been made at the same time. To make use of this
procedure, often referred to as a "letter of intent", you must provide evidence of your intention to submit the cumulative
additional Purchase Payments within a 13-month period. A letter of intent must be provided to us prior to the Issue Date to be
effective. Acceptance of a letter of intent is at our sole discretion and may be subject to restrictions as to the minimum
initial Purchase Payment that must be submitted to receive the next higher breakpoint.
Failure to inform us that you intend to submit two or more Purchase Payments within a 13-month period may result in your Annuity
receiving fewer Credits than would otherwise be added to your Annuity.
If you submit a letter of intent and receive Credits on Purchase Payments at a higher Credit percentage than would have applied
BUT do not submit the required Purchase Payments during the 13-month period as required by your letter of intent, we may recover
the "excess" Credits. "Excess" Credits are Credits in excess of the Credits that would have been payable without the letter of
intent. If we determine that you have received "excess" Credits, any such amounts will be taken pro-rata from the investment
options based on your Account Values as of the date we act to recover the excess. If the amount of the recovery exceeds your then
current Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
General Information about Credits
|X| We do not consider Credits to be "investment in the contract" for income tax purposes.
|X| You may not withdraw the amount of any Credits under the Free Withdrawal provision without assessment of the contingent
deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
|X| These Credits are separate and distinct from the Target Value Credits discussed below in the section entitled "American
Skandia's Performance Advantage."
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation on
any gain. We currently limit the number of Sub-accounts you can invest in at any one time to twenty (20). However, you can
invest in an unlimited number of Fixed Allocations. We may require a minimum of $500 in each Sub-account you allocate Account
Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be
less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro rata to the other investment
options to which you transferred.
Currently, we charge $10.00 for each transfer after the twentieth (20th) in each Annuity Year, including transfers made as part of
any rebalancing, market timing, asset allocation or similar program which you have authorized. Transfers made as part of a dollar
cost averaging program do not count toward the twenty free transfer limit. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may reduce the number of free transfers
allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic
means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted electronically or
through other means that reduce our processing costs.
We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We also reserve the
right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if:
(a) we believe that excessive trading or a specific transfer request or group of transfer requests may have a detrimental effect
on Unit Values or the share prices of the Portfolios; or (b) we are informed by one or more of the Portfolios that the purchase or
redemption of shares must be restricted because of excessive trading or a specific transfer or group of transfers is deemed to
have a detrimental effect on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where
either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of
the total assets of a particular Portfolio. Under such a circumstance, we will process transfers according to our rules then in
effect and provide notice if the transfer request was denied. If a transfer request is denied, a new transfer request may be
required.
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer
an amount each month from one investment option to one or more other investment options. You can choose to transfer earnings
only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging allows you to invest regularly each month,
regardless of the current unit value (or price) of the Sub-account(s) you invest in. This enables you to purchase more units when
the market price is low and fewer units when the market price is high. This may result in a lower average cost of units over
time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining
market. We do not deduct a charge for participating in a Dollar Cost Averaging program.
You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program.
You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from Fixed Allocations
is subject to a number of rules that include, but are not limited to the following:
|X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years.
|X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the
program must be designed to last the entire Guarantee Period for the Fixed Allocation.
|X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment.
NOTE: When a Dollar Cost Averaging program is established from a Fixed Allocation, the fixed rate of interest we credit to your
Account Value is applied to a declining balance due to the transfers of Account Value to the Sub-accounts during the Guarantee
Period. This will reduce the effective rate of return on the Fixed Allocation over the Guarantee Period.
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?
Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you choose. You can
choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the appropriate date, your variable
investment options are rebalanced to the allocation percentages you request. For example, over time the performance of the
variable investment options will differ, causing your percentage allocations to shift. With automatic rebalancing, we transfer
the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the
percentages you request. If you request a transfer from or into any variable investment option participating in the automatic
rebalancing program, we will assume that you wish to change your rebalancing percentages as well, and will automatically adjust
the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from you.
You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing transfers made on
the same day as part of an automatic rebalancing program are considered as one transfer when counting the number of transfers each
year toward the maximum number of free transfers. We do not deduct a charge for participating in an automatic rebalancing program.
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?
Yes. We offer two different programs for investors who wish to invest in the variable investment options but also wish to protect
their principal, at least as of a specific date in the future. You may not want to use either of these programs if you expect to
begin taking annuity payments before the program would be completed.
Balanced Investment Program
We offer a balanced investment program where a portion of your Account Value is allocated to a Fixed Allocation and the remaining
Account Value is allocated to the variable investment options that you select. When you enroll in the Balanced Investment
program, you choose the duration that you wish the program to last. This determines the duration of the Guarantee Period for the
Fixed Allocation. Based on the fixed rate for the Guarantee Period chosen, we calculate the portion of your Account Value that
must be allocated to the Fixed Allocation to grow to a specific "principal amount" (such as your initial Purchase Payment). We
determine the amount based on the rates then in effect for the Guarantee Period you choose. If you continue the program until the
end of the Guarantee Period and make no withdrawals or transfers, at the end of the Guarantee Period, the Fixed Allocation will
have grown to equal the "principal amount". Withdrawals or transfers from the Fixed Allocation before the end of the Guarantee
Period will terminate the program and may be subject to a Market Value Adjustment. You can transfer the Account Value that is not
allocated to the Fixed Allocation between any of the Sub-accounts available under the Annuity. Account Value you allocate to the
variable investment options is subject to market fluctuations and may increase or decrease in value. We do not deduct a charge
for participating in the Balanced Investment Program.
Example
Assume you invest $100,000. You choose a 10-year program and allocate a portion of your Account Value to a Fixed
Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 5.33%*. Based on the fixed
interest rate for the Guarantee Period chosen, the factor is 0.594948 for determining how much of your Account Value will
be allocated to the Fixed Allocation. That means that $59,495 will be allocated to the Fixed Allocation and the
remaining Account Value ($41,505) will be allocated to the variable investment options. Assuming that you do not make
any withdrawals from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we
cannot predict the value of the remaining Account Value that was allocated to the variable investment options.
* The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration.
Guaranteed Return OptionSM
We also offer a seven-year program where we monitor your Account Value daily and systematically transfer amounts between Fixed
Allocations and the variable investment options you choose. American Skandia guarantees that at the end of the seventh (7th) year
from commencement of the program, you will receive no less than the original amount invested (such as your initial Purchase
Payment). Account Value is only transferred to and maintained in Fixed Allocations to the extent we, in our sole discretion, deem
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is necessary to support our guarantee under the program. This differs from the Balanced Investment program where a set amount is
allocated to a Fixed Allocation regardless of the performance of the underlying Sub-accounts. With the Guaranteed Return Option,
your Annuity is able to participate in the upside potential of the Sub-accounts while only transferring amounts to Fixed
Allocations to protect against significant market downturns.
Each business day we monitor the performance of your Account Value to determine whether it is greater than, equal to or below our
"reallocation trigger", described below. Based on the performance of the Sub-accounts in which you choose to allocate your
Account Value relative to the reallocation trigger, we may transfer some or all of your Account Value to or from a Fixed
Allocation. You have complete discretion over the allocation of your Account Value that remains allocated in the variable
investment options. However, we reserve the right to restrict certain Portfolios if you participate in the program.
|X| Account Value greater than or equal to reallocation trigger: Account Value in variable investment options remains
allocated according to your most recent instructions. If a portion of Account Value was previously allocated to a
Fixed Allocation, those amounts may be transferred from the Fixed Allocation and re-allocated to the variable
investment options pro-rata according to your current allocations. A Market Value Adjustment will apply.
|X| Account Value below reallocation trigger: A portion of your Account Value in the variable investment options is
transferred to a new Fixed Allocation. These amounts are transferred on a pro-rata basis from the variable
investment options. The new Fixed Allocation will have a Guarantee Period equal to the remaining duration in the
Guaranteed Return Option. The Account Value applied to the new Fixed Allocation will be credited with the fixed
interest rate then being applied to a new Fixed Allocation of the next higher yearly duration. The Account Value
will remain invested in the Fixed Allocation until the maturity date of the program unless, at an earlier date, your
Account Value is at or above the reallocation trigger and amounts can be transferred to the variable investment
options (as described above) while maintaining the guarantee protection under the program.
American Skandia uses an allocation mechanism based on assumptions of expected and maximum market volatility to determine the
reallocation trigger. The allocation mechanism is used to determine the allocation of Account Value between Fixed Allocations and
the Sub-accounts you choose. American Skandia reserves the right to change the allocation mechanism and the reallocation trigger
at its discretion.
Program Termination
The Guaranteed Return Option will terminate on its maturity date. You can elect to participate in a new Guaranteed Return Option
or re-allocate your Account Value at that time. Any Account Value allocated to the Fixed Allocations will be transferred to the
WFVT Money Market Sub-account, unless you provide us with alternative instructions. On the program maturity date, if your Account
Value is below the initial investment, American Skandia will apply additional amounts to your Account Value so that it is equal to
the initial investment in the program. Any amounts added to your Account Value will be applied to the WFVT Money Market
Sub-account, unless you provide us with alternative instructions. We will notify you of any amounts added to your Account Value
under the program. We do not consider amounts added to your Account Value to be "investment in the contract" for income tax
purposes.
Special Considerations under the Guaranteed Return Option
This program is subject to certain rules and restrictions, including, but not limited to the following:
|X| You may terminate the Guaranteed Return Option at any time. American Skandia does not provide any guarantees upon
termination of the program.
|X| Withdrawals from your Annuity while the program is in effect will reduce the guaranteed amount under the program in
proportion to the Account Value at the time of the withdrawal. Withdrawals will be subject to all other provisions of the
Annuity, including any Contingent Deferred Sales Charge or Market Value Adjustment that would apply.
|X| Additional Purchase Payments applied to the Annuity while the program is in effect will only increase the amount
guaranteed; however, all or a portion of any additional Purchase Payments may be allocated to the Fixed Allocations.
|X| Annuity Owners cannot transfer Account Value to or from a Fixed Allocation while participating in the program and cannot
participate in any dollar cost averaging program that transfers Account Value from a Fixed Allocation to the variable
investment options.
|X| Transfers from Fixed Allocations will be subject to the Market Value Adjustment formula under the Annuity; however, the
0.10% "cushion" feature of the formula will not apply. A Market Value Adjustment may be either positive or negative.
Transfer amounts will be taken from the most recently applied Fixed Allocation.
|X| Transfers from the Sub-accounts to Fixed Allocations or from Fixed Allocations to the Sub-accounts under the program will
not count toward the maximum number of free transfers allowable under the Annuity.
|X| The Guaranteed Return Option will terminate: (a) upon the death of the Owner or the Annuitant (in an entity owned
contract); and (b) as of the date Account Value is applied to begin annuity payments.
|X| You can elect to restart the seven (7) year program duration on any anniversary of the Issue Date of the Annuity. The
Account Value on the date the restart is effective will become the new guaranteed amount under the program. You can only
elect the program once per Annuity Year.
Charges under the Program
We charge a fee of 0.25% of Account Value per year to participate in the Guaranteed Return Option. The charge is deducted to
compensate American Skandia for: (a) the risk that your Account Value on the maturity date of the program is less than the amount
guaranteed; and (b) administration of the program. The charge is deducted in arrears on an annual basis on each anniversary of
the Issue Date of the Annuity. If you choose to begin the program on a date other than the Issue Date of the Annuity or an
anniversary of the Issue Date of the Annuity, we will charge a pro-rata portion of the annual charge for the remaining portion of
the Annuity Year. If the program terminates before completion for any reason other than death or medically-related surrender, we
will assess a pro-rata portion of the annual charge. We will deduct the annual charge for participating in the program pro-rata
from the variable investment options.
MAY I AUTHORIZE MY FINANCIAL PROFESSIONAL TO MANAGE MY ACCOUNT?
Yes. You may authorize your financial professional to direct the allocation of your Account Value and to request financial
transactions between investment options while you are living, subject to our rules. We require that you provide us with written
proof that you have authorized your financial professional to request financial transactions on your behalf. You must contact us
immediately if and when you revoke such authority. We will not be responsible for acting on instructions from your financial
professional if you fail to inform us that such person's authority has been revoked. We may also suspend or cancel these
privileges at any time. We will notify you if we do.
We or an affiliate of ours may provide administrative support to licensed, registered financial professionals or investment
advisors who you authorize to make financial transactions on your behalf. These financial professionals may be firms or persons
who also are appointed by us as authorized sellers of the Annuity. However, we do not offer advice about how to allocate your
Account Value under any circumstance. Any financial professionals you engage to provide advice and/or make transfers for you is
not acting on our behalf. We are not responsible for any recommendations such financial professionals make, any market timing or
asset allocation programs they choose to follow or any specific transfers they make on your behalf.
We may require financial professionals or investment advisors, who are authorized by multiple contract owners to make financial
transactions, to enter into an administrative agreement with American Skandia as a condition of our accepting transactions on your
behalf. The administrative agreement may impose limitations on the financial professional's or investment advisor's ability to
request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of a financial
professional who is in a position to transfer large amounts of money for multiple clients in a particular Portfolio or type of
portfolio or to comply with specific restrictions or limitations imposed by a Portfolio(s) on American Skandia. The
administrative agreement may limit the available investment options, require advance notice of large transactions, or impose other
trading limitations on your financial professional. Your financial professional will be informed of all such restrictions on an
ongoing basis. We may also require that your financial professional transmit all financial transactions using the electronic
trading functionality available through our Internet website (www.americanskandia.com). Limitations that we may impose on your
financial professional or investment advisor under the terms of the administrative agreement do not apply to financial
transactions requested by an Owner on their own behalf, except as otherwise described in this Prospectus.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
(Fixed Allocations may not be available in all states and may not be available for certain durations.)
We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." Fixed
Allocations currently are offered with Guarantee Periods from 1 to 10 years. We may make Fixed Allocations of different durations
available in the future, including Fixed Allocations offered exclusively for use with certain optional investment programs. The
interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the
Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee
Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your
Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. Any change in interest rate does
not affect Fixed Allocations that were in effect before the date of the change. To inquire as to the current rates for Fixed
Allocations, please call 1-800-680-8920.
A Guarantee Period for a Fixed Allocation begins:
|X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period;
|X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or
|X| when you "renew" a Fixed Allocation by electing a new Guarantee Period.
To the extent permitted by law, we may establish different interest rates for Fixed Allocations offered to a class of Owners who
choose to participate in various optional investment programs we make available. This may include, but is not limited to, Owners
who elect to use Fixed Allocations under a dollar cost averaging program (see "Do You Offer Dollar Cost Averaging?") or a balanced
investment program (see "Do You Offer a Program to Balance Fixed and Variable Investments?"). The interest rate credited to Fixed
Allocations offered to this class of purchasers may be different than those offered to other purchasers who choose the same
Guarantee Period but who do not participate in an optional investment program. Any such program is at our sole discretion.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we
offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed
rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its
agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements,
asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee
Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make,
commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic
trends and competition. Some of these considerations are similar to those we consider in determining the Insurance Charge that we
deduct from Account Value allocated to the Sub-accounts.
We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to
Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class.
The interest rate we credit for a Fixed Allocation is subject to a minimum. Please refer to the Statement of Additional
Information.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will adjust the value
of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market Value Adjustment formula compares
the interest rates credited for Fixed Allocations at the time you invested, to interest rates being credited when you make a
transfer or withdrawal. The amount of any Market Value Adjustment can be either positive or negative, depending on the rates that
are currently being credited on Fixed Allocations.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation to determine the Account Value of the Fixed Allocation on a
particular date. The formula is as follows:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the fixed interest rate we guaranteed to credit to the Fixed Allocation as of its starting
date;
J is the fixed interest rate for your class of annuities at the time of the withdrawal for a
new Fixed Allocation with a Guarantee Period equal to the remaining number of years in your
original Guarantee Period;
N is the number of months remaining in the original Guarantee Period.
If you surrender your Annuity under the right to cancel provision, the MVA formula is [(1 + I)/(1 + J)]N/12.
If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed Allocation, the
numbers used in `J' and `N' will be rounded to the next highest integer.
MVA Examples
The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following:
|X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years.
|X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%).
|X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after exactly three (3)
years, therefore 24 months remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of
24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $59,456.20.
Example of Negative MVA
Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of
24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $56,687.28.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. Before the Maturity Date, you may choose to
renew the Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that
Fixed Allocation's Account Value to another Fixed Allocation or to one or more Sub-accounts. We will notify you before the end of
the Guarantee Period about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being
offered. The rates being credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you
choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options.
If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, we will then transfer the Account
Value of the Fixed Allocation to the WFVT Money Market Sub-account. You can then elect to allocate the Account Value to any of
the Sub-accounts or to a new Fixed Allocation.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
Do you provide any guarantees on my investment?
The Annuity provides variable investment options and fixed investment options. Only the fixed investment options provide a
guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity includes a feature at no
additional cost that provides certain benefits if your Account Value has not reached or exceeded a "target value" on its 10th
anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your Account Value has not reached the target value (as
defined below) you can choose either of the following benefits:
|X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit to your Account
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Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of the average of your Annuity's
Account Value for the preceding four complete calendar quarters. This credit is applied to your investment options pro-rata
based on the allocation of your then current Account Value.
OR
|X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity equal to 10% of the
net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all Purchase Payments allocated in the
prior five years. The annuity option you select must initially guarantee payments for not less than seven years.
Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not meet or exceed the
Target Value. We will assume that you have elected to receive the annual credit to your Account Value unless, not less than 30
days prior to the next anniversary of the Annuity, we receive at our home office your election to begin receiving Annuity
payments.
Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase your Annuity as part
of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue.
What is the "Target Value" and how is it calculated?
The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described above. The Target
Value does not impact the Account Value available if you surrender your Annuity or make a partial withdrawal and does not impact
the Death Benefit available to your Beneficiary(ies). The Target Value assumes a rate of return over ten (10) Annuity Years that
will allow your initial investment to double in value, adjusted for any withdrawals and/or additional Purchase Payments you make
during the 10 year period. We calculate the "Target Value" as follows:
1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of the Annuity's
Issue Date; plus
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2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied until the 10th
anniversary of the Annuity's Issue Date; minus
-----
3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of 7.2% from the
date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We determine each "proportional
reduction" by determining the percentage of your Account Value then withdrawn and reducing the Target Value by that same
percentage. We include any withdrawals under your Annuity in this calculation, as well as the charge we deduct for any
optional benefits you elect under the Annuity, but not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee.
Examples
1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The Target Value on the
10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals are made. This is equal to $10,000
accumulating at an annual rate of 7.2% for the 10-year period.
2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at the end of Year
6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target Value on the 10th
anniversary would be $18,722. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period, minus
the proportional reduction accumulating at an annual interest rate of 7.2%.
Can I restart the 10-year Target Value calculation?
Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of the Issue Date.
If you elect to restart the calculation period, we will treat your Account Value on the restart date as if it was your Purchase
Payment when determining if your Annuity's Account Value meets or exceeds the Target Value on the appropriate tenth (10th)
anniversary. You may elect to restart the calculation more than once, in which case, the 10-year calculation period will begin on
the date of the last restart date. We must receive your election to restart the calculation at our home office not later than 30
days after each anniversary of the Issue Date.
What are Target Value Credits?
Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that your Account Value
will meet or exceed the Target Value. We add Target Value Credits to your Account Value at the time a Purchase Payment is applied
to your Annuity. Only those Purchase Payments made before the first anniversary of the Issue Date of your Annuity are eligible to
receive Target Value Credits. Target Value Credits are separate and distinct from other Credits we apply to all Purchase Payments.
The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits are only payable
on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue Date. If the Annuity is
owned by an entity, the age restriction applies to the age of the Annuitant on the Issue Date. The Target Value Credit is payable
from our general account and is allocated to the investment options in the same ratio that the qualifying Purchase Payment is
allocated.
Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or transfer, in whole
or in part, of an Annuity we issued that has the same or a similar benefit.
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The amount of any Target Value Credits are not immediately vested and can be recovered by American Skandia under the circumstances
and for the time periods shown below. If American Skandia exercises its right to recover the amount of any Target Value Credit,
any investment gain on the Target Value Credit will not be taken back.
1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity.
2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date.
3. If a person on whose life we pay the Death Benefit dies, or if a "contingency event" occurs which triggers a
medically-related surrender:
|X| within 12 months after the date a Target Value Credit was allocated to your Account Value; or
|X| within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on
the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date.
Following completion of the above time periods, the amount of any Target Value Credits are vested in the Owner.
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ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation period you can access your Account Value through Partial Withdrawals, Systematic Withdrawals, and where
required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. We may deduct a portion of
the Account Value being withdrawn or surrendered as a CDSC. If you surrender your Annuity, in addition to any CDSC, we may deduct
the Annual Maintenance Fee, any Tax Charge that applies and the charge for any optional benefits. We may also apply a Market
Value Adjustment to any Fixed Allocations. Certain amounts may be available to you each Annuity Year that are not subject to a
CDSC. These are called "Free Withdrawals." In addition, under certain circumstances, we may waive the CDSC for surrenders made
for qualified medical reasons or for withdrawals made to satisfy Minimum Distribution requirements. Unless you notify us
differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your
withdrawal request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of
your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any
investment gain unless the distribution qualifies as a non-taxable exchange or transfer. If you take a distribution prior to the
taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult
a professional tax advisor for advice before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to
at the time of the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each
annuity payment should be treated as a return of any tax basis you have in the Annuity. Once the tax basis in the Annuity has
been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in the Annuity may be based on the
tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation period.
|X| To meet liquidity needs, you can withdraw a limited amount of your Account Value during each of Annuity Year 1-8 without
a CDSC being applied. We call this the "Free Withdrawal" amount. The Free Withdrawal amount is not available if you
choose to surrender your Annuity. The minimum Free Withdrawal you may request is $100.
|X| You can also make withdrawals in excess of the Free Withdrawal amount. We call this a "Partial Withdrawal." The amount
that you may withdraw will depend on the Annuity's Surrender Value. The Surrender Value is equal to your Account Value
minus any CDSC, the Annual Maintenance Fee, the Tax Charge, any charges for optional benefits and any Market Value
Adjustment that may apply to any Fixed Allocations. After any Partial Withdrawal, your Annuity must have a Surrender
Value of at least $1,000, or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity.
The minimum Partial Withdrawal you may request is $100.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine what, if any,
amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawals or Systematic Withdrawals
of amounts greater than the maximum Free Withdrawal amount will be subject to a CDSC.
Partial Withdrawals may also be available following annuitization but only if you choose certain annuity payment options.
To request the forms necessary to make a withdrawal from your Annuity, contact our Customer Service Team at 1-800-680-8920 or
visit our Internet Website at www.americanskandia.com.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 10% of Purchase Payments that, as of the date of the withdrawal, have been invested for less than the CDSC period (with
your Annuity, eight (8) years). The 10% amount is not cumulative.
"Growth" equals the current Account Value less all Purchase Payments that have been invested for less than the CDSC period and
have not been previously withdrawn. "Growth" does not include any additional amounts we applied to your Annuity based on your
Purchase Payments (see "How Do I Receive Credits" and "What Are Target Value Credits").
NOTE: Free withdrawals do not reduce the amount of any CDSC that would apply upon a partial withdrawal or subsequent surrender.
The minimum Free Withdrawal you may request is $100.
We may reduce or eliminate the amount available as a Free Withdrawal if your Annuity is used in connection with certain plans that
receive special tax treatment under the Code. As of the date of this Prospectus, the Free Withdrawal privilege has been
eliminated for Annuities purchased as funding vehicles for retirement plans under Section 401 or 403(b) of the Code.
Examples
Assume you make an initial Purchase Payment of $10,000 and make no additional Purchase Payments. Assume that in Annuity Year 2,
due to positive investment performance, your Account Value is $12,500. The maximum Free Withdrawal amount would be the greater of
Growth (Account Value minus Purchase Payments = $2,500) or 10% of Purchase Payments ($1,000). Your maximum Free Withdrawal amount
would therefore be $2,500.
Further assume that in your third Annuity Year, you choose to surrender your Annuity. Assume that after taking your $2,500 Free
Withdrawal in Year 2, your Account Value has increased to $11,000 due to positive investment performance. Upon surrender, we will
deduct a CDSC of 8.5% based on the number of years that your Purchase Payment has been invested times the amount of your Purchase
Payment that has not been previously withdrawn (8.5% of $10,000 = $850). The amount of the previous Free Withdrawal was not
subject to a CDSC when withdrawn. Therefore, upon surrender, the amount of the entire Purchase Payment is subject to the CDSC.
You would receive $10,150 minus the Annual Maintenance Fee and any Target Value Credits.
These examples do not reflect the effect of any Credits or Target Value Credits. These amounts are not available as a free
withdrawal.
When we determine if a CDSC applies to Partial Withdrawals and Systematic Withdrawals, we will first determine what, if any,
amounts qualify as a Free Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawal or Systematic Withdrawal of
amounts greater than the maximum Free Withdrawal amount will be subject to a CDSC.
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
A CDSC may be assessed against a Partial Withdrawal during the accumulation period. Whether a CDSC applies and the amount to be
charged depends on whether the Partial Withdrawal exceeds any Free Withdrawal amount and, if so, the number of years that have
elapsed since the Purchase Payment being withdrawn has been invested in the Annuity.
1. If you request a Partial Withdrawal we determine if the amount you requested is available as a Free Withdrawal (in which case
it would not be subject to a CDSC);
2. If the amount requested exceeds the available Free Withdrawal amount:
|X| First, we withdraw the amount from Purchase Payments that have been invested for longer than the CDSC period, if any
(with your Annuity, eight (8) years);
|X| Second, we withdraw the remaining amount from the Purchase Payments that are still subject to a CDSC. We withdraw the
"oldest" of your Purchase Payments first so that the lowest CDSC will apply to the amount withdrawn.
Any CDSC will only apply to the amount withdrawn that exceeds the Free Withdrawal amount.
3. If the amount requested exceeds the amounts available under Item#2 above, we withdraw the remaining amount from any other
Account Value (including Account Value due to Credits and Target Value Credits).
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal plus earnings or
a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine whether a CDSC applies and the amount
in the same way as we would for a Partial Withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed Allocations.
Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic
Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on
a monthly, quarterly, semi-annual or annual basis. The Surrender Value of your Annuity must be at least $20,000 before we will
allow you to begin a program of Systematic Withdrawals.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100, we may
postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic
Withdrawal.
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE?
Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections
401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made
prior to age 59 1/2if you elect to receive distributions as a series of "substantially equal periodic payments". Distributions
received under this provision in any Annuity Year that exceed the maximum amount available as a free withdrawal will be subject to
a CDSC. To request a program that complies with Section 72(t), you must provide us with certain required information in writing
on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender
Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t).
The minimum amount for any such withdrawal is $100.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means
of receiving income payments before age 59 1/2that are not subject to the 10% penalty.
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?
(See "Tax Considerations" for a further discussion of Minimum Distributions.)
Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or
408 of the Code. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we
will allow you to make Systematic Withdrawals in amounts that satisfy the minimum distribution rules under the Code. We do not
assess a CDSC on Minimum Distributions from your Annuity if you are required by law to take such Minimum Distributions from your
Annuity at the time it is taken. However, a CDSC may be assessed on that portion of a Systematic Withdrawal that is taken to
satisfy the minimum distribution requirements in relation to other savings or investment plans under other qualified retirement
plans not maintained with American Skandia.
The amount of the required Minimum Distribution for your particular situation may depend on other annuities, savings or
investments. We will only calculate the amount of your required Minimum Distribution based on the value of your Annuity. We
require three (3) days advance written notice to calculate and process the amount of your payments. We may charge you for
calculating required Minimum Distributions. You may elect to have Minimum Distributions paid out monthly, quarterly,
semi-annually or annually. The $100 minimum that applies to Systematic Withdrawals does not apply to Minimum Distributions.
You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means
of receiving income payments and satisfying the Minimum Distribution requirements under the Code.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender
Value. Upon surrender of your Annuity, you will no longer have any rights under the Annuity.
Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value.
To request the forms necessary to surrender your Annuity, contact our Customer Service Team at 1-800-680-8920 or visit our
Internet Website at www.americanskandia.com.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity prior to the Annuity Date without application of any CDSC upon
occurrence of a medically-related "Contingency Event". The amount payable will be your Account Value minus: (a) the amount of any
Credits applied within 12 months of the applicable "Contingency Event" as defined below; (b) the amount of any Credits added in
conjunction with any Purchase Payments received after our receipt of your request for a medically-related surrender (i.e. Purchase
Payments received at such time pursuant to a salary reduction program; and (c) the amount of any Target Value Credits under
certain circumstances.
This waiver of any applicable CDSC is subject to our rules, including but not limited to the following:
|X| the Annuitant must be named or any change of Annuitant must be accepted by us, prior to the "Contingency Event" described
below;
|X| the Annuitant must be alive as of the date we pay the proceeds of such surrender request;
|X| if the Owner is one or more natural persons, all such Owners must also be alive at such time;
|X| we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal Illness in writing
on a form satisfactory to us; and
|X| this benefit is not available if the total Purchase Payments received exceed $500,000 for all annuities issued by us with
this benefit where the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
|X| first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at least 90 days in a
row; or
|X| first diagnosed as having a "Fatal Illness" while your Annuity is in force.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are provided in your
Annuity. Specific details and definitions in relation to this benefit may differ in certain jurisdictions.
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?
We currently make annuity options available that provide fixed annuity payments, variable payments or adjustable payments. Fixed
options provide the same amount with each payment. Variable options generally provide a payment which may increase or decrease
depending on the investment performance of the Sub-accounts. However, currently, we also make a variable payment option that has
a guarantee feature. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates.
We do not guarantee to make any Annuity Payment Options available in the future.
When you purchase an Annuity, or at a later date, you may choose an Annuity Date, an annuity option and the frequency of annuity
payments. You may change your choices up to 30 days before the Annuity Date. A maximum Annuity Date may be required by law. Any
change to these options must be in writing. The Annuity Date may depend on the annuity option you choose. Certain annuity
options may not be available depending on the age of the Annuitant.
Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit proceeds as a series of
payments instead of a lump sum payment.
Option 1
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Payments for Life: Under this option, income is payable periodically until the death of the "key life". The "key life" (as used
in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made
after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of
periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of
the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. This
Option is currently available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 2
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Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and
thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum
number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the
key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. This Option
is currently available on a fixed or variable basis. Under this option, you cannot make a partial or full surrender of the
annuity.
Option 3
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Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life. However, if the
key life dies before the end of the period selected (5, 10, 15, or 20 years), the remaining payments are paid to the Beneficiary
until the end of such period. This Option is currently available on a fixed or variable basis. If you elect to receive payments
on a variable basis under this option, you can request partial or full surrender of the annuity and receive its then current cash
value (if any) subject to our rules.
Option 4
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Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the
payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such
period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of
the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting
this option. Under this option, you cannot make a partial or full surrender of the annuity.
Option 5
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Variable Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. The
number of years cannot be less than 5 or more than 50. Payments may increase or decrease depending on the investment performance
of the Sub-Accounts. If the payee dies before the end of the specified number of years, the remaining payments are paid to the
Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life
expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations
provides no benefit to an Owner selecting this option. If this option is selected, full surrenders may be made from the Annuity
prior to the last guaranteed Payment Date. No partial surrenders are permitted if this option is selected.
Option 6
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Variable Payments for Life with a Cash Value: Under this option, benefits are payable periodically until the death of the key
life. Benefits may increase or decrease depending on the investment performance of the Sub-accounts. This option has a cash
value that also varies with the investment performance of the Sub-account. The cash value provides a "cushion" from volatile
investment performance so that negative investment performance does not automatically result in a decrease in the annuity payment
each month, and positive investment performance does not automatically result in an increase in the annuity payment each month.
The cushion generally "stabilizes" monthly annuity payments. Any cash value remaining on the death of the key life is paid to the
Beneficiary in a lump sum or as periodic payments. Under this option, you can request partial or full surrender of the annuity
and receive its then current cash value (if any) subject to our rules.
Option 7
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Variable Payments for Life with a Cash Value and Guarantee: Under this option, benefits are payable as described in Option 6;
except that, while the key life is alive, the annuity payment will not be less than a guaranteed amount, which generally is equal
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to the first annuity payment. We charge an additional amount for this guarantee. Under this option, any cash value remaining on
the death of the key life is paid to the Beneficiary in a lump sum or as periodic payments. Under this option, you can request
partial or full surrender of the annuity and receive its then current cash value (if any) subject to our rules.
We may make additional annuity payment options available in the future.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of at least 5 years
if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Therefore, making a purchase payment within eight
years of the Annuity Date limits your annuity payment options. Certain annuity payment options may not be available if your
Annuity Date occurs during the period that a CDSC would apply.
If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then:
|X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th birthday or the
fifth anniversary of our receipt of your request to purchase an Annuity; and
|X| the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments for Life with 10
years certain.
HOW ARE ANNUITY PAYMENTS CALCULATED?
Fixed Annuity Payments (Options 1-4)
If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select.
The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally,
the first annuity payment is determined by multiplying the Account Value, minus any state premium taxes that may apply, by the
factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the
frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are
derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or
regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates
will differ according to the gender of the key life.
Variable Annuity Payments
We offer three different types of variable annuity payment options. The first annuity payment will be calculated based upon the
assumed investment return ("AIR"). You select the AIR before we start to make Annuity Payments. The remaining annuity payments
will fluctuate based on the performance of the Portfolios relative to the AIR, as well as, other factors described below. The
greater the AIR, the greater the first annuity payment. A higher AIR may result in smaller potential growth in the annuity
payments. A lower AIR results in a lower initial annuity payment.
|X| Variable Payments (Options 1-3 & 5)
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We calculate each annuity payment amount by multiplying the number of units scheduled to be redeemed under a schedule of
units for each Sub-account by the Unit Value of each Sub-Account on the annuity payment date. We determine the schedule
of units based on your Account Value (minus any premium tax that applies) at the time you elect to begin receiving
annuity payments. The schedule of units will vary based on the annuity payment option selected, the length of any
certain period (if applicable), the Annuitant's age and gender (if annuity payments are due for the life of the
Annuitant) and the Unit Value of the Sub-Accounts you initially selected on the Issue Date. The calculation is performed
for each Sub-Account, and the sum of the Sub-Account calculations equals the amount of your annuity payment. Other than
to fund annuity payments, the number of units allocated to each Sub-Account will not change unless you transfer among the
Sub-Accounts or make a withdrawal (if allowed). You can select one of three AIRs for these options: 3%, 5% or 7%.
|X| Stabilized Variable Payments (Option 6)
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This option provides guaranteed payments for life, a cash value for the Annuitant (while alive) and a variable period of
time during which annuity payments will be made whether or not the Annuitant is still alive. We calculate the initial
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annuity payment amount by multiplying the number of units scheduled to be redeemed under a schedule of units by the Unit
Values determined on the annuitization date. The schedule of units is established for each Sub-account you choose on the
annuitization date based on the applicable benchmark rate and the annuity factors. The annuity factors reflect our
assumptions regarding the costs we expect to bear in guaranteeing payments for the lives of the Annuitant and will depend
on the benchmark rate, the annuitant's attained age and gender (where permitted). Unlike variable payments (described
above) where each payment can vary based on Sub-account performance, this payment option cushions the immediate impact of
Sub-account performance by adjusting the length of the time during which annuity payments will be made whether or not the
Annuitant is alive while generally maintaining a level annuity payment amount. Sub-account performance that exceeds a
benchmark rate will generally extend this time period, while Sub-account performance that is less than a benchmark rate
will generally shorten the period. If the period reaches zero and the Annuitant is still alive, Annuity Payments
continue, however, the annuity payment amount will vary depending on Sub-account performance, similar to conventional
variable payments. The AIR for this option is 4%.
|X|
Stabilized Variable Payments with a Guaranteed Minimum (Option7)
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This option provides guaranteed payments for life in the same manner as Stabilized Variable Payments (described above).
In addition to the stabilization feature, this option also guarantees that variable annuity payments will not be less
than the initial annuity payment amount regardless of Sub-account performance. The AIR for this option is 3%.
Adjustable Annuity Payments
We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity
payments except that on every fifth (5th) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward
or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount
does not affect the duration of remaining annuity payments, only the amount of each payment.
DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
The Annuity provides a Death Benefit during its accumulation period. If the Annuity is owned by one or more natural persons, the
Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an entity, the Death Benefit is payable
upon the Annuitant's death, if there is no Contingent Annuitant. If a Contingent Annuitant was designated before the Annuitant's
death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that
time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent."
The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct from Account Value allocated
to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic Death Benefit guarantee under the
Annuity. The Annuity also offers two different optional Death Benefits. Either benefit can be purchased for an additional
charge. The additional charge is deducted to compensate American Skandia for providing increased insurance protection under the
optional Death Benefits. Notwithstanding the additional protection provided under the optional Death Benefits, the additional
cost has the impact of reducing the net performance of the investment options. Under certain circumstances, your Death Benefit
may be reduced by the amount of any Credits or Target Value Credits we applied to your Purchase Payments. (see "How are Credits
Applied to My Account Value" and "Recovery of Target Value Credits")
Basic Death Benefit
The basic Death Benefit depends on the decedent's age on the date of death:
If death occurs during the first ten (10) Annuity Years: The Death Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit is your Account Value.
OPTIONAL DEATH BENEFITS
You can purchase either of two optional Death Benefits with your Annuity to provide an enhanced level of protection for your
beneficiaries. We do not currently offer the Annuity with both optional Death Benefits.
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Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We may, at a later
date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to our rules and any changes or
restrictions in the benefits. Certain terms and conditions may differ if you purchase your Annuity as part of an exchange,
replacement or transfer, in whole or in part, from any other Annuity we issue.
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Enhanced Beneficiary Protection Optional Death Benefit
The Enhanced Beneficiary Protection Optional Death Benefit can provide additional amounts to your Beneficiary that may be used to
offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Whether this benefit is
appropriate for you may depend on your particular circumstances, including other financial resources that may be available to your
Beneficiary to pay taxes on your Annuity should you die during the accumulation period. No benefit is payable if death occurs on
or after the Annuity Date.
The Enhanced Beneficiary Protection Optional Death Benefit provides a benefit that is payable in addition to the basic Death
Benefit. If the Annuity has one Owner, the Owner must be age 75 or less at the time the benefit is purchased. If the Annuity has
joint Owners, the oldest Owner must be age 75 or less. If the Annuity is owned by an entity, the Annuitant must be age 75 or less.
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The Enhanced Beneficiary Protection Optional Death Benefit is being offered in those jurisdictions where we have received
regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The benefit is currently only
offered to Owners who purchase the Annuity as a "non-qualified" investment. We may make the benefit available to Owners who
purchase the Annuity as an IRA or other "qualified" investment at a later date. Please refer to the section entitled "Tax
Considerations" for a discussion of special tax considerations for purchasers of this benefit.
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Calculation of Enhanced Beneficiary Protection Optional Death Benefit
If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as follows:
1. the basic Death Benefit described above
PLUS
2. 50% of the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Death Benefit Amount includes your Account Value and any amounts added to your Account Value under the basic Death Benefit when
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the Death Benefit is calculated. Under the basic Death Benefit, amounts are added to your Account Value when the Account Value is
less than Purchase Payments minus proportional withdrawals.
The amount calculated in Items 1 & 2 above may be reduced by any Credits or Target Value Credits under certain circumstances.
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The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 50% of all Purchase Payments applied to the
Annuity at least 12 months prior to the death of the decedent that triggers the payment of the Death Benefit.
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See Appendix C for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated.
Guaranteed Minimum Death Benefit
If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is purchased. If the
Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the Annuitant must be
age 80 or less.
Key Terms Used with the Guaranteed Minimum Death Benefit
|X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest
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of either joint Owner or the Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the
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Owner's date of death and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all Purchase Payments
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on or after such anniversary less the sum of all "Proportional Reductions" since such anniversary.
|X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of
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the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is
$10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by
Purchase Payments increasing at the appropriate interest rate by 20%.
Calculation of Guaranteed Minimum Death Benefit
The Guaranteed Minimum Death Benefit depends on whether death occurs before or after the Death Benefit Target Date.
If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of:
1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the date we receive
in writing "due proof of death"; and
2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily until the Owner's
date of death at a rate of 5.0%, subject to a limit of 200% of the difference between the sum of all Purchase
Payments and the sum of all withdrawals as of the Owner's date of death; and
3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death.
The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death
and decreased by any Proportional Reductions since such date. The amount calculated in Items 1 & 3 above may be reduced
by any Credits or Target Value Credits under certain circumstances.
If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of:
1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to amounts in any
Fixed Allocations); and
2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of
all Proportional Reductions since the Death Benefit Target Date.
The amount calculated in Item 1 above may be reduced by any Credits or Target Value Credits under certain circumstances.
Annuities with joint Owners
For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest of the Joint
Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly, we will pay the
Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to
assume ownership of the Annuity and continue the contract instead of receiving the Death Benefit.
Annuities owned by entities
For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the Annuitant is used to
determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent
Annuitant, if applicable).
Can I terminate the optional Death Benefits? Do the optional Death Benefits terminate under other circumstances?
You can terminate the Enhanced Beneficiary Protection Optional Death Benefit at any time. Upon termination, you will be required
to pay a pro-rata portion of the annual charge for the benefit. The Guaranteed Minimum Death Benefit cannot be terminated once it
is elected. Both optional Death Benefits will terminate automatically on the Annuity Date. We may also terminate the optional
Death Benefit if necessary to comply with our interpretation of the Code and applicable regulations.
How much do you charge for the optional Death Benefit?
We deduct a charge from your Account Value if you elect to purchase either optional Death Benefit. No charge applies after the
Annuity Date. We deduct the charge:
1. on each anniversary of the Issue Date;
2. when Account Value is transferred to our general account prior to the Annuity Date;
3. if you surrender your Annuity; and
4. if you choose to terminate the benefit (Enhanced Beneficiary Protection Optional Death Benefit only)
If you surrender the Annuity, elect to begin receiving annuity payments or terminate the benefit on a date other than an
anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date, the charge will be
prorated from the Issue Date. In all subsequent years, it would be prorated from the last anniversary of the Issue Date.
We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We only deduct the
charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in the variable investment options to
pay the charge. If your Annuity's Account Value is insufficient to pay the charge, we may deduct your remaining Account Value and
terminate your Annuity. We will notify you if your Account Value is insufficient to pay the charge and allow you to submit an
additional Purchase Payment to continue your Annuity.
Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the optional Death Benefit.
PAYMENT OF DEATH BENEFITS
Payment of Death Benefit to Beneficiary
Except in the case of a spousal Beneficiary, in the event of your death, the death benefit must be distributed:
|X| as a lump sum amount at any time within five (5) years of the date of death; or
|X| as a series of annuity payments not extending beyond the life expectancy of the Beneficiary or over the life of the
Beneficiary. Payments under this option must begin within one year of the date of death.
Unless you have made an election prior to death benefit proceeds becoming due, a Beneficiary can elect to receive the Death
Benefit proceeds as a series of fixed annuity payments (Annuity Payment Option 1-4) or as a series of variable annuity payments
(Annuity Payment Option 1-3 or 5-7). See the section entitled "What Types of Annuity Options are Available."
Spousal Beneficiary - Assumption of Annuity
You may name your spouse as your Beneficiary. If you and your spouse own the Annuity jointly, we assume that the sole primary
Beneficiary will be the surviving spouse unless you elect an alternative Beneficiary designation. Unless you elect an alternative
Beneficiary designation, the spouse Beneficiary may elect to assume ownership of the Annuity instead of taking the Death Benefit
payment. Any Death Benefit (including any optional Death Benefits) that would have been payable to the Beneficiary will become
the new Account Value as of the date we receive due proof of death and any required proof of a spousal relationship. As of the
date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the
Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the surviving
spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value.
However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of
the Annuity.
See the section entitled "Managing Your Annuity - Spousal Contingent Annuitant" for a discussion of the treatment of a spousal
Contingent Annuitant in the case of the death of the Annuitant in an entity owned Annuity.
Inherited IRA Death Benefit Payout
The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or other "qualified
investment" that requires Minimum Distributions. The available payment options will depend on whether the Owner died on or before
the date he or she was required to begin receiving Minimum Distributions under the Code and whether the Beneficiary is the
surviving spouse.
|X| If death occurs before the date Minimum Distributions must begin under the Code, the Death Benefit can be paid out in
either a lump sum, within five years from the date of death, or over the life or life expectancy of the designated
Beneficiary (as long as payments begin by December 31st of the year following the year of death). However, if the spouse
is the Beneficiary, the Death Benefit can be paid out over the life or life expectancy of the spouse with such payments
beginning no earlier than December 31 of the year following the year of death or December 31st of the year in which the
deceased would have reached age 70 1/2, which ever is later.
|X| If death occurs after the date Minimum Distributions must begin under the Code, the Death Benefit must be paid out at
least as rapidly as under the method then in effect.
A Beneficiary has the flexibility to take out more each year than required under the Minimum Distribution rules. Until withdrawn,
amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts withdrawn each year, including
amounts that are required to be withdrawn under the Minimum Distribution rules, are subject to tax. You may wish to consult a
professional tax advisor for tax advice as to your particular situation. See the section entitled "How are Distributions From
Qualified Contracts Taxed? - Minimum Distributions after age 70 1/2."
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if
the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or Annuitant due to the prior
Owner's or Annuitant's death. Any minimum Death Benefit that applies will be suspended for a two-year period from the date he or
she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this
person had been an Owner or Annuitant on the Issue Date.
When do you determine the Death Benefit?
We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written representations
we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a
certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of
death or other satisfactory proof of death. Upon our receipt of "due proof of death" we automatically transfer the Death Benefit
to the WFVT Money Market Sub-Account until we further determine the universe of eligible Beneficiaries. Once the universe of
eligible Beneficiaries has been determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit
to the Sub-Accounts according to our rules.
Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit. Absent an
election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may require written
acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period from the date of death until we
receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations.
VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for each Sub-account
allocation and for each Fixed Allocation. The Account Value is the sum of the values of each Sub-account allocation and the value
of each Fixed Allocation. The Account Value does not reflect any CDSC that may apply to a withdrawal or surrender. The Account
Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your
Annuity. When determining the Account Value on any day other than a Fixed Allocation's Maturity Date, the Account Value may
include any Market Value Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value
is equal to your Account Value minus any CDSC, the Annual Maintenance Fee, the charge for any optional Death Benefit and any
additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The
Surrender Value will also include any Market Value Adjustment that may apply.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account invests
exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market fluctuations of the
Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge.
Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for
determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any
transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000
buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that
Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original
Sub-account has increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477
Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the
new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal
to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the date calculated.
The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from a
Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before
they were withdrawn. To determine the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply
the Account Value of the Fixed Allocation times the Market Value Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) days
after we receive all of our requirements to issue the Annuity. If we do not have all the required information to allow us to
issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our
requirements. If we are unable to obtain all of our required information within five (5) days, we are required to return the
Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the
required information. Once we obtain the required information, we will invest the Purchase Payment and issue the Annuity within
two (2) days. During any period that we are trying to obtain the required information, your money is not invested.
Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase
Payment with satisfactory instructions.
Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing, or asset
allocation program, Systematic Withdrawals, Minimum Distributions or annuity payments. Scheduled transactions are processed and
valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be
processed and valued on Valuation Day prior to the scheduled transaction date.
Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial
Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we
receive the request at our Office in good order.
Medically-related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims require our review
and evaluation before processing. We price such transactions as of the date we receive at our Office all materials we require for
such transaction and that are satisfactory to us.
TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?
Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since the tax laws are
complex and tax consequences are affected by your individual circumstances, this summary of our interpretation of the relevant tax
laws is not intended to be fully comprehensive nor is it intended as tax advice. Therefore, you may wish to consult a
professional tax advisor for tax advice as to your particular situation.
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?
The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance company under Part I,
subchapter L of the Code. No taxes are due on interest, dividends and short-term or long-term capital gains earned by the
Separate Accounts with respect to the Annuities.
IN GENERAL, HOW ARE ANNUITIES TAXED?
Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in large part on:
1. whether the Annuity is used by:
|X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for special treatment
under the Code (for purposes of this discussion, a "Qualified Contract"); or
|X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and
2. whether the Owner is:
|X| an individual person or persons; or
|X| an entity including a corporation, trust or partnership.
Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed on any increase
in the value of the Annuity until an amount is received (a "distribution"). This is commonly referred to as "tax deferral". A
distribution can be in the form of a lump sum payment including payment of a Death Benefit, or in annuity payments under one of
the annuity payment options. Certain other transactions may qualify as a distribution and be subject to taxation.
Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of the Annuity must
currently include any increase in the value of the Annuity during a tax year in its gross income. An exception from current
taxation applies for annuities held by an employer with respect to a terminated tax-qualified retirement plan, a trust holding an
annuity as an agent for a natural person, or by a decedent's estate by reason of the death of the decedent. A tax-exempt entity
for Federal tax purposes will not be subject to income tax as a result of this provision.
HOW ARE DISTRIBUTIONS TAXED?
Distributions from an Annuity are taxed as ordinary income and not as capital gains.
Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as coming first
from "income on the contract" and then as a return of the "investment in the contract". The amount of any distribution that is
treated as receipt of "income on the contract" is includible in the taxpayer's gross income and taxable in the year it is
received. The amount of any distribution treated as a return of the "investment in the contract" is not includible in gross
income.
|X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from the aggregate
value of all "related contracts" (discussed below).
|X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any previous
distributions or portions of such distributions from such "related contracts" that were not includible in gross income.
"Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a
tax-free exchange of life insurance, endowment, or annuity contracts under Section 1035 of the Code. The "investment in the
contract" for a Qualified Contract will be considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will generally be
taxable. The taxable portion of each annuity payment is determined by a formula which establishes the ratio that the "investment
in the contract" bears to the total value of annuity payments to be made. This is called the "exclusion ratio." The investment
in the contract is excluded from gross income. Any portion of an annuity payment received that exceeds the exclusion ratio will
be entirely includible in gross income. The formula for determining the exclusion ratio differs between fixed and variable
annuity payments. When annuity payments cease because of the death of the person upon whose life payments are based and, as of
the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the
"investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by the beneficiary in
the tax year of such death.
Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a Qualified Contract
(Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount includible in gross income. This
penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 591/2;
|X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death of the annuitant;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a series of substantially equal periodic payments for the life (or life expectancy) of
the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary);
|X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14, 1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the
employer until the employee separates from service.
Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner within the same
calendar year (other than certain contracts owned in connection with a tax-qualified retirement arrangement) are to be treated as
one annuity contract when determining the taxation of distributions before annuitization. We refer to these contracts as "related
contracts." In situations involving related contracts we believe that the values under such contracts and the investment in the
contracts will be added together to determine the proper taxation of a distribution from any one contract described under the
section "Distributions before Annuitization." Generally, distributions will be treated as coming first from income on the
contract until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the
contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view related contracts when
one or more contracts are immediate annuities or are contracts that have been annuitized. The Internal Revenue Service has not
issued guidance clarifying this issue as of the date of this Prospectus. You are particularly cautioned to seek advice from your
own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)" distributions) Any
modification to a program of distributions which are part of a series of substantially equal periodic payments that occur before
the later of the taxpayer reaching age 59 1/2or five (5) years from the first of such payments will result in the requirement to pay
the 10% premature distribution penalty that would have been due had the payments been treated as subject to the 10% premature
distribution penalty in the years received, plus interest. This does not apply when the modification is by reason of death or
disability. American Skandia does not currently support a section 72(q) program.
Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the immediate annuity exception to the
10% penalty described above under "Penalty Tax on Distributions" for "non-qualified" immediate annuities as defined under the Code
may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant
to an exchange of a contract if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed
more than one year prior to the annuity starting date under the immediate annuity; and (b) the annuity payments under the
immediate annuity do not meet the requirements of any other exception to the 10% penalty.
Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain tax-free exchanges of
a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased through a tax-free exchange of a life
insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any distributions other than as annuity
payments will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into the annuity;
|X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to August 14, 1982
(including income on such original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982.
Therefore, to the extent a distribution is equal to or less than the remaining investment in the contract made prior to August 14,
1982, such amounts are not included in taxable income. Further, distributions received that are considered to be a return of
investment on the contract from purchase payments made prior to August 14, 1982, such distributions are not subject to the 10% tax
penalty. In all other respects, the general provisions of the Code apply to distributions from annuities obtained as part of such
an exchange.
Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current
taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2withdrawals. The IRS has reserved the
right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. We do not know
what transactions may be considered abusive. For example, we do not know how the IRS may view early withdrawals or annuitizations
after a partial exchange. As of the date of this prospectus, we will treat a partial surrender of this type involving a
non-qualified annuity contract as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a
reporting and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some insurance
companies may not recognize these partial surrenders as tax-free exchanges and may report them as taxable distributions to the
extent of any gain distributed as well as subjecting the taxable portion of the distribution to the 10% IRS early distribution
penalty. We strongly urge you to discuss any transaction of this type with your tax advisor before proceeding with the
transaction.
There is no guidance from the Internal Revenue Service as to whether a partial exchange from a life insurance contract is eligible
for non-recognition treatment under Section 1035 of the Code. We will continue to report a partial surrender of a life insurance
policy as subject to current taxation to the extent of any gain. In addition, please be cautioned that no specific guidance has
been provided as to the impact of such a transaction for the remaining life insurance policy, particularly as to the subsequent
methods to be used to test for compliance under the Code for both the definition of life insurance and the definition of a
modified endowment contract.
Special Considerations for Purchasers of the Enhanced Beneficiary Protection Optional Death Benefit: As of the date of this
Prospectus, it is our understanding that the charges related to the optional Death Benefit are not subject to current taxation and
we will not report them as such. However, the IRS could take the position that these charges should be treated as partial
withdrawals subject to current taxation to the extent of any gain and, if applicable, the 10% tax penalty. We reserve the right
to report charges for the optional Death Benefit as partial withdrawals if we, as a reporting and withholding agent, believe that
we would be expected to report them as such.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have provided summaries
of the types of tax-qualified retirement plans with which we may issue an Annuity. These summaries provide general information
about the tax rules and are not intended to be complete discussions. The tax rules regarding qualified plans are complex. These
rules may include limitations on contributions and restrictions on distributions, including additional taxation of distributions
and additional penalties. The terms and conditions of the tax-qualified retirement plan may impose other limitations and
restrictions that are in addition to the terms of the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice, both as to the
tax treatment and suitability of such an investment. American Skandia does not offer all of its annuities to all of these types of
tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate pension and
profit-sharing plans established by corporate employers under Section 401(a) of the Code including 401(k) plans. Contributions
to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations
on the amount that may be contributed and the timing of distributions. The tax treatment of distributions is subject to special
provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to
participation, nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for
themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of
the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations
and requirements may differ from those for corporate plans.
Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into which contributions
may be made by certain qualifying employers such as public schools and certain charitable, educational and scientific
organizations specified in Section 501(c)(3) for the benefit of their employees. Such contributions are not taxable to the
employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions.
Nondiscrimination requirements also apply.
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Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made pursuant to a
salary reduction agreement unless the distribution is made:
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|X| After the participating employee attains age 59 1/2;
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|X| Upon separation from service, death or disability; or
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|X| In the case of financial hardship (subject to restrictions).
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Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and certain other tax
exempt employers for their employees may invest in annuity contracts. The Code limits contributions and distributions, and
imposes eligibility requirements as well. Contributions are not taxable to employees until distributed from the plan. However,
plan assets remain the property of the employer and are subject to the claims of the employer's general creditors until such
assets are made available to participants or their beneficiaries.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an individual retirement
account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the amount that may be contributed, the
contributions that may be deducted from taxable income, the persons who may be eligible to establish an IRA and the time when
distributions must commence. Further, an Annuity may be established with "roll-over" distributions from certain tax-qualified
retirement plans and maintain the tax-deferred status of these amounts.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax deductible. However,
distributions from a Roth IRA are free from Federal income taxes and are not subject to the 10% penalty tax if five (5) tax years
have passed since the first contribution was made or any conversion from a traditional IRA was made and the distribution is made
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(a) once the taxpayer is age 59 1/2or older, (b) upon the death or disability of the taxpayer, or (c) for qualified first-time home
buyer expenses, subject to certain limitations. Distributions from a Roth IRA that are not "qualified" as described above may be
subject to Federal income and penalty taxes.
Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on eligibility,
contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and
qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis and the conditions under which distributions
from traditional IRAs may be rolled over to, or the traditional IRA itself may be converted into, a Roth IRA.
SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP IRAs. Employer
contributions that may be made to employee SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be
deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a portion of each
distribution may be excludable from income. The excludable amount is the proportion of a distribution representing after-tax
contributions. Generally, a 10% penalty tax applies to the taxable portion of a distribution from a Qualified Contract made prior
to age 59 1/2. However, the 10% penalty tax does not apply when the distribution:
|X| is part of a properly executed transfer to another IRA or another eligible qualified account;
|X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7)
of the Code);
|X| is part of a series of substantially equal periodic payments to be paid not less frequently than annually for the
taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary;
|X| is subsequent to a separation from service after the taxpayer attains age 55*;
|X| does not exceed the employee's allowable deduction in that tax year for medical care*;
|X| is made to an alternate payee pursuant to a qualified domestic relations order*; and
|X| is made pursuant to an IRS levy.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be available.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be distributed, or begin to
be distributed, by the "required beginning date". This is April 1st of the calendar year following the later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the employer sponsoring the plan. The retirement
option is not available to IRAs.
The IRS has released proposed Treasury regulations containing new Minimum Distribution rules. Under the new rules, the Minimum
Distribution amount will be lower for the vast majority of individuals. The new rules are available, at the option of the
individual, for Minimum Distributions required in the year 2001. For Minimum Distributions required in 2002 and beyond, the
individual must utilize the new Minimum Distribution rules.
Under existing Minimum Distribution rules, the participant's entire interest must be distributed beginning no later than the
required beginning date over a period which may not extend beyond a maximum of the life or life expectancy of the participant (or
the life expectancies of the owner and a designated beneficiary). Each annual distribution must equal or exceed a "minimum
distribution amount" which is determined by dividing the account value by the applicable life expectancy or pursuant to an annuity
payout. If the account balance is used, it generally is based upon the Account Value as of the close of business on the last day
of the previous calendar year.
If the participant dies before reaching his or her "required beginning date", his or her entire interest must generally be
distributed within five (5) years of death. However, this rule will be deemed satisfied if distributions begin before the close
of the calendar year following death to a designated beneficiary (or over a period not extending beyond the life expectancy of the
beneficiary). If the Beneficiary is the individual's surviving spouse, distributions may be delayed until the deceased owner would
have attained age 701/2. A surviving spouse would also have the option to assume the IRA as his or her own if he or she is the
sole designated beneficiary. If a participant dies after reaching his or her required beginning date or after distributions have
commenced, the individual's interest must generally be distributed at least as rapidly as under the method of distribution in
effect at the time of the individual's death.
If the amount distributed is less than the minimum required distribution for the year, the participant is subject to a 50% tax on
the amount that was not properly distributed.
Under the new Minimum Distribution rules, a uniform life expectancy table will be utilized by all participants except those with a
spouse who is more than ten (10) years younger than the participant. In that case, the new rules permit the participant to
utilize the actual life expectancies of the participant and the spouse. In addition, the designated beneficiary under the new
rules is not determined until December 31 of the year following the year of the participant's death. In most cases, the
beneficiary may be changed during the participant's lifetime with no affect on the Minimum Distributions. At death, the
designated Beneficiary may take Minimum Distributions over his/her life expectancy or in a lump sum. In the absence of a
designated beneficiary, the beneficiary may take a lump sum or distributions over five (5) years.
It is important to note that the new Minimum Distribution rules may not apply to certain qualified retirement plans (at this
time), but currently generally apply to IRA's and 403(b)'s.
GENERAL TAX CONSIDERATIONS
Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an annuity, must
have an "adequately diversified" segregated asset account (including investments in a mutual fund by the segregated asset account
of insurance companies). If the diversification requirements under the Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain in the contract. The Treasury Department's regulations
prescribe the diversification requirements for variable annuity contracts. We believe the underlying mutual fund portfolios should
comply with the terms of these regulations.
Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The Treasury Department
may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with
ownership rights have excessive control over the investments underlying such variable annuity. Such guidelines may or may not
address the number of investment options or the number of transfers between investment options offered under a variable annuity.
It is not known whether such guidelines, if in fact promulgated, would have retroactive effect. It is also not known what effect,
if any, such guidelines may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus.
We will take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such guidelines if
promulgated.
Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the portion of a
distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the
distribution. However, under most circumstances a recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by filing a completed election form with us.
Certain distributions, known as eligible rollover distributions, from Qualified Contracts, are subject to automatic 20%
withholding for Federal income taxes. The following distributions are not eligible rollover distributions and not subject to 20%
withholding::
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual retirement annuity;
|X| distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the
retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan;
|X| distributions that are part of a series of substantial periodic payments pursuant to Section 72(q) or 72(t) of the Code;
and
|X| certain other distributions where automatic 20% withholding may not apply.
Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or pledge of any
portion of the value of, an annuity before annuity payments have begun are treated as a distribution subject to taxation under the
distribution rules set forth above. Any gain in an annuity on or after the assignment or pledge of an entire annuity and while
such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For
annuities not issued as Qualified Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge
includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by
payment of any interest thereon.
Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a divorce) is treated,
for income tax purposes, as a distribution.
Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and state estate and
gift tax consequences flowing from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is transferred to, or a
death benefit is paid to, an individual two or more generations younger than the contract holder. These generation-skipping
transfers generally include those subject to federal estate or gift tax rules. There is an aggregate $1 million exemption from
taxes for all such transfers. We may be required to determine whether a transaction is a direct skip as defined in the Code and
the amount of the resulting tax. We will deduct from your Annuity or from any applicable payment treated as a direct skip any
amount of tax we are required to pay.
Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant succeeds an annuitant
when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred treatment under certain sections of
the Code. In general, the Code is designed to prevent indefinite deferral of tax. Continuing the benefit of tax deferral by
naming one or more contingent annuitants when the Annuity is owned by a non-qualified trust might be deemed an attempt to extend
the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as
contingent annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a
contingent annuitant if you expect to use an Annuity in such a fashion.
GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to you at your last known address of record. You
should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to
your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by
applicable law or regulation to you through our Internet Website at http://www.americanskandia.com or any other electronic means,
including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value,
such as making additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing the
activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge
up to $50 for each such additional report. Instead of immediately confirming transactions made pursuant to some type of periodic
transfer program (such as a dollar cost averaging program) or a periodic Purchase Payment program, such as a salary reduction
arrangement, we may confirm such transactions in quarterly statements. You should review the information in these statements
carefully.
All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to your Annuity.
For transactions that are confirmed immediately, we assume all transactions are accurate unless you notify us otherwise within 10
days from the date you receive the confirmation. For transactions that are only confirmed on the quarterly statement, we assume
all transactions are accurate unless you notify us within 10 days from the date you receive the quarterly statement. All
transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 10-day period. We may
also send an annual report and a semi-annual report containing applicable financial statements, as of December 31 and June 30,
respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or
other electronic means.
WHO IS AMERICAN SKANDIA?
American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in Connecticut with
licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned subsidiary of American Skandia, Inc.,
formerly known as American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a
Swedish company. American Skandia markets its products to broker-dealers and financial planners through an internal field
marketing staff. In addition, American Skandia markets through and in conjunction with financial institutions such as banks that
are permitted directly, or through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American Skandia currently
offers the following products: (a) flexible premium deferred annuities and single premium fixed deferred annuities that are
registered with the SEC; (b) certain other fixed deferred annuities that are not registered with the SEC; (c) certain group
variable annuities that are exempt from registration with the SEC that serve as funding vehicles for various types of qualified
pension and profit sharing plans; (d) a single premium variable life insurance policy that is registered with the SEC; and (e) a
flexible premium life insurance policy that is registered with the SEC.
WHAT ARE SEPARATE ACCOUNTS?
The assets supporting our obligations under the Annuities may be held in various accounts, depending on the obligation being
supported. In the accumulation period, assets supporting Account Values are held in separate accounts established under the laws
of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout phase, assets supporting
fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Income, gains and
losses from assets allocated to these separate accounts are credited to or charged against each such separate account without
regard to other income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be
charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance Corporation. The amount
of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts.
However, the obligations themselves are our general corporate obligations.
Separate Account B
During the accumulation period, the assets supporting obligations based on allocations to the variable investment options are held
in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account
B". Separate Account B consists of multiple Sub-accounts. The name of each Sub-account generally corresponds to the name of the
underlying Portfolio. The names of each Sub-account are shown in the Statement of Additional Information. Separate Account B was
established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values
and benefits that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to this
Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate Account B has a different
level of charges assessed against such Sub-accounts. You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds.
Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit
investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the investment
policies, management or practices of Separate Account B. Each Sub-account invests only in a single mutual fund or mutual fund
portfolio.
We reserve the right to make changes to the Sub-accounts available under the Annuity as we determine appropriate. We may offer
new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may also close Sub-accounts to
additional Purchase Payments on existing Annuity contracts or close Sub-accounts for Annuities purchased on or after specified
dates. We may also substitute an underlying mutual fund or portfolio of an underlying mutual fund for another underlying mutual
fund or portfolio of an underlying mutual fund, subject to our receipt of any exemptive relief that we are required to obtain
under the Investment Company Act of 1940. We will notify Owners of changes we make to the Sub-accounts available under the
Annuity.
Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual
funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value
allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk.
Separate Account D
During the accumulation period, assets supporting our obligations based on Fixed Allocations are held in American Skandia Life
Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations are based on the fixed
interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment
performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law.
There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who
allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets
maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in
Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate
Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we
will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to
our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in
Separate Account D supporting a number of annuities we offer.
We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account D. Each manager
we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional
investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or
continue to employ any investment manager(s).
We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other
state insurance laws.
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares
of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and
variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules,
you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio
requests a vote of shareholders, we will vote our shares in the manner directed by Owners with Account Value allocated to that
Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not
receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the
shares for which we have received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account
whose underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their
instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental
investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying
mutual fund that require a vote of shareholders.
American Skandia Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its
investment adviser, American Skandia Investment Services, Incorporated ("ASISI"), subject to approval by the Board of Trustees of
the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder
approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized
in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by ASISI
and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders
following these types of changes.
Material Conflicts
It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their
respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur
surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts
that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would
take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance
policies against persons with voting rights under other insurance companies' variable insurance products. If a "material
conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would
take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to
differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or
different companies. We monitor any potential conflicts that may exist.
Service Fees Payable by Underlying Funds
American Skandia or our affiliates have entered into agreements with the investment adviser or distributor of many of the
underlying Portfolios. Under the terms of these agreements, American Skandia provides administrative and support services to the
Portfolios for which a fee is paid that is generally based on a percentage of the average assets allocated to the Portfolios under
the Annuity. Any fees payable will be consistent with the services rendered or the expected cost savings resulting from the
arrangement. These agreements may be different for each underlying mutual fund whose portfolios are offered as Sub-accounts.
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the distributor and
principal underwriter of the securities offered through this prospectus. ASM acts as the distributor of a number of annuity and
life insurance products we offer and both American Skandia Trust and American Skandia Advisor Funds, Inc., a family of retail
mutual funds. ASM also acts as an introducing broker-dealer through which it receives a portion of brokerage commissions in
connection with purchases and sales of securities held by portfolios of American Skandia Trust which are offered as underlying
investment options under the Annuity.
ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer under the
Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent broker-dealers who are
registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration. Applications for
the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance
agents under state insurance law. In addition, ASM may offer the Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual representative will
receive a portion of the compensation, depending on the practice of the firm. Compensation is generally based on a percentage of
Purchase Payments made, up to a maximum of 7.0%. Alternative compensation schedules are available that provide a lower initial
commission plus ongoing annual compensation based on all or a portion of Account Value. We may also provide compensation for
providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity
do not result in any additional charge to you or to the Separate Account. No compensation is payable on Annuities purchased by a
member of the designated class of Owners (see "Credits Applied to Purchase Payments for Designated Class of Annuity Owner").
In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel,
marketing or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain
firms. These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules
and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or
other compensation.
Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we
calculate performance for the Sub-accounts are found in the Statement of Additional Information, including how we account for
Credits in these performance measures. This information may help you review the performance of the investment options and provide
a basis for comparison with other annuities. This information's usefulness may be limited because of the Credits, since, as of
the date of this Prospectus, we were not aware of many annuities with variable and/or market value adjusted fixed investment
options that included this type of feature. This information also may be less useful when comparing the performance of the
investment options with other savings or investment vehicles. Such other investments may not provide some of the benefits of
annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment vehicles may not be
receive the beneficial tax treatment given to annuities under the Code.
We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and "Non-standard" Total
Returns. "Standard Total Return" figures assume that all charges and fees are applicable, including any contingent deferred sales
charge that may apply for the period shown but it does not take into consideration any Credits. "Non-standard Total Return"
figures may be used that do not reflect all fees and charges and may assume Credits of 1.0%, 2.0%, 3.0% or 4.0%, respectively,
depending on the cumulative amount of Purchase Payments being illustrated. The amount of credits illustrated may be more or less
than the Credits applicable to your Annuity (see "What are Credits and how do I Receive Them?"). Non-standard Total Returns are
calculated in the same manner as standardized returns except that the calculations may assume no redemption at the end of the
applicable periods. These figures may not take into consideration the Annuity's contingent deferred sales charge. Standard and
Non-standard Total returns will not reflect charges that apply to either Optional Death Benefit. Non-standard Total Returns must
be accompanied by Standard Total Returns. Any performance advertisements will not reflect the impact of any Target Value Credits.
Performance information on the Sub-accounts is based on past performance only and is not an indication or representation of future
performance. Performance of the Sub-accounts is not fixed. Actual performance will depend on the type, quality and, for some of
the Sub-accounts, the maturities of the investments held by the underlying mutual funds or portfolios and upon prevailing market
conditions and the response of the underlying mutual funds to such conditions. Actual performance will also depend on changes in
the expenses of the underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest
in such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account will affect
performance.
Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance quoted in
advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in existence but prior to the
initial offering of the Annuities, or periods during which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical historical performance is calculated using the same assumptions employed in calculating
actual performance since inception of the Sub-accounts. Hypothetical historical performance of the underlying mutual fund
portfolios prior to the existence of the Sub-accounts may only be presented as Non-Standard Total Returns.
The information we may advertise regarding the Fixed Allocations may include the then current interest rates we are crediting to
new Fixed Allocations. Information on current rates will be as of the date specified in such advertisement. Rates will be
included in advertisements to the extent permitted by law. Given that the actual rates applicable to any Fixed Allocation are as
of the date of any such Fixed Allocation's Guarantee Period begins, the rate credited to a Fixed Allocation may be more or less
than those quoted in an advertisement.
Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged market indices,
including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, the Shearson Lehman Bond
Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital International Index of Europe, Asia and Far East
Funds, and the Morgan Stanley Capital International World Index; and/or (b) other management investment companies with investment
objectives similar to the mutual fund or portfolio underlying the Sub-accounts being compared. This may include the performance
ranking assigned by various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's,
Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual Funds Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund Sourcebook and
the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial ratings services.
Such rankings may help you in evaluating our ability to meet our obligations in relation to Fixed Allocations, pay minimum death
benefits, pay annuity payments or administer Annuities. Such rankings and ratings do not reflect or relate to the performance of
Separate Account B.
AVAILABLE INFORMATION
A Statement of Additional Information is available from us without charge upon your request. This Prospectus is part of the
registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available
in those registration statements and the exhibits thereto. You may obtain copies of these materials at the prescribed rates from
the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those registration
statements and exhibits thereto at the SEC's public reference facilities at the above address, Room 1024, and at the SEC's
Regional Offices, 7 World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, IL. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified
or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or
superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 2000 previously filed
by the Company with the SEC under the Exchange Act is incorporated by reference in this Prospectus.
We will furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including
any exhibits to such documents which have been specifically incorporated by reference. We will do so upon receipt of your written
or oral request.
HOW TO CONTACT US
You can contact us by:
|X| calling our Customer Service Team at 1-800-680-8920 or our automated telephone access and response system (STARS) at
1-800-766-4530
|X| writing to us at American Skandia Life Assurance Corporation, Attention: Stagecoach Annuity, P.O. Box 7038, Bridgeport,
Connecticut 06601-7038
|X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at www.americanskandia.com
|X| accessing information about your Annuity through our Internet Website at www.americanskandia.com
You can obtain account information through our automated telephone access and response system (STARS) and at
www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during business hours to
provide you with information about your account. You can request certain transactions through our telephone voice response
system, our Internet Website or through a customer service representative. You can provide authorization for a third party,
including your attorney-in-fact acting pursuant to a power of attorney or a financial professional, to access your account
information and perform certain transactions on your account. You will need to complete a form provided by us which identifies
those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party
to perform any such transactions. We require that you or your representative provide proper identification before performing
transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that
will be provided to you upon issue of your Annuity or you may establish or change your PIN through our automated telephone access
and response system (STARS) and at www.americanskandia.com, our Internet Website. Any third party that you authorize to perform
financial transactions on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims,
loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such
transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of
electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such
procedures.
American Skandia does not guarantee access to telephonic and electronic information or that we will be able to accept transaction
instructions via the telephone or electronic means at all times. American Skandia reserves the right to limit, restrict or
terminate telephonic and electronic transaction privileges at any time.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed
that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary course of business,
and know of no material claims.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and certain significant employees, their ages, positions with us and principal occupations are
indicated below. The immediately preceding work experience is provided for officers that have not been employed by us or an
affiliate for at least five years as of the date of this Prospectus.
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
- --- -------------------------- --------------------
Patricia J. Abram Senior Vice President Senior Vice President:
49 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer with Mutual
Service Corporation. Ms. Abram was employed there since 1982.
Lori Allen Vice President Vice President:
31 American Skandia
Marketing, Incorporated
Robert M. Arena Vice President Vice President:
32 American Skandia Life
Assurance Corporation
Gordon C. Boronow Deputy Chief Executive Officer Deputy Chief Executive Officer:
48 and Director (since July, 1991) American Skandia Life
Assurance Corporation
Robert W. Brinkman Senior Vice President Senior Vice President:
36 American Skandia
Marketing, Incorporated
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
45 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Carl Cavaliere Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc. since 1989.
Y.K. Chan Senior Vice President Senior Vice President
43 and Director (since September, 2000) and Chief Information Officer:
American Skandia Information
Services and Technology Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg Pincus from January
1995 until April 1999 and the position of Vice President, Client Server Application Development with Scudder, Stevens and Clark
from January 1991 until January 1995.
Lucinda C. Ciccarello Vice President Vice President:
42 American Skandia
Marketing, Incorporated
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff & Phelps since
1984.
Lincoln R. Collins Senior Vice President Senior Vice President:
40 Director (since February, 1996) American Skandia Life
Assurance Corporation
Tim Cronin Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle Investors since
1995.
Harold Darak Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche since 1998 and
the positions of Second Vice President with The Guardian since 1996 and The Travelers from October, 1982 until December, 1995.
Wade A. Dokken President and Chief Executive Officer President and
41 and Chairman of the Board Chief Executive Officer:
American Skandia, Inc.
Elaine C. Forsyth Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance:
54 American Skandia Life
Assurance Corporation
Maureen Gulick Director, Business Operations Director, Business Operations:
38 American Skandia Life
Assurance Corporation
Ian Kennedy Senior Vice President Senior Vice President:
53 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice President, Customer
Service with SunLife of Canada from September, 1968 to August, 1995.
N. David Kuperstock Vice President Vice President:
49 American Skandia Life
Assurance Corporation
Robert K. Leach Vice President and Vice President,
46 Chief Actuary Chief Actuary:
American Skandia Life
Assurance Corporation
Mr. Robert K. Leach joined us in 2000. He previously was employed in the U.S. Retirement Products and Services Division of Sun
Life of Canada and held the position of Vice President, Finance and Product.
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
48 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,
46 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
39 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Michael A. Murray Senior Vice President Senior Vice President:
32 American Skandia
Marketing, Incorporated
Polly Rae Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Rebecca Ray Vice President Senior Vice President:
45 American Skandia
Marketing, Incorporated
Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities since 1997 and
Vice President with Merrill Lynch since 1995.
Rodney D. Runestad Vice President Vice President:
51 American Skandia Life
Assurance Corporation
Hayward L. Sawyer Senior Vice President Senior Vice President:
56 American Skandia
Marketing, Incorporated
Lisa Shambelan Vice President Vice President:
35 American Skandia Life
Assurance Corporation
Karen Stockla Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with Citizens Utilities
Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since 1993.
William H. Strong Vice President Vice President:
57 American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems from June 1994 to
October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June 1994.
Guy Sullivan Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Mr. Sullivan joined us in 2000. He previously held the positions of Managing Director, Wholesale Distribution with Allmerica
Financial Services since 1999 and Managing Director and Member of the Executive Committee with Putnam Investments since 1995.
Leslie S. Sutherland Vice President Vice President:
47 American Skandia
Marketing, Incorporated
Amanda C. Sutyak Vice President Vice President:
43 Director (since July, 1991) American Skandia Life
Assurance Corporation
Christian W. Thwaites Senior Vice President Senior Vice President:
43 and Director (since September, 2000) American Skandia
Marketing, Incorporated
Mary Toumpas Vice President Vice President and
49 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb Life/Chubb Securities
since 1973.
Bayard F. Tracy Senior Vice President and Senior Vice President:
53 Director (since September, 1994) American Skandia
Marketing, Incorporated
Deborah G. Ullman Senior Vice President Senior Vice President:
46 and Director (since September, 2000) American Skandia Life
Assurance Corporation
Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977.
Jeffrey M. Ulness Vice President Vice President:
40 American Skandia Life
Assurance Corporation
Kirk Wickman General Counsel General Counsel:
44 American Skandia Life
Assurance Corporation
Mr. Wickman joined us in 2001. He previously held the position of Senior Vice President and General Counsel with Aetna Financial
Services since 1992.
Brett M. Winson Senior Vice President and Senior Vice President:
45 Director (since March 2000) American Skandia, Inc.
Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd. since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about American Skandia
|X| American Skandia Life Assurance Corporation
|X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
|X| American Skandia Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated
How Performance Data is Calculated
|X| Current and Effective Yield
|X| Total Return
How the Unit Price is Determined
Additional Information on Fixed Allocations
|X| How We Calculate the Market Value Adjustment
General Information
|X| Voting Rights
|X| Modification
|X| Deferral of Transactions
|X| Misstatement of Age or Sex
|X| Ending the Offer
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts)
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
- ----------------------------
Revenues:
Annuity and life insurance charges and fees* $424,578 $289,989 $186,211 $121,158 $69,780
Fee income
130,610 83,243 50,839 27,593 16,420
Net investment income
11,656 10,441 11,130 8,181 1,586
Premium income and other revenues
4,778 3,688 1,360 1,082 265
----- ----- ----- ----- ---
Total revenues $ 571,622 $ 387,361 $ 249,540 $ 158,014 $ 88,051
====== ========= ======= ========= ============
Benefits and Expenses:
Annuity and life insurance benefits $ 751 $ 612 $ 558 $ 2,033 $ 613
Change in annuity and life insurance 45,018 3,078 1,053 37 635
policy reserves
Cost of minimum death benefit reinsurance - 2,945 5,144 4,545 2,867
Return credited to contractowners
9,046 (1,639) (8,930) (2,018) 673
Underwriting, acquisition and other insurance
expenses
335,213 206,350 167,790 90,496 49,887
Interest expense 85,998 69,502 41,004 24,895 10,791
--------- --------- --------- --------- ------------
Total benefits and expenses $ 476,026 $ 280,848 $ 206,619 $ 119,988 $ 65,466
====== ============= ============= ============= ===========
Income tax expense (benefit) $ 30,779 $ 30,344 $ 8,154 $ 10,478 $ (4,038)
======== ============== ========== ============== =
Net income $ 64,817 $ 76,169 $ 34,767 $ 27,548 $ 26,623
======== ======== ======== ============== ===========
STATEMENT OF FINANCIAL CONDITION DATA
- -------------------------------------
Total Assets $31,702,705 $30,881,579 $18,848,273 $12,894,290 $8,268,696
=========== =========== =========== =========== ==========
Future fees payable to parent $ 934,410 $ 576,034 $ 368,978 $ 233,034 $ 47,112
====== ============= ============= ============= ============
Surplus Notes $ 159,000 $ 179,000 $ 193,000 $ 213,000 $ 213,000
========== ============= ========== ============= ===========
Shareholder's Equity $ 496,911 $ 359,434 $ 250,417 $ 184,421 $ 126,345
====== ============= ====== ============= ===========
* On annuity and life insurance sales of $8,216,167, $6,862,968, $4,159,662, $3,697,990, and $2,795,114 during the
years ended December 31, 2000, 1999, 1998, 1997, and 1996, respectively, with contractowner assets under management
of $29,751,822, $29,396,693, $17,854,761, $12,119,191, and $7,764,891 as of December 31, 2000, 1999, 1998, 1997 and
1996, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the consolidated financial statements and the notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking
statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ
materially due to factors not currently known. These factors include significant changes in financial markets and
other economic and business conditions, state and federal legislation and regulation, ownership and competition.
Results of Operations
---------------------
Annuity and life insurance sales increased 20% in 2000 to $8,216,167,000 as compared to 65% in 1999. Overall sales
growth in 2000 was driven by significant sales volume in the first quarter of 2000 due to the strong equity market
performance. However, the decline in the equity markets during the remainder of the year negatively impacted sales as
the first quarter growth rate was not sustained. The Company continues to focus on increasing sales through innovative
product development activities, the recruitment and retention of top producers, high quality customer service and
improvements in web-based technology. All three major distribution channels achieved sales growth in 2000.
Average assets under management totaled $31,413,809,000 in 2000 and $21,984,759,000 in 1999, representing an increase
of 43%. As a result of the growth in sales and average assets under management, annuity and life insurance charges and
fees increased 46% in 2000 and 56% in 1999. Fee income generated from transfer agency-type and investment support
activities increased 57% in 2000 and 64% in 1999.
Net investment income increased 12% in 2000 compared to 1999 and decreased 6% in 1999 compared to 1998. The increase
in 2000 is primarily due to a higher level of investments, partially offset by $6,939,000 of amortization of premiums
paid on derivative instruments. The decrease in 1999 was primarily the result of $1,036,000 of amortization of the
premium paid on a derivative instrument purchased during 1999. See Note 2D to the consolidated financial statements
for information related to derivative instruments used to hedge the guaranteed minimum death benefit ("GMDB") reserve
fluctuations. Excluding the derivative amortization, net investment income increased 62% in 2000 and increased 3% in
1999 as a result of increased bond holdings that support the Company's risk-based capital objectives.
Premium income represents premiums earned on the sale of ancillary contracts such as immediate annuities with life
contingencies, supplementary contracts with life contingencies and certain life insurance products. Increased sales of
these products led to an increase in premium income in 2000. The increase in 2000 and 1999 was primarily due to higher
sales of supplementary contracts. Management expects supplementary contracts to grow over time with the maturing of
core business lines.
Net realized investment losses totaled $688,000 in 2000, compared to gains of $578,000 in 1999 and $99,000 in 1998.
The change from 1999 to 2000 is primarily due to realized losses on sales of securities in the fixed maturity
portfolio. These losses were partially offset by realized gains on sales of fixed maturities and mutual funds. The
increase in realized gains in 1999 compared to 1998 is due to higher gains on sales of mutual fund investments.
The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as
well as the Company's GMDB liability. In 2000, equity markets declined and the underlying fund performance was lower
than the prior year. In contrast, the equity markets and underlying fund performance were up significantly in 1999
compared to 1998. The combination of these events resulted in an increase in GMDB reserves of $39,866,000 in 2000.
This compares to an increase in GMDB reserves of $2,323,000 in 1999.
In 1999, the Company began to develop a program utilizing equity put options to manage the risks embedded in the GMDB
in annuity contracts that would result from significant declines in the equity markets. Prior to the implementation of
the hedge strategies utilizing equity put options, the Company had reinsured substantially all of its exposure on the
GMDB liability. The reinsurance was terminated during the second quarter of 1999 as the reinsurer had exited this
market.
Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and changes in reserves required on this business. Market value
adjusted annuity activity has the largest impact on this benefit. In 2000 and 1999, the Separate Account investment
returns on the market value adjusted annuities were less than the expected returns as calculated in the reserves,
contributing to the significant increase in the return credited to contractholders benefit. In addition, this benefit
increased as a result of the amortization of unearned Performance Advantage target value credits, which increased
$6,826,000 in 2000 over 1999. Other significant contributors to the change from 1999 to 2000 include guaranteed
minimum death benefit payments on variable annuities which were driven up due to the market declines in 2000 as well as
increased costs associated with processing of backdated financial transactions. These increased costs were partially
offset by a 2000 experience refund on certain reinsurance treaties in the amount of $4,339,000.
Underwriting, acquisition and other insurance expenses for 2000, 1999 and 1998 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Commissions and purchase credits $ 393,494 $ 358,279 $ 201,008
General operating expenses 252,206 214,269 141,586
Acquisition costs deferred during the year (495,103) (450,059) (261,432)
Acquisition costs amortized during the year 184,616 83,861 86,628
------- - ------ - ------
Net capitalization of deferred acquisition costs (310,487) (366,198) (174,804)
- --------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 335,213 $ 206,350 $ 167,790
========= ========= =========
Underwriting, acquisition and other insurance expenses increased 62% and 23% in 2000 and 1999, respectively.
Increased commissions and purchase credits reflect the increase in sales in both 2000 and 1999. Significant
investments in new product development and internet-based technology contributed to general operating expense
increases in both 2000 and 1999. The amortization of acquisition costs increased substantially in 2000 compared to
1999 as the associated costs from record sales in late 1999 and early 2000 were recognized in accordance with
accounting principles generally accepted in the United States profit and expense recognition models.
Interest expense increased $16,496,000 in 2000 and $28,498,000 in 1999 as a result of additional securitized financing
transactions, which consist of the transfer of rights to receive future fees to the Parent ("securitization
transactions"). In addition, the Company retired surplus notes on December 10, 2000 and December 31, 1999 of
$20,000,000 and $14,000,000, respectively. Surplus notes outstanding as of December 31, 2000 and 1999 totaled
$159,000,000 and $179,000,000, respectively.
The effective income tax rates for the years ended December 31, 2000, 1999 and 1998 were 32%, 28% and 19%,
respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most
significant item being the dividend received deduction. Management believes that based on the taxable income produced
in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable
income in future years to realize its deferred tax assets.
The Company generated net income after tax of $64,817,000, $76,169,000 and $34,767,000 in 2000, 1999 and 1998,
respectively. Revenue increases in 2000 were more than offset by higher benefits and expenses driven primarily from
the increase in the reserve requirement related to the GMDB as a result of the decline in the equity markets.
Investments in new product development and technology also contributed to the increase in expenses. These factors
resulted in the 15% decline in net income. Net income increased 119% in 1999 due to strong sales growth and favorable
market conditions which led to higher asset-based revenue. The Company considers Mexico an emerging market and has
invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. The Company expects to transfer ownership of Skandia Vida to an
upstream affiliate during 2001.
On March 22, 2001, the Company announced that it will begin an aggressive operating expense reduction program to better
align its operating infrastructure with the current investment environment. The planned moves include a reduction of
approximately 150 positions, representing 13% of the Company's workforce, reductions in the compensation and benefit
programs and the curtailment of certain discretionary expenses.
Total assets grew 3% in 2000 partially as a result of the modest increase in separate account assets reflecting the
impact of strong sales which were almost entirely offset by the decline in equity markets. Increased deferred
acquisition costs also contributed to the increase in assets. Liabilities grew 2% in 2000 due to higher reserves
required to support the increase in annuity and life insurance business, and increased financing activity related to
the transfer of rights to receive future fees and charges.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from
ASI and the securitization transactions with ASI.
The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products that
carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the
proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the
acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by
insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions,
securitization transactions and modified coinsurance reinsurance arrangements:
o During 2000 and 1999, the Company received $69,000,000 and $34,800,000, respectively, from ASI to support the
capital needs and anticipated growth in business of its U.S. operations. In addition, the Company received
$2,450,000 and $1,690,000 from ASI in 2000 and 1999, respectively, to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to $476,288,000 in 2000 and $265,710,000 in 1999
(see Note 8 to the consolidated financial statements).
o During 2000 and 1999, the Company extended its reinsurance agreements. The Company also entered into an
agreement with SICL in 2000. The reinsurance agreements are modified coinsurance arrangements where the reinsurer
shares in the experience of a specific book of business.
The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain
anticipated from the acquisition costs on the coming years' sales volume.
As of December 31, 2000 and 1999, shareholder's equity totaled $496,911,000 and $359,434,000, respectively. The
increases were driven by the previously mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI.
The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information
regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance
regulators to identify companies that may need regulatory attention. The RBC model law requires that insurance
companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula
includes components for asset risk, insurance risk, interest rate risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital.
Effects of Inflation
--------------------
The rate of inflation has not had a significant effect on the Company's financial statements.
Outlook
- -------
The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial
products for long-term savings and retirement purposes as well as to address the economic impact of premature death,
estate and business planning concerns and supplemental retirement needs. The Company continues to focus on offering
innovative long-term savings and income products and providing superior customer service in order to gain market share
and improve profitability in an increasingly competitive market.
The Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) permits affiliation among banks,
securities firms and insurance companies. This legislative change has created opportunities for continued
consolidation in the financial services industry and increased competition as large companies offer a wide array of
financial products and services.
Various other legislative initiatives could impact the Company such as pension reform, capital gains and estate tax
changes, privacy standards and internet regulation. Pension reform may change current tax deferral rules and allow
increased contributions to retirement plans, which may lead to higher investments in tax-deferred products and create
growth opportunities for the Company. A capital gains tax reduction may cause tax-deferred products to be less
attractive to consumers, which could adversely impact the Company. New privacy standards and internet regulation may
impact the Company's strategic initiatives especially related to potential partnerships with web-based technology
providers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and
liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices.
The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and
describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market
risks and is not intended to be a complete discussion of all of the risks to which the Company is exposed.
Interest Rate Risk
------------------
Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97%
of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not
significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets, the
interest rate risk from contracts that carry interest rate exposure is managed through an asset/liability matching
program which takes into account the risk variables of the insurance liabilities supported by the assets.
At December 31, 2000, the Company held fixed maturity investments in its general account that are sensitive to changes
in interest rates. These securities are held in support of the Company's fixed immediate annuities, supplementary
contracts, the fixed components of variable life insurance contracts, and in support of the Company's target solvency
capital. The Company has a conservative investment philosophy with regard to these investments. All investments are
investment grade corporate securities, government agency or U.S. government securities.
The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period
options available range from one to ten years. Withdrawal of funds before the end of the guarantee period subjects the
contractowner to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed
maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining
interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should
substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the
default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of
failing to maintain the asset/liability matching program with respect to duration and convexity.
Liabilities held in the Company's general account and guaranteed separate account as of December 31, 2000 totaled
$1,095,100,000. Fixed income investments supporting those liabilities had a fair value of $1,098,500,000. The Company
performed a sensitivity analysis on these interest-sensitive liabilities and assets at December 31, 2000. The analysis
showed that an immediate decrease of 100 basis points in interest rates would result in a net increase in liabilities
and the corresponding assets of approximately $37,300,000 and $41,500,000, respectively. An analysis of a 100 basis
point decline in interest rates at December 31, 1999 showed a net increase in interest-sensitive liabilities and the
corresponding assets of approximately $10,200,000 and $24,800,000, respectively.
Equity Market Exposure
----------------------
The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products
sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of
assets under management. In a market decline, this income would be reduced. This could be further compounded by
customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option
discussed above. A 10% decline in the market value of the assets under management at December 31, 2000, sustained
throughout 2001, would result in an approximate drop in related annual fee income of $54,000,000. This result was not
materially different than the result obtained from the analysis performed as of December 31, 1999.
Another equity market risk exposure of the Company relates to the guaranteed minimum death benefit liability. Declines
in equity markets and correspondingly the performance of the underlying mutual funds, increases the guaranteed minimum
death benefit liabilities. As discussed in Note 2D of the consolidated financial statements, the Company utilizes
derivative instruments to hedge against the risk of significant decreases in equity markets. Prior to the
implementation of this program the Company utilized reinsurance to transfer this risk.
The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred
compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio
would decline, however the accrued benefits payable under the related deferred compensation program would decline by a
corresponding amount.
Estimates of interest rate risk and equity price risk were obtained using computer models that take into consideration
various assumptions about the future. Given the uncertainty of future interest rate movements, volatility in the
equity markets and consumer behavior, actual results may vary from those predicted by the Company's models.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the
"Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholder's equity and cash flows for the three year period ended
December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of American Skandia Life Assurance Corporation at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young
February 2, 2001
Hartford, Connecticut
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
See notes to consolidated financial statements.
As of December 31,
2000 1999
--------------- ----------------
ASSETS
- ------
Investments:
Fixed maturities - at fair value 285,708 $ 198,165 $
Fixed maturities - at amortized cost 3,360
-
Equity securities - at fair value 20,402 16,404
Derivative instruments
3,015 189
Policy loans 3,746 1,270
-------------- --------------
-------------- --------------
Total investments 312,871 219,388
Cash and cash equivalents 76,499 89,212
Accrued investment income 5,209 4,054
Deferred acquisition costs 1,398,192 1,087,705
Reinsurance receivable 3,642 4,062
Receivable from affiliates 3,327
-
Income tax receivable
34,620 -
Income tax receivable - deferred 51,726
-
State insurance licenses 4,113 4,263
Fixed assets 10,737 3,305
Other assets 96,403 36,698
Separate account assets 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total assets $ 31,702,705 $ 30,881,579
=============== ================
=============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities:
Reserves for future insurance policy and contract benefits 135,545 $ 73,292 $
Drafts outstanding 63,758 51,059
Accounts payable and accrued expenses 137,040 158,590
Income tax payable 24,268
-
Income tax payable - deferred
8,949 -
Payable to affiliates
- 68,736
Future fees payable to parent 934,410
576,034
Short-term borrowing 10,000 10,000
Surplus notes 159,000 179,000
Separate account liabilities 29,757,092 29,381,166
--------------- ----------------
--------------- ----------------
Total liabilities 31,205,794 30,522,145
--------------- ----------------
--------------- ----------------
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 287,329 215,879
Retained earnings 205,979 141,162
Accumulated other comprehensive income (loss) 1,103 (107)
--------------- ----------------
--------------- ----------------
Total shareholder's equity 496,911 359,434
--------------- ----------------
--------------- ----------------
Total liabilities and shareholder's equity 31,702,705 $ 30,881,579 $
=============== ================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
---------------- --------------- ---------------
---------------- --------------- ---------------
REVENUES
- --------
Annuity and life insurance charges and fees $ $ $
424,578 289,989 186,211
Fee income 130,610 83,243 50,839
Net investment income 11,656 10,441 11,130
Premium income 3,118 1,278 874
Net realized capital (losses) gains (688) 578 99
Other 2,348 1,832 387
---------------- --------------- ---------------
---------------- --------------- ---------------
Total revenues 571,622 387,361 249,540
---------------- --------------- ---------------
---------------- --------------- ---------------
EXPENSES
- --------
Benefits:
Annuity and life insurance benefits 751 612 558
Change in annuity and life insurance policy reserves 45,018 3,078 1,053
Cost of minimum death benefit reinsurance
- 2,945 5,144
Return credited to contractowners 9,046 (1,639) (8,930)
---------------- --------------- ---------------
---------------- --------------- ---------------
54,815 4,996 (2,175)
Expenses:
Underwriting, acquisition and other insurance
expenses 335,213 206,350 167,790
Interest expense 85,998 69,502 41,004
---------------- --------------- ---------------
---------------- --------------- ---------------
421,211 275,852 208,794
---------------- --------------- ---------------
---------------- --------------- ---------------
Total benefits and expenses 476,026 280,848 206,619
---------------- --------------- ---------------
---------------- --------------- ---------------
Income from operations before income tax 95,596 106,513 42,921
Income tax expense
30,779 30,344 8,154
---------------- --------------- ---------------
---------------- --------------- ---------------
Net income $ $ $
64,817 76,169 34,767
================ =============== ===============
================ =============== ===============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Common stock:
Beginning balance $ $ $
2,500 2,000 2,000
Increase in par value
- 500 -
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
2,500 2,500 2,000
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Additional paid in capital:
Beginning balance 215,879 179,889 151,527
Transferred to common stock
- (500) -
Additional contributions 71,450 36,490 28,362
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 287,329 215,879 179,889
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Retained earnings:
Beginning balance 141,162 64,993 30,226
Net income 64,817 76,169 34,767
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance 205,979 141,162 64,993
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Accumulated other comprehensive income (loss):
Beginning balance
(107) 3,535 668
Other comprehensive income (loss)
1,210 (3,642) 2,867
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Ending balance
1,103 (107) 3,535
--------------- ----------------- -----------------
--------------- ----------------- -----------------
Total shareholder's equity $ $ $
496,911 359,434 250,417
=============== ================= =================
=============== ================= =================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flow
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
------------- -------------- -------------
Cash flow from operating activities:
Net income $ $ $
64,817 76,169 34,767
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation
7,565 1,495 251
Deferred tax expense
60,023 (10,903) (14,242)
Change in unrealized losses on derivatives
(2,935) 3,749 -
Increase in policy reserves
50,892 4,367 1,130
(Decrease) increase in payable to affiliates
(72,063) 69,897 166
Change in income tax payable/receivable
(58,888) 17,611 7,704
Increase in other assets
(59,987) (32,954) (1,173)
Increase in accrued investment income
(1,155) (1,174) (438)
Decrease in reinsurance receivable
420 129 2,152
Net increase in deferred acquisition costs
(310,487) (366,198) (174,804)
(Decrease) increase in accounts payable and accrued
expenses (21,550) 66,763 20,637
Increase in drafts outstanding
12,699 22,118 9,663
Change in foreign currency translation, net
(101) 701 (22)
Net realized capital gain on expiration of derivatives
(500) - -
Net realized capital losses (gains)
688 (578) (99)
------------- -------------- -------------
Net cash used in operating activities (330,562) (148,808) (114,308)
------------- -------------- -------------
Cash flow from investing activites:
Purchase of fixed maturity investments
(380,737) (99,250) (31,828)
Proceeds from sale and maturity of fixed
maturity investments
303,736 36,226 4,049
Purchase of derivatives
(6,722) (4,974) -
Purchase of shares in mutual funds
(18,136) (17,703) (7,158)
Proceeds from sale of shares in mutual funds
8,345 14,657 6,086
Purchase of fixed assets
(7,348) (3,178) (18)
Increase in policy loans
(2,476) (701) 118
------------- -------------- -------------
Net cash used in investing activities
(103,338) (17,703) (28,751)
------------- -------------- -------------
Cash flow from financing activities:
Capital contribution from parent
51,450 22,490 8,362
Increase in future fees payable to parent, net
358,376 207,056 135,944
Net deposits to (withdrawals from) contractowner
accounts 11,361 5,872 (5,696)
- -------------------------------------------------------------------------- -------------- -------------
Net cash provided by financing activities
421,187 235,418 138,610
------------- -------------- -------------
Net (decrease) increase in cash and cash
equivalents
(12,713) 11,687 (4,449)
Cash and cash equivalents at beginning of period
89,212 77,525 81,974
------------- -------------- -------------
Cash and cash equivalents at end of period $ $ $
76,499 89,212 77,525
============= ============== =============
Income taxes paid $ $ $
29,644 23,637 14,651
============= ============== =============
Interest paid $ $ $
85,551 69,697 35,588
============= ============== =============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia,
Inc. ("ASI") whose ultimate parent is Skandia Insurance Company Ltd., ("SICL") a Swedish Corporation.
The Company develops long-term savings and retirement products which are distributed through its affiliated
broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable
and term life insurance and variable, fixed, market value adjusted and immediate annuities for individuals,
groups and qualified pension plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance
company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,402,000 and $4,592,000 as of
December 31, 2000, and 1999, respectively. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
------------------
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. 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 Standard
-----------------------
The FASB has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138 (collectively, "SFAS 133").
SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000;
accordingly, the Company adopted SFAS 133 on January 1, 2001. This statement establishes accounting
and reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 requires that all derivative financial
instruments be measured at fair value and recognized in the statement of condition as either assets or
liabilities. Changes in the fair value of the derivative financial instruments will be reported in
either earnings or comprehensive income, depending on the use of the derivative and whether or not it
qualifies for hedge accounting.
Special hedge accounting treatment is permitted only if specific criteria are met, including that the
hedging relationship be highly effective both at inception and on an ongoing basis. Accounting for
hedges varies based on the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive income for cash flow
hedges. Ineffective portions of hedges are recognized immediately in earnings.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The derivative instruments held by the Company in 2000 and 1999 consisted of equity put options
utilized to manage the market risk and reserve fluctuations associated with the guaranteed minimum
death benefit ("GMDB"). The adoption of SFAS No. 133 did not have a material effect on the Company's
financial statements.
C. Investments
The Company has classified its fixed maturity investments as either held-to-maturity or
available-for-sale. Investments classified as held-to-maturity are investments that the Company has
the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those
investments which are classified as available-for-sale are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
The Company has classified its mutual fund investments held in support of a deferred compensation plan
(see Note 13) as available-for-sale. Such investments are carried at fair value and changes in
unrealized gains and losses are reported as a component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined by the specific identification
method and are included in revenues.
D. Derivative Instruments
----------------------
The Company uses derivative instruments which consist of equity option contracts for risk management
purposes, and not for trading or speculation. The Company hedges the market value fluctuations of the
GMDB exposure embedded in its policy reserves. Premiums paid on option contracts are amortized into
net investment income over the terms of the contracts. The options are carried at amortized cost plus
intrinsic value, if any, at the valuation date. An option has intrinsic value if it is
"in-the-money." For a put option to be "in-the-money," the exercise price must be greater than the
value of the underlying index. Changes in intrinsic value are recorded as a component of the change
in annuity and life insurance policy reserves consistent with changes in the GMDB reserve.
E. Cash Equivalents
----------------
The Company considers all highly liquid time deposits, commercial paper and money market mutual funds
purchased with a maturity at date of acquisition of three months or less to be cash equivalents.
F. Fair Values of Financial Instruments
------------------------------------
The methods and assumptions used to determine the fair value of financial instruments are as follows:
Fair values of fixed maturities with active markets are based on quoted market prices. For fixed
maturities that trade in less active markets, fair values are obtained from an independent pricing
service.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair values of investments in mutual funds are based on quoted market prices.
The intrinsic value portion of the derivative instrument is determined based on the current value of
the underlying index.
The carrying value of cash and cash equivalents (cost) approximates fair value due to the short-term
nature of these investments.
The carrying value of short-term borrowings (cost) approximates fair value due to the short-term
nature of these liabilities.
Fair values of certain financial instruments, such as future fees payable to parent and surplus notes
are not readily determinable and are excluded from fair value disclosure requirements.
G. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized and reflected at the purchase price of
$6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a
straight-line basis over 40 years.
H. Software Capitalization
-----------------------
The Company capitalizes certain costs associated with internal use software in accordance with the
American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which was
adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the
Company expensed all internal use software related costs as incurred. Details of the capitalized
software costs, which are included in fixed assets, and related amortization for the years ended
December 31, are as follows:
(in thousands) 2000 1999
---- ----
Balance at beginning of year $2,920 $ -
------ ----
Software costs capitalized during the year 4,804 3,035
Software costs amortized during the year (512) (115)
----- -----
4,292 2,920
----- -----
Balance at end of year $7,212 $2,920
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Income Taxes
------------
The Company is included in the consolidated federal income tax return and combined state income tax
return of an upstream company, Skandia AFS Development Holding Corporation and certain of its
subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax
provisions are computed on a separate return basis as adjusted for consolidated items such as net
operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
J. Recognition of Revenue and Contract Benefits
--------------------------------------------
Revenues for variable deferred 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 variable immediate annuity contracts with and without life contingencies consist of
certain charges against contractowner account values including mortality and expense risks and
administration fees. Benefit reserves for variable immediate annuity contracts represent the account
value of the contracts and are included in the separate account liabilities.
Revenues for market value adjusted fixed annuity contracts consist of separate account investment
income reduced by benefit payments and changes in reserves in support of contractowner obligations,
all of which are included in return credited to contractowners. Benefit reserves for these contracts
represent the account value of the contracts, and are included in the general account reserve for
future contractowner benefits to the extent in excess of the separate account assets.
Revenues for immediate annuity contracts without life contingencies consist of net investment income.
Revenues for immediate annuity contracts with life contingencies consist of single premium payments
recognized as annuity considerations when received. Benefit reserves for these contracts are based on
the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed
interest rates ranged from 6.25% to 8.25% at December 31, 2000 and 1999.
Revenues for variable life insurance contracts consist of charges against contractowner account values
for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium taxes. Benefit reserves for
variable life insurance contracts represent the account value of the contracts and are included in the
separate account liabilities.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are primarily related to the production of
new business, are being deferred, net of reinsurance. These costs include commissions, costs of
contract issuance, and certain selling expenses that vary with production. These costs are being
amortized generally in proportion to expected gross profits from surrender charges, policy and asset
based fees and mortality and expense margins. This amortization is adjusted retrospectively and
prospectively when estimates of current and future gross profits to be realized from a group of
products are revised.
Details of the deferred acquisition costs and related amortization for the years ended December 31,
are as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Balance at beginning of year $1,087,705 $721,507 $546,703
---------- -------- --------
Acquisition costs deferred during the year 495,103 450,059 261,432
Acquisition costs amortized during the year (184,616) (83,861) (86,628)
--------- ------------ ---------
310,487 366,198 174,804
---- ------- ------- --------
Balance at end of year $1,398,192 $1,087,705 $721,507
========== ========== ========
L. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance
arrangements provide additional capacity for growth in supporting the cash flow strain from the
Company's variable annuity and variable life insurance business. The reinsurance is effected under
quota share contracts.
The Company reinsured its exposure to market fluctuations associated with its GMDB liability
in the first half of 1999 and in 1998. Under this reinsurance agreement, the Company ceded premiums
of $2,945,000 and $5,144,000; received claim reimbursements of $242,000 and $9,000; and, recorded
increases/(decreases) in reserves of ($2,763,000) and $323,000 in 1999 and 1998, respectively.
At December 31, 2000 and 1999, in accordance with the provisions of modified coinsurance agreements, the Company
accrued $4,339,000 and $41,000, respectively, for amounts receivable from favorable reinsurance experience on certain
blocks of variable annuity business.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
M. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of Skandia Vida are measured using local currency as
the functional currency. Assets and liabilities are translated at the exchange rate in effect at each
year-end. Statements of income and shareholder's equity accounts are translated at the average rate
prevailing during the year. Translation adjustments arising from the use of differing exchange rates
from period to period are reported as a component of other comprehensive income.
N. Separate Accounts
-----------------
Assets and liabilities in Separate Accounts are included as separate captions in the consolidated
statements of financial condition. Separate Account assets consist principally of long term bonds,
investments in mutual funds, short-term securities and cash and cash equivalents, all of which are
carried at fair value. The investments are managed predominately through the Company's investment
advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are managed by independent investment firms. The
contractowner has the option of directing funds to a wide variety of mutual funds. The investment
risk on the variable portion of a contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The Company is responsible for the credit risk
associated with these investments.
Included in Separate Account liabilities are reserves of $1,059,987,000 and $896,205,000 at December
31, 2000 and 1999, respectively, relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of $1,059,987,000 and $896,205,000 at
December 31, 2000 and 1999, respectively, consisting of long term bonds, short-term securities,
transfers due from the general account and cash and cash equivalents are held in support of these
annuity contracts, pursuant to state regulation.
O. Estimates
---------
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires that management make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The more significant estimates and assumptions are
related to deferred acquisition costs and involve policy lapses, investment return and maintenance
expenses. Actual results could differ from those estimates.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Net income $64,817 $76,169 $34,767
Other comprehensive income:
Unrealized investment (losses) gains on
available for sale securities (1,681) (3,438) 2,801
Reclassification adjustment for realized losses (gains)
included in investment income 2,957 (660) 88
--------- ----- ----- ----------
Net unrealized gains (losses) on securities 1,276 (4,098) 2,889
Foreign currency translation (66) 456 (22)
------- ---------- -----------
Other comprehensive income (loss) 1,210 (3,642) 2,867
--------- ------- ------
Comprehensive income $66,027 $72,527 $37,634
======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31 were as follows:
(in thousands) 2000 1999
---- ----
Unrealized investment gains (losses) $1,021 ($255)
Foreign currency translation 82 148
------ ------
Accumulated other comprehensive income (loss) $1,103 ($107)
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and
held-to-maturity fixed maturities and investments in mutual funds as of December 31, 2000 and 1999 are shown
below. All securities held at December 31, 2000 and 1999 were publicly traded.
Investments in fixed maturities as of December 31, 2000 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $206,041 $4,445 $ (11) $210,475
Foreign government obligations 2,791 195 - 2,986
Obligations of state and political
subdivisions 253 1 - 254
Corporate securities 72,237 1,565 (1,809) 71,993
------ ----- ------- ------
Totals $281,322 $6,206 $(1,820) $285,708
======== ====== ======== ========
The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 2000 are shown
below.
(in thousands) Available-for-Sale
------------------
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 7,005 $ 7,018
Due after one through five years 157,111 158,344
Due after five through ten years 107,729 110,469
Due after ten years 9,477 9,877
-------- ---------
Total $281,322 $285,708
======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $ 81,183 $ - $(678) $ 80,505
Obligations of state and political
subdivisions 253 - (3) 250
Corporate securities 121,859 - (4,449) 117,410
------- ------- -------
Totals $203,295 $ - $(5,130) $198,165
======== === ======== ========
(in thousands) Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
------- -- ---- ------
Totals $3,360 $ - $(16) $3,344
====== === ===== ======
Proceeds from sales of fixed maturities during 2000, 1999 and 1998 were $302,632,000, $32,196,000, and
$999,000, respectively. Proceeds from maturities during 2000, 1999 and 1998 were $1,104,000, $4,030,000, and
$3,050,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 2000 and 1999 are shown
below:
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2000 $23,218 $ 372 $(3,188) $20,402
======= ===== ======== =======
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
Net realized investment gains (losses) were as follows for the years ended December 31:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities:
Gross gains $1,002 $ 253 $ -
Gross losses (3,450) (228) (1)
Investment in mutual funds:
Gross gains 1,913 990 281
Gross losses (153) (437) (181)
--- ----- -- ----- -----
Totals $ (688) $ 578 $ 99
======= ===== ====
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities $13,502 $ 9,461 $ 8,534
Cash and cash equivalents 5,154 2,159 1,717
Investment in mutual funds 99 32 1,013
Policy loans 97 31 45
Derivative instruments (6,939) (1,036) -
------- -------
Total investment income 11,913 10,647 11,309
Investment expenses 257 206 179
------ ------ ------
Net investment income $11,656 $10,441 $11,130
======= ======= =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Current tax (benefit) expense ($29,244) $41,248 $22,384
Deferred tax expense (benefit) 60,023 (10,904) (14,230)
------- -------- -------
Total income tax expense $30,779 $30,344 $8,154
======= ======= ======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 2000 and
1999 are as follows:
(in thousands) 2000 1999
---- ----
Deferred tax liabilities:
Deferred acquisition costs ($411,417) ($321,873)
Payable to reinsurers (29,985) (26,733)
Future contractowner benefits (11,526)
-
Internal use software (2,524)
(1,022)
Policy fees (1,551) (1,146)
Net unrealized gains (550)
-
Foreign exchange translation (45) (80)
--------- ---- --------- ----
Total (457,598) (350,854)
--------- ---------
Deferred tax assets:
Net separate account liabilities
421,662 333,521
Future contractowner benefits
- 3,925
Other reserve differences
2,675 39,645
Deferred compensation
17,869 18,844
Surplus notes interest
5,536 5,030
Net unrealized losses
- 137
Other
907 1,478
-------- --- -----
Total
-
448,649 402,580
------- -------
Income tax (payable) receivable - deferred ($ 8,949) $51,726
=========== =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35%
to pre-tax income from continuing operations as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Income (loss) before taxes
Domestic $98,136 $109,036 $45,435
Foreign (2,540) (2,523) (2,514)
------- --- ------- -------
Total 95,596 106,513 42,921
Income tax rate 35% 35% 35%
------- ------ --------
Tax expense at federal statutory income tax rate 33,459 37,280 15,022
Tax effect of:
Dividend received deduction (7,350) (9,572) (9,085)
Losses of foreign subsidiary 889 883 880
Meals and entertainment 841 664 487
State income taxes (524) 1,071 673
Other 3,464 18 177
-------- ---------- ---------
Income tax expense $ 30,779 $ 30,344 $ 8,154
======== ======== =======
7. COST ALLOCATION AGREEMENTS WITH AFFILIATES
Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been
charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"),
an affiliated company. The Company has also charged operating costs to ASISI. The total cost to the Company
for these items was $13,974,000, $11,136,000, and $7,722,000 for the years ended December 31, 2000, 1999 and
1998, respectively. Income received for these items was $11,186,000, $3,919,000 and $1,355,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the
sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed were $5,842,000 and $1,441,000 for the years ended December 31, 2000 and
1999. As of December 31, 2000 and 1999, amounts receivable under this agreement were $492,000 and $245,000,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, the Company transferred certain rights to receive future fees and
contract charges expected to be realized on variable portions of designated blocks of deferred annuity
contracts.
The proceeds from the transfers 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 Company did not transfer
the right to receive future fees and charges after the expiration of the surrender charge period.
In connection with these transactions, ASI issued collateralized notes in private placements, 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 transferred provide for ASI to receive a percentage
(60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender
charge period of the designated contracts (6 to 8 years).
Payments representing fees and charges in the aggregate amount of $219,454,000, $131,420,000 and $69,226,000
were made by the Company to the Parent for the years ended December 31, 2000, 1999 and 1998, respectively.
Related interest expense of $70,667,000, $52,840,000 and $22,978,000 has been included in the statement of
income for the years ended December 31, 2000, 1999 and 1998, respectively.
The Commissioner of the State of Connecticut has approved the transfer 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.
The present values of the transactions as of the respective effective date were as follows:
Closing Effective Contract Issue Discount Present
Transaction Date Date Period Rate Value
----------- ---- ---- ------ ---- -----
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 7.5% $50,221
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 7.5% 58,767
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 7.5% 77,552
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 7.5% 58,193
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 7.5% 61,180
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 7.0% 68,573
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 7.0% 40,128
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 7.5% 120,632
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99 7.5% 145,078
2000-1 3/22/00 2/1/00 8/1/99 - 1/31/00 7.5% 169,459
2000-2 7/18/00 6/1/00 2/1/00 - 4/30/00 7.25% 92,399
2000-3 12/28/00 12/1/00 5/1/00 - 10/31/00 7.25% 107,291
2000-4 12/28/00 12/1/00 1/1/98 - 10/31/00 7.25% 107,139
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 2000 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ------
2001 $164,892
2002 169,511
2003 165,626
2004 151,516
2005 128,053
2006 and thereafter 154,812
-------
Total $934,410
========
9. LEASES
The Company leases office space under a lease agreement established in 1989 with ASIST. The Company entered
into a lease agreement for office space in Westminster, Colorado, effective January 1, 2001. Lease expense for
2000, 1999 and 1998 was $6,593,000, $5,003,000 and $3,588,000 respectively. Future minimum lease payments per
year and in aggregate as of December 31, 2000 are as follows:
(in thousands) 2001 $6,487
2002 8,032
2003 8,098
2004 8,209
2005 8,756
2006 and thereafter 51,922
-----------
Total $91,504
===========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes
on deposit with various states. The carrying value of these deposits amounted to $4,636,000 and $4,868,000 as
of December 31, 2000, and 1999, respectively. These deposits are required to be maintained for the protection
of contractowners within the individual states.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $342,804,000 and $286,385,000 at December 31, 2000 and 1999,
respectively.
The statutory basis net income for the year ended December 31, 2000 was $11,550,000, as compared to losses of
$17,672,000 and $13,152,000 for the years ended December 31, 1999 and 1998, respectively.
Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without
prior approval of the state insurance department is subject to restrictions relating to statutory surplus and
net gain from operations. At December 31, 2000, no amounts may be distributed without prior approval.
On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital
stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the
California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and
contributed surplus of $500,000 and had no effect on capital and surplus.
12. STATUTORY ACCOUNTING PRACTICES
The National Association of Insurance Commissioners ("NAIC") revised the Accounting Practices and Procedures
Manual in a process referred to as Codification. The State of Connecticut has adopted the provisions of the
revised manual, which is effective January 1, 2001. The revised manual has changed, to some extent, prescribed
statutory accounting practices and will result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The adoption of the revised accounting practices is not
expected to have a material adverse effect on the Company's statutory-basis capital and surplus.
13. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company
contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up
to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants
were $3,734,000, $3,164,000 and $2,115,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company has a deferred compensation plan, which is available to the internal field marketing staff and
certain officers. Company contributions to this plan on behalf of the participants were $399,000, $193,000 and
$342,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company and certain affiliates cooperatively have a long-term incentive program under which units are
awarded to executive officers and other personnel. The Company and certain affiliates also have a profit
sharing program which benefits all employees below the officer level. These programs consist of multiple plans
with new plans instituted each year. Generally, participants must remain employed by the Company or its
affiliates at the time such units are payable in order to receive any payments under the programs. The accrued
liability representing the value of these units was $31,632,000 and $42,619,000 as of December 31, 2000 and
1999, respectively. Payments under these programs were $13,542,000, $4,079,000 and $2,407,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. REINSURANCE
The effect of reinsurance for the years ended December 31, 2000, 1999 and 1998 is as follows:
(in thousands) 2000
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $477,802 $45,784 $13,607
Ceded (53,224) (766) (4,561)
-------- ------ -------
Net $424,578 $45,018 $ 9,046
======== ======= =======
1999
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $326,670 $4,151 ($1,382)
Ceded (36,681) (1,073) (257)
-------- ------- -----
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Insurance Change in Annuity and Life Return Credited
Charges and Fees Insurance to Contractowners
---------------- -----------------
Policy Reserves
---------------
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- --- ---------
Net $186,211 $1,053 ($8,930)
======== ====== ========
In December 2000, the Company entered into a modified coinsurance agreement with SICL effective January 1996.
During 2000, ceded premiums received net of commission expenses and reserve adjustments were $10,360,000. At
December 31, 2000, $6,109,000 was payable to SICL under this agreement.
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains
liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its
obligations assumed under the reinsurance agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 2000
and 1999 were as follows:
(in thousands)
Interest for the
---------------------------------
Interest 2000 1999 Years Ended December 31,
---------------------------------
Issue Date Rate Amount Amount 2000 1999 1998
---------- ---- ------ ------ ---- ---- ----
---------------------------------
---------------------------------
December 29, 1993 6.84% - - - - 1,387
---------------------------------
February 18, 1994 7.28% 10,000 732 738 738
-
---------------------------------
March 28, 1994 7.90% 10,000 794 801 801
-
---------------------------------
September 30, 1994 9.13% 15,000 15,000 1,392 1,389 1,389
---------------------------------
December 28, 1994 9.78% - - 1,308 1,388
-
---------------------------------
December 19, 1995 7.52% 10,000 10,000 765 762 762
---------------------------------
December 20, 1995 7.49% 15,000 15,000 1,142 1,139 1,139
---------------------------------
December 22, 1995 7.47% 9,000 9,000 684 682 682
---------------------------------
June 28, 1996 8.41% 40,000 40,000 3,420 3,411 3,411
---------------------------------
December 30, 1996 8.03% 70,000 70,000 5,715 5,698 5,699
--- ------ --- ------ --- ----- --- ----- --- -----
---------------------------------
Total $159,000 $179,000 $14,644 $15,928 $17,396
======== ======== ======= ======= =======
---------------------------------
Surplus notes for $10,000,000 dated February 18, 1994 and $10,000,000 dated March 28, 1994 were converted to
additional paid-in capital on December 27, 2000. A surplus note for $14,000,000 dated December 28, 1994 was
converted to additional paid-in capital on December 10, 1999. All surplus notes mature seven years from the
issue date.
Payment of interest and repayment of principal for these notes is subject to certain conditions and require
approval by the Insurance Commissioner of the State of Connecticut. At December 31, 2000 and 1999, $15,816,000
and $14,372,000, respectively, of accrued interest on surplus notes was not approved for payment under these
criteria.
16. SHORT-TERM BORROWING
The Company had a $10,000,000 short-term loan payable to ASI at December 31, 2000 and 1999 as part of a
revolving loan agreement. The loan has an interest rate of 7.13% and matures on March 12, 2001. The total
interest expense to the Company was $687,000, $585,000 and $622,000 and for the years ended December 31, 2000,
1999 and 1998, respectively. Accrued interest payable was $222,000 and $197,000 as of December 31, 2000 and
1999, respectively.
17. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by
contractowners at market value or with market value adjustment. Separate account assets which are carried at
fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from
10% to 1% for contracts held less than 10 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. SEGMENT REPORTING
In recent years, in order to complete the array of products offered by the Company and its affiliates to meet a
wide variety of financial planning, the Company developed the variable life insurance and qualified retirement
plan annuity products. Assets under management and sales for the products other than variable annuities have
not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information."
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2000
Premiums and other insurance
revenues $137,255 $139,317 $147,923 $136,159
Net investment income 2,876 3,628 4,186 966
Net realized capital gains (losses) 729 (1,436) (858) 877
------- ------- ----- -------
Total revenues 140,860 141,509 151,251 138,002
Benefits and expenses 106,641 121,356 137,514 110,515
------- -------- -------- -------
Pre-tax net income 34,219 20,153 13,737 27,487
Income taxes 10,038 5,225 3,167 12,349
------ --------- ------ ------
Net income $24,181 $14,928 $10,570 $15,138
======= ======= ======= =======
1999
Premiums and other insurance
revenues $78,509 $88,435 $97,955 $111,443
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
------- --------- ------- ---------
Total revenues 81,458 91,302 100,896 113,705
Benefits and expenses 64,204 67,803 71,597 77,244
------ --------- ------- ------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
------ ------ ---------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $ 25,001
======== ======== ======== ========
1998
Premiums and other insurance
revenues $50,593 $57,946 $62,445 $67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
------- -------- ------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
------ ------ ------- -------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
----- ----- ------ -------
Net income $6,072 $13,975 $14,174 $ 546
====== ======= ======= ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2001 are shown below. All
or some of these Sub-accounts were available during the periods shown as investment options for other variable annuities we offer
pursuant to different prospectuses. The Insurance Charge assessed against the Sub-accounts under the terms of those other
variable annuities are the same as the charges assessed against such Sub-accounts under the Annuity offered pursuant to this
Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates shown, for Units in
each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to January 1, 2001 and are being offered
pursuant to this Prospectus or which we offer pursuant to certain other prospectuses; and (b) the number of Units outstanding in
each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in
parentheses. The portfolios in which a particular Sub-account invests may or may not have commenced operations prior to the date
such Sub-account commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
-----------
Wells Fargo Variable
Trust - Asset Allocation
(1994)
Unit Price $22.11 22.20 20.59 16.67 13.99 12.73 10.01 - - -
Number of Units 11,237,827 10,783,373 7,584,157 5,186,216 3,700,609 1,991,150 743,176 - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Corporate
Bond
(1999)
Unit Price $10.81 9.94 - - - - - - - -
Number of Units 3,634,317 3,758,299 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
-----------
Wells Fargo Variable
Trust - Equity Income
(1999)
Unit Price $10.05 9.96 - - - - - - - -
Number of Units 502,986 136,006 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Equity Value
(1998)
Unit Price $9.56 9.17 9.53 - - - - - - -
Number of Units 4,442,888 2,826,839 1,148,849 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
-----------
Wells Fargo Variable
Trust -Growth
(1994)
Unit Price $23.64 27.75 23.37 18.40 15.90 13.18 10.34 - - -
Number of Units 4,373,354 4,625,477 4,314,842 3,907,919 2,096,545 823,247 204,067 - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
-----------
Wells Fargo Variable
Trust - International
Equity (1)
(2000)
Unit Price $8.90 - - - - - - - - -
Number of Units 127,257 - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Large Company
Growth
(1999)
Unit Price $11.75 11.98 - - - - - - - -
Number of Units 1,563,551 189,740 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Small Cap
Growth
(1999)
Unit Price $12.58 16.48 - - - - - - - -
Number of Units 902,955 247,735 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Money Market
(1998)
Unit Price $12.55 12.04 11.68 11.31 10.92 10.58 10.18 - - -
Number of Units 3,440,514 3,500,017 2,250,003 1,304,834 1,157,342 521,291 144,050 - - -
AST Janus Overseas
Growth
(1997)
Unit Price $17.96 24.16 13.41 11.70 - - - - - -
Number of Units 57,327,711 61,117,418 43,711,763 21,405,891 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International Growth
(1997)
Unit Price $17.92 21.66 13.30 11.35 - - - - - -
Number of Units 17,007,352 6,855,601 5,670,336 2,857,188 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International
Growth II (2)
(1994)
Unit Price $13.93 17.10 13.14 11.69 11.70 10.39 9.49 - - -
Number of Units 26,340,548 28,704,923 34,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
AST Janus Small-Cap
Growth (3)
(1994)
Unit Price $21.51 42.08 17.64 17.28 16.54 13.97 10.69 - - -
Number of Units 25,535,093 32,134,969 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - -
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AST Scudder Small-
Cap Growth (4)
(1999)
Unit Price $11.98 15.37 - - - - - - - -
Number of Units 63,621,279 53,349,003 - - - - - - - -
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AST Goldman Sachs
Small-Cap Value (5)
(1998)
Unit Price $13.95 10.57 9.85 - - - - - - -
Number of Units 15,193,053 6,597,544 4,081,870 - - - - - - -
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Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
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AST Gabelli Small-Cap
Value (6)
(1997)
Unit Price $13.35 11.11 11.20 12.70 - - - - - -
Number of Units 23,298,524 21,340,168 24,700,211 14,612,510 - - - - - -
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AST Janus Mid-Cap
Growth (7)
(2000)
Unit Price $6.58 - - - - - - - - -
Number of Units 9,426,102 - - - - - - - - -
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AST Neuberger Berman
Mid-Cap Growth (8)
(1994)
Unit Price $25.90 28.58 19.15 16.10 13.99 12.20 9.94 - - -
Number of Units 26,517,850 13,460,525 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - -
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AST Neuberger Berman
Mid-Cap Value (9)
(1993)
Unit Price $21.09 16.78 16.10 16.72 13.41 12.20 9.81 10.69 - -
Number of Units 44,558,699 37,864,586 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - -
- ------------------------------------------------------------------------------------------------------------------------------------------
AST Alger All-Cap
Growth
(2000)
Unit Price $6.74 - - - - - - - - -
Number of Units 28,229,631 - - - - - - - - -
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AST MFS Growth
(1999)
Unit Price $10.38 11.27 - - - - - - - -
Number of Units 7,515,486 409,467 - - - - - - - -
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AST Marsico Capital
Growth
(1997)
Unit Price $17.81 21.06 14.00 10.03 - - - - - -
Number of Units 94,627,691 78,684,943 40,757,449 714,309 - - - - - -
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AST JanCap Growth
(1992)
Unit Price $41.14 60.44 39.54 23.83 18.79 14.85 10.91 11.59 10.51 -
Number of Units 99,250,773 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 -
- ------------------------------------------------------------------------------------------------------------------------------------------
AST Cohen & Steers
Realty
(1998)
Unit Price $10.39 8.35 8.28 - - - - - - -
Number of Units 11,891,188 6,224,365 3,771,461 - - - - - - -
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AST American Century `
Income & Growth (10)
(1997)
Unit Price $14.24 16.19 13.35 12.06 - - - - - -
Number of Units 32,388,202 21,361,995 13,845,190 9,523,815 - - - - - -
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Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
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AST INVESCO Equity
Income
(1994)
Unit Price $22.01 21.31 19.34 17.31 14.23 12.33 9.61 - - -
Number of Units 50,171,495 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - -
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AST PIMCO Total
Return Bond
(1994)
Unit Price $14.40 13.09 13.43 12.44 11.48 11.26 9.61 - - -
Number of Units 82,545,240 73,530,507 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - -
- ------------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Limited
Maturity Bond
(1995)
Unit Price $12.79 11.96 11.73 11.26 10.62 10.37 - - - -
Number of Units 31,046,956 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - - - -
The Montgomery Variable
Series - MV Emerging
Markets
(1996)
Unit Price $7.09 10.06 6.19 10.05 10.25 - - - - -
Number of Units 12,899,472 12,060,036 10,534,383 10,371,104 2,360,940 - - - - -
INVESCO VIF -
Technology
(1999)
Unit Price $12.48 16.52 - - - - - - - -
Number of Units 29,491,113 4,622,242 - - - - - - - -
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INVESCO VIF - Health
Sciences
(1999)
Unit Price $14.59 11.34 - - - - - - - -
Number of Units 19,381,405 786,518 - - - - - - - -
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1. This Portfolio was first offered as a Sub-account on July 3, 2000.
2. Effective May 1, 2000, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1,
2000, Rowe Price-Fleming International, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price
International Equity Portfolio."
3. Effective December 31, 1998, Janus Capital Corporation became Sub-advisor of the Portfolio. Prior to December 31, 1998,
Founders Asset Management, LLC served as Sub-advisor of the Portfolio, then named "Founders Capital Appreciation Portfolio."
4. Effective May 1, 2001, the name of the portfolio changed to the "AST Scudder Small-Cap Growth Portfolio". Prior to May
1, 2001 the Portfolio was named "AST Kemper Small-Cap Growth Portfolio."
5. Effective May 1, 2001, Goldman Sachs Asset Management became Sub-advisor of the Portfolio. Prior to May 1, 2001, Lord,
Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Small Cap Value."
6. Effective October 23, 2000, GAMCO Investors, Inc. became Sub-advisor of the Portfolio. Prior to October 23, 2000, T.
Rowe Price Associates, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price Small Company Value
Portfolio."
7. This Portfolio was first offered as a Sub-account on May 1, 2000.
8. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1998,
Berger Associates, Inc. served as Sub-advisor of the Portfolio, then named "Berger Capital Growth Portfolio."
9. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1998,
Federated Investment Counseling served as Sub-advisor of the Portfolio, then named "Federated Utility Income Portfolio."
10. Effective May 3, 1999, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Between October
15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam
Value Growth & Income."
APPENDIX C - CALCULATION OF OPTIONAL DEATH BENEFITS
Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation
The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each example assumes
that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes
that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment
options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American Skandia under certain
circumstances.
Example with market increase
Assume that the Owner's Account Value has been increasing due to positive market performance. On the date we receive due proof of
death, the Account Value is $75,000. The basic Death Benefit is calculated as Purchase Payments minus proportional withdrawals,
or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $75,000. The Enhanced Beneficiary
Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($75,000) PLUS 50% of the "Death
Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $75,000
Basic Death Benefit = $75,000
Death Benefit Amount = $75,000 - $50,000 = $25,000
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $75,000 + $12,500 = $87,500
Examples with market decline
Assume that the Owner's Account Value has been decreasing due to declines in market performance. On the date we receive due proof
of death, the Account Value is $45,000. The basic Death Benefit is calculated as Purchase Payments minus proportional
withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $50,000. The Enhanced
Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($50,000) PLUS 50% of
the "Death Benefit Amount" less Purchase Payments reduced by proportional withdrawals.
Purchase Payments = $50,000
Account Value = $40,000
Basic Death Benefit = $50,000
Death Benefit Amount = $50,000 - $50,000 = $0
Amount Payable Under Enhanced Beneficiary Protection Optional Death Benefit = $50,000 + $0 = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary Protection Optional
Death Benefit.
Examples of Guaranteed Minimum Death Benefit Calculation
The following are examples of how the Guaranteed Minimum Death Benefit is calculated. Each example assumes that a $50,000 initial
Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes that there is one
Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options.
NOTE: The examples below do not include Credits or Target Value Credits which may be recovered by American Skandia under certain
circumstances.
Example of market increase
Assume that the Owner's Account Value has generally been increasing due to positive market performance. On the date we receive
due proof of death, the Account Value is $90,000. The Highest Anniversary Value at the end of any previous period is $72,000. The
Death Benefit would be the Account Value ($90,000) because it is greater than the Highest Anniversary Value ($72,000) or the sum
of prior Purchase Payments increased by 5.0% annually ($73,872.77).
Example of market decrease
Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been decreasing since the
fifth contract anniversary. On the date we receive due proof of death, the Account Value is $48,000. The Highest Anniversary
Value at the end of any previous period is $54,000. The Death Benefit would be the sum of prior Purchase Payments increased by
5.0% annually ($73,872.77) because it is greater than the Highest Anniversary Value ($54,000) or the Account Value ($48,000).
Example of market increase followed by decrease
Assume that the Owner's Account Value increased significantly during the first six years following the Issue Date. On the sixth
anniversary date the Account Value is $90,000. During the seventh Annuity Year, the Account Value increases to as high as
$100,000 but then subsequently falls to $80,000 on the date we receive due proof of death. The Death Benefit would be the Highest
Anniversary Value at the end of any previous period ($90,000), which occurred on the sixth anniversary, although the Account Value
was higher during the subsequent period. The Account Value on the date we receive due proof of death ($80,000) is lower, as is
the sum of all prior Purchase Payments increased by 5.0% annually ($73,872.77).
American Skandia Life Assurance Corporation
Attention: Stagecoach Annuity
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
customerservice@americanskandia.com
For Requests by Phone:
1-800-680-8920
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PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE
AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS WFVXT-PROS (05/2001).
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------
(print your name)
-------------------------------------------------------
(address)
-------------------------------------------------------
(city/state/zip code)
ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
customerservice@americanskandia.com
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.americanskandia.com http://www.americanskandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: 203-926-1888
http://www.americanskandia.com
asxt(wlsxt)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution: Not Applicable.
Item 15. Indemnification of Directors and Officers: Under Section 33-320a of the Connecticut General Statutes, the Registrant
must indemnify a director or officer against judgments, fines, penalties, amounts paid in settlement and reasonable expenses
including attorneys' fees, for actions brought or threatened to be brought against him in his capacity as a director or officer
when certain disinterested parties determine that he acted in good faith and in a manner he reasonably believed to be in the
best interests of the Registrant. In any criminal action or proceeding, it also must be determined that the director or
officer had no reason to believe his conduct was unlawful. The director or officer must also be indemnified when he is
successful on the merits in the defense of a proceeding or in circumstances where a court determines that he is fairly and
reasonable entitled to be indemnified, and the court approves the amount. In shareholder derivative suits, the director or
officer must be finally adjudged not to have breached this duty to the Registrant or a court must determine that he is fairly
and reasonably entitled to be indemnified and must approve the amount. In a claim based upon the director's or officer's
purchase or sale of the Registrants' securities, the director or officer may obtain indemnification only if a court determines
that, in view of all the circumstances, he is fairly and reasonably entitled to be indemnified and then for such amount as the
court shall determine. The By-Laws of American Skandia Life Assurance Corporation ("ASLAC") also provide directors and
officers with rights of indemnification, consistent with Connecticut Law.
The foregoing statements are subject to the provisions of Section 33-320a.
Directors and officers of ASLAC and American Skandia Marketing, Incorporated, ("ASM, Inc."), can also be indemnified pursuant
to Indemnity Agreements between each director and officer and American Skandia, Inc., a corporation organized under the laws of
the state of Delaware. The provisions of the Indemnity Agreement are governed by Section 45 of the General Corporation Law of
the State of Delaware.
The directors and officers of ASLAC and ASM, Inc. are covered under a directors and officers liability insurance policy issued
by an unaffiliated insurance company and an insurance policy issued to Skandia Insurance Company Ltd., their ultimate parent.
Such policy will reimburse ASLAC or ASM, Inc., as applicable, for any payments that it shall make to directors and officers
pursuant to law and, subject to certain exclusions contained in the policy, will pay any other costs, charges and expenses,
settlements and judgments arising from any proceeding involving any director or officer of ASLAC or ASM, Inc., as applicable,
in his or her past or present capacity as such.
Item 16. Exhibits:
Exhibits Page
-------- ----
1 Underwriting agreement incorporated by reference to Post-Effective Amendment
No. 1 to Registration Statement No. 333-25733, filed via EDGAR March 2, 1998.
2 Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable
3 Articles of incorporation and by-laws incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement No. 33-87010, filed via EDGAR March 2, 1998.
4 Instruments defining the rights of security holders, including indentures, incorporated by reference to Post-effective Amendment No. 3, Registration Statement No. 33-62793, filed via EDGAR April 29, 1997
5 Opinion re legality (included as Exhibit 23b)
6 - 9 Not applicable
10 Material contracts (Investment Management Agreement)
(a) Agreement with J.P. Morgan Investment Management Inc. incorporated by reference to Post-Effective
Amendment No. 1 to Registration Statement No. 333-00941, filed via EDGAR February 25, 1997
(b) Agreement with Fleet Investment Advisors Inc., incorporated by reference to Post-Effective Amendment
No. 1 to Registration Statement No. 333-00941, filed via EDGAR February 25, 1997
11 - 22 Not applicable
23a Consent of Ernst & Young LLP FILED HEREWITH
23b Opinion & Consent of Counsel FILED HEREWITH
24 Power of Attorney
Directors Abram, Boronow, Campbell, Chan, Collins, Dokken, Kennedy, Mazzaferro, Moberg, Thwaites,
Tracy, Ullman and Winson incorporated by reference to Post-Effective Amendment No. 1 to this
Registration Statement No. 333-53596, filed January 18, 2001.
25 - 28 Not applicable
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An index to the financial statement schedules is omitted because it is not required or is not applicable.
Item 17. Undertakings: The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, post-effective amendments to this registration
statement:
(i) To include any prospectus required by section 10 (a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such
issue.
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LEGAL EXPERTS: The General Counsel of American Skandia Life Assurance Corporation has passed on the legal matters with respect
to Federal laws and regulations applicable to the issue and sale of the Annuities and with respect to Connecticut law.
EXHIBITS
Exhibit 23a Consent of Ernst & Young LLP FILED HEREWITH
Exhibit 23b Opinion & Consent of Counsel FILED HEREWITH
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Shelton, State of Connecticut, on the 26th day of April, 2001.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
SEPARATE ACCOUNT F
(Registrant)
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Depositor)
By: /s/ Lincoln R. Collins Attest: /s/ Kathleen A. Chapman
--------------------------------------- ---------------------------------------
Lincoln R. Collins, Senior Vice President Kathleen A. Chapman, Assistant Corporate
Secretary
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)
Wade A. Dokken* President and Chief Executive Officer, 4/26/01
---------------
Wade A. Dokken Chairman of the Board and Director
(Principal Financial Officer and Principal Accounting Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and 4/26/01
Thomas M. Mazzaferro Chief Financial Officer
/s/ David R. Monroe Senior Vice President, Treasurer 4/26/01
David R. Monroe and Corporate Controller
(Board of Directors)
Patricia Abram* Gordon C. Boronow* Malcolm M. Campbell*
--------------- ------------------ --------------------
Patricia Abram Gordon C. Boronow Malcolm M. Campbell
Wade A. Dokken* Y.K. Chan* Lincoln R. Collins*
--------------- ---------- -------------------
Wade A. Dokken Y.K. Chan Lincoln R. Collins
Ian Kennedy* Thomas M. Mazzaferro* Gunnar Moberg*
----------- -------------------- -------------
Ian Kennedy Thomas M. Mazzaferro Gunnar Moberg
Christian Thwaites* Bayard F. Tracy* Deborah G. Ullman*
------------------- ---------------- ------------------
Christian Thwaites Bayard F. Tracy Deborah G. Ullman
Brett M. Winson*
----------------
Brett M. Winson
*By: /s/ Kathleen A. Chapman
-----------------------------
Kathleen A. Chapman
*Pursuant to Powers of Attorney previously filed with Post-Effective Amendment No. 1 to Registration Statement
No. 333-53596.