Filed with the Securities and Exchange Commission on April 20, 2004
Registration No. 333-00995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 9
On Form S-3
Registration Statement Under The Securities Act of 1933*
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
06-1241288
(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
TIMOTHY P. HARRIS, CHIEF LEGAL OFFICER
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy To:
ROBIN WAGNER, ESQ.
VICE PRESIDENT AND CORPORATE COUNSEL
One Corporate Drive, Shelton, Connecticut 06484 (203) 925-7176
Approximate date of commencement of proposed sale to the public:
May 1, 2004 or as soon as practical after the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following: X .
Calculation of Registration Fee
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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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Market Value Adjusted
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Annuity Contracts $ $
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*Pursuant to Rule 429 under the Securities Act of 1934, the prospectus contained in this Registration Statement also relates to
annuity contracts which are covered by earlier registration statements, including Registration File Numbers 33-44202, 33-72968,
33-89564, 33-47754 and 33-89678.
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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.
Asap
Supplement to Prospectus Dated May 1, 2003
Supplement dated May 1, 2004
This Supplement should be retained with the May 1, 2003 Prospectus for your annuity contract issued by American
Skandia Life Assurance Corporation ("American Skandia"). If you do not have a May 1, 2003 Prospectus, please contact
American Skandia at 1-800-766-4530. Please be advised that as of May 1, 2004, we are no longer selling any additional
contracts that are described in this prospectus. Therefore, please retain your May 1, 2003 prospectus and any
supplements thereto for future reference as these documents will continue to constitute the prospectus to which you
can refer.
1. Appendix A Financial Information about American Skandia is deleted in its entirety.
2. The "Incorporation of Certain Documents by Reference" section is deleted in its entirety and replaced with the following:
"American Skandia publishes annual and quarterly reports that are filed with the SEC. These reports contain financial
information about American Skandia that is annually audited by independent accountants. American Skandia's annual
report for the year ended December 31, 2003, together with subsequent periodic reports that American Skandia files
with the SEC, are incorporated by reference into this prospectus. You can obtain copies, at no cost, of any and all
of this information, including the American Skandia annual report that is not ordinarily mailed to contract owners,
the more current reports and any subsequently filed documents at no cost by contacting us at American Skandia -
Variable Annuities; P.O. Box 7040; Bridgeport, CT 06601-7040 (Telephone : 203-926-1888). The SEC file number for
American Skandia is 33-44202. You may read and copy any filings made by American Skandia with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, Washington, D.C. 20549-0102. You can obtain information on the operation
of the Public Reference Room by calling (202) 942-8090. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC at
http://www.sec.gov.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes American Skandia Advisor PlanSM NY, a flexible premium deferred annuity (the "Annuity") offered by American
Skandia Life Assurance Corporation ("American Skandia", "we", "our" or "us") to residents of the State of New York. The Annuity was
previously offered in other states. 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 56. This Prospectus also describes two annuity contracts
we no longer offer, but for which we continue to accept Purchase Payments (see "Appendix C - Prior Contracts"). Various rights and
benefits may differ between states to meet applicable laws and/or regulations. In particular, please refer to Appendix D for a
description of certain provisions that apply to Annuities sold to other than New York residents. Certain terms are capitalized in
this Prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section.
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American Skandia offers several different annuities which your investment 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 because it allows you to accumulate retirement savings and also offers
annuity payment options when you are ready to begin receiving income. The Annuity also offers one or more death benefits that can
protect your retirement savings if you die during a period of declining markets. 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 tax advantages in
addition 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 investment 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 investment risks, including possible loss of value.
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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.
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FOR FURTHER INFORMATION CALL 1-800-766-4530.
Prospectus Dated May 1, 2003 Statement of Additional Information Dated: May 1, 2003
ASAP-PROS- (05/2003)
PLEASE SEE OUR PRIVACY POLICY ATTACHED TO THE BACK COVER OF THIS PROSPECTUS.
WHAT ARE SOME OF THE KEY FEATURES OF THIS ANNUITY?
|X| This 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 or transfer 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 investment options. The variable investment options, each a 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 a death benefit that steps up on each 5th anniversary of the issue date until age 85. On or after age
85, the death benefit is equal to the Account Value without application of any market value adjustment.
|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. 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 investment professionals. You must complete an application and submit a minimum
initial purchase payment of $10,000 (for non-qualified contracts) or $2,000 (for qualified contracts). 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 $10,000 or $2,000 as applicable. There is no age restriction to purchase the Annuity. However, the
Death Benefit provides greater protection for persons under age 85.
TABLE OF CONTENTS
Glossary of Terms..................................................................................................................5
Summary of Contract Fees and Charges...............................................................................................6
Expense Examples...................................................................................................................9
Investment Options................................................................................................................10
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................10
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................26
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?...................................................................................28
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................28
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION?......................................................................28
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?..................................................................................30
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................30
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................30
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................31
Managing Your Account Value.......................................................................................................31
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................31
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................31
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................32
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................32
DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?............................................32
MAY I AUTHORIZE MY INVESTMENT PROFESSIONAL TO MANAGE MY ACCOUNT?...............................................................33
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................33
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................34
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................34
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................35
Access To Account Value...........................................................................................................35
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................35
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................35
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................36
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................36
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................37
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................37
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................37
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................38
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................38
WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?...................................................................................38
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................39
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................40
Death Benefit.....................................................................................................................41
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................41
AMERICAN SKANDIA'S ANNUITY REWARDS.............................................................................................41
PAYMENT OF DEATH BENEFITS......................................................................................................42
Valuing Your Investment...........................................................................................................43
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................43
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................43
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................43
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................44
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................44
Tax Considerations................................................................................................................45
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................45
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................45
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................45
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................45
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED
CONTRACTS?...................................................................................................................47
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................48
GENERAL TAX CONSIDERATIONS.....................................................................................................49
General Information...............................................................................................................50
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................50
WHO IS AMERICAN SKANDIA?.......................................................................................................50
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................51
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................52
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................53
AVAILABLE INFORMATION..........................................................................................................54
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................55
HOW TO CONTACT US..............................................................................................................55
INDEMNIFICATION................................................................................................................55
LEGAL PROCEEDINGS..............................................................................................................55
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................56
Appendix A - Financial Information About American Skandia..........................................................................1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN SKANDIA LIFE ASSURANCE CORPORATION..........................................11
Appendix B - Condensed Financial Information About Separate Account B..............................................................1
Appendix C-1: PSA Prior Contract...................................................................................................1
Appendix C-2: Alliance Capital Navigator Prior Contract............................................................................5
Appendix D - Sale of Contracts Outside 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 is determined separately for each Sub-account
and for each Fixed Allocation, and then totaled to determine the 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 for the Annuitant 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 a 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 a day more than 30 days prior
to 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 and the charge for any optional benefits.
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 charges for the Annuity. Some fees and charges are assessed against your Annuity while others are
assessed against assets allocated to the variable investment options. The fees and charges that are assessed against the Annuity
include the Contingent Deferred Sales Charge, Transfer Fee and Annual Maintenance Fee. The charges that are assessed against the
variable investment options are 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, other expenses
and with some mutual funds, a 12b-1 charge. The prospectus for each underlying mutual fund provides more detailed information about
the expenses for the underlying mutual funds. Tax charges may vary by state and in certain states a premium tax charge may be
applicable. All of these fees and charges are described in more detail within this Prospectus.
The following table provides a summary of the fees and charges you will incur if you surrender the Annuity or transfer Account Value
among investment options. These fees and charges are described in more detail within this Prospectus.
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YOUR TRANSACTION FEES AND CHARGES
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(assessed against the Annuity)
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FEE/CHARGE Amount Deducted
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Contingent Deferred Sales Charge* 7.5%
The charge is a percentage of each applicable Purchase Payment deducted upon surrender or
withdrawal. The period is measured from the date each Purchase Payment is allocated.
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Transfer Fee $10.00
(Deducted after the 20th transfer each Annuity Year)
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* The following are the Contingent Deferred Sales Charges (as a percentage of each applicable Purchase Payment) upon surrender or
withdrawal.
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Yr. 1 Yr. 2 Yr. 3 Yr. Yr. 5 Yr. 6 Yr. Yr. 8+
4 7
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7.5% 6.5% 5.5% 4.5% 3.5% 2.5% 1.5% 0.0%
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The following table provides a summary of the periodic fees and charges you will incur while you own the Annuity, excluding the
underlying mutual fund Portfolio annual expenses. These fees and charges are described in more detail within this Prospectus.
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YOUR PERIODIC FEES AND CHARGES
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ANNUAL FEES/CHARGES ASSESSED AGAINT THE ANNUITY
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FEE/CHARGE Amount Deducted
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Annual Maintenance Fee Smaller of $30 or 2% of Account Value
(Assessed annually on the Annuity's anniversary date or upon
surrender)
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ANNUAL FEES/CHARGES OF THE SUB-ACCOUNTS*
(as a percentage of the average daily net assets of the Sub-accounts)
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FEE/CHARGE Amount Deducted
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Mortality amp; Expense Risk Charge 1.25%
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Administration Charge 0.15%
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Total Annual Charges of the Sub-accounts** 1.40% per year of the value of each Sub-account
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* These charges are deducted daily and apply to Variable Investment 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.
The following table provides the range (minimum and maximum) of the total annual expenses for the underlying mutual funds
("Portfolios") as of December 31, 2002. Each figure is stated as a percentage of the underlying Portfolio's average daily net
assets.
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Total Annual Portfolio Operating Expenses
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Minimum Maximum
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Total Portfolio Operating Expense 0.14% * 3.14%
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* The minimum total annual portfolio operating expenses are those of a Portfolio that may invest in mutual funds, which also charge
their own operating expenses. Thus, the total annual portfolio operating expenses may be higher than indicated.
The following are the investment management fees, other expenses, 12b-1 fees (if applicable), and the total annual expenses for each
underlying mutual fund ("Portfolio") as of December 31, 2002, except as noted. 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. The "Net Annual Portfolio Operating Expenses" reflect the combination of the underlying
Portfolio's investment management fee, other expenses and any 12b-1 fees, net of any fee waivers and expense reimbursements. The
following expenses are deducted by the underlying Portfolio before it provides American Skandia with the daily net asset value. Any
footnotes about expenses appear after the list of all the Portfolios. The underlying 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 1-800-766-4530.
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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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- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Portfolio
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
American Skandia Trust: 1
AST Strong International Equity 0.88% 0.21% 0.12% 1.21% 0.00% 1.21%
AST William Blair International Growth 5 1.00% 0.23% 0.10% 1.33% 0.10% 1.23%
AST American Century International Growth 1.00% 0.25% 0.00% 1.25% 0.00% 1.25%
AST DeAM International Equity 1.00% 0.44% 0.00% 1.44% 0.15% 1.29%
AST MFS Global Equity 1.00% 0.41% 0.00% 1.41% 0.00% 1.41%
AST PBHG Small-Cap Growth 0.90% 0.22% 0.11% 1.23% 0.00% 1.23%
AST DeAM Small-Cap Growth 0.95% 0.20% 0.00% 1.15% 0.15% 1.00%
AST Federated Aggressive Growth 0.95% 0.43% 0.00% 1.38% 0.03% 1.35%
AST Goldman Sachs Small-Cap Value 0.95% 0.21% 0.11% 1.27% 0.00% 1.27%
AST Gabelli Small-Cap Value 0.90% 0.19% 0.01% 1.10% 0.00% 1.10%
AST DeAM Small-Cap Value 2 0.95% 0.53% 0.00% 1.48% 0.33% 1.15%
AST Goldman Sachs Mid-Cap Growth 5 1.00% 0.26% 0.07% 1.33% 0.10% 1.23%
AST Neuberger Berman Mid-Cap Growth 0.90% 0.20% 0.06% 1.16% 0.00% 1.16%
AST Neuberger Berman Mid-Cap Value 0.90% 0.17% 0.09% 1.16% 0.00% 1.16%
AST Alger All-Cap Growth 0.95% 0.19% 0.15% 1.29% 0.00% 1.29%
AST Gabelli All-Cap Value 0.95% 0.24% 0.00% 1.19% 0.00% 1.19%
AST T. Rowe Price Natural Resources 0.90% 0.23% 0.03% 1.16% 0.00% 1.16%
AST Alliance Growth 0.90% 0.20% 0.03% 1.13% 0.00% 1.13%
AST MFS Growth 0.90% 0.18% 0.10% 1.18% 0.00% 1.18%
AST Marsico Capital Growth 0.90% 0.16% 0.04% 1.10% 0.01% 1.09%
AST Goldman Sachs Concentrated Growth 5 0.90% 0.15% 0.04% 1.09% 0.06% 1.03%
AST DeAM Large-Cap Growth 2 0.85% 0.23% 0.00% 1.08% 0.10% 0.98%
AST DeAM Large-Cap Value 0.85% 0.24% 0.04% 1.13% 0.10% 1.03%
AST Alliance/Bernstein Growth + Value 0.90% 0.23% 0.00% 1.13% 0.00% 1.13%
AST Sanford Bernstein Core Value 0.75% 0.25% 0.00% 1.00% 0.00% 1.00%
AST Cohen & Steers Realty 1.00% 0.23% 0.03% 1.26% 0.00% 1.26%
AST Sanford Bernstein Managed Index 500 0.60% 0.16% 0.08% 0.84% 0.00% 0.84%
AST American Century Income & Growth 0.75% 0.23% 0.00% 0.98% 0.00% 0.98%
AST Alliance Growth and Income 0.75% 0.15% 0.08% 0.98% 0.02% 0.96%
AST MFS Growth with Income 0.90% 0.28% 0.01% 1.19% 0.00% 1.19%
AST INVESCO Capital Income 0.75% 0.17% 0.03% 0.95% 0.00% 0.95%
AST DeAM Global Allocation 0.10% 0.04% 0.00% 0.14% 0.00% 0.14%
AST American Century Strategic Balanced 0.85% 0.25% 0.00% 1.10% 0.00% 1.10%
AST T. Rowe Price Asset Allocation 0.85% 0.26% 0.00% 1.11% 0.00% 1.11%
AST T. Rowe Price Global Bond 0.80% 0.26% 0.00% 1.06% 0.00% 1.06%
AST Federated High Yield 0.75% 0.19% 0.00% 0.94% 0.00% 0.94%
AST Lord Abbett Bond-Debenture 0.80% 0.24% 0.00% 1.04% 0.00% 1.04%
AST DeAM Bond 2 0.85% 0.23% 0.00% 1.08% 0.15% 0.93%
AST PIMCO Total Return Bond 0.65% 0.15% 0.00% 0.80% 0.02% 0.78%
AST PIMCO Limited Maturity Bond 0.65% 0.18% 0.00% 0.83% 0.00% 0.83%
AST Money Market 0.50% 0.13% 0.00% 0.63% 0.05% 0.58%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Portfolio
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Montgomery Variable Series:
o Emerging Markets 1.25% 0.43% 0.00% 1.68% 0.00% 1.68%
o
Wells Fargo Variable Trust:
Equity Value 0.55% 0.48% 0.25% 1.28% 0.28% 1.00%
Equity Income 0.55% 0.30% 0.25% 1.10% 0.10% 1.00%
Rydex Variable Trust:
Nova 0.75% 0.97% 0.00% 1.72% 0.00% 1.72%
Ursa 0.90% 0.89% 0.00% 1.79% 0.00% 1.79%
OTC 0.75% 0.99% 0.00% 1.74% 0.00% 1.74%
INVESCO Variable Investment Funds, Inc.:
Dynamics 0.75% 1.03% 0.25% 2.03% 0.05% 1.98%
Technology 0.75% 1.03% 0.25% 2.03% 0.05% 1.98%
Health Sciences 0.75% 1.06% 0.25% 2.06% 0.08% 1.98%
Financial Services 0.75% 1.11% 0.25% 2.11% 0.13% 1.98%
Telecommunications 0.75% 1.21% 0.25% 2.21% 0.23% 1.98%
0.75% 1.16% 0.25% 2.16% 0.18% 1.98%
Evergreen Variable Annuity Trust: 0.75% 1.65% 0.25% 2.65% 0.67% 1.98%
Global Leaders 0.75% 1.10% 0.25% 2.10% 0.12% 1.98%
Special Equity 0.75% 1.16% 0.25% 2.16% 0.18% 1.98%
Omega 0.75% 1.14% 0.25% 2.14% 0.16% 1.98%
0.75% 1.14% 0.25% 2.14% 0.16% 1.98%
ProFund VP: 0.75% 1.65% 0.25% 2.65% 0.67% 1.98%
Europe 30 0.75% 1.04% 0.25% 2.04% 0.06% 1.98%
Asia 30 0.75% 1.12% 0.25% 2.12% 0.14% 1.98%
Japan 0.75% 0.98% 0.25% 1.98% N/A 1.98%
Banks 0.75% 1.13% 0.25% 2.13% 0.15% 1.98%
Basic Materials 0.75% 1.33% 0.25% 2.33% 0.35% 1.98%
Biotechnology 0.75% 1.27% 0.25% 2.27% 0.29% 1.98%
Consumer Cyclical 0.75% 1.19% 0.25% 2.19% 0.21% 1.98%
Consumer Non-Cyclical 0.75% 1.17% 0.25% 2.17% 0.19% 1.98%
Energy 0.75% 0.91% 0.25% 1.91% N/A 1.91%
Financial 0.75% 1.03% 0.25% 2.03% 0.05% 1.98%
Healthcare 0.75% 1.12% 0.25% 2.12% 0.27% 1.85%
Industrial 0.75% 1.03% 0.25% 2.03% 0.05% 1.98%
Internet 0.75% 0.96% 0.25% 1.96% N/A 1.96%
Pharmaceuticals 0.75% 1.08% 0.25% 2.08% 0.13% 1.95%
Precious Metals 0.75% 1.25% 0.25% 2.25% 0.27% 1.98%
Real Estate 0.75% 1.22% 0.25% 2.22% 0.24% 1.98%
Semiconductor 0.75% 1.36% 0.25% 2.36% 0.38% 1.98%
Technology 0.75% 1.45% 0.25% 2.45% 0.47% 1.98%
Telecommunications 0.75% 1.20% 0.25% 2.20% 0.22% 1.98%
Utilities 0.75% 1.03% 0.25% 2.03% 0.05% 1.98%
Bull 0.75% 1.03% 0.25% 2.03% 0.05% 1.98%
Bear 0.75% 1.06% 0.25% 2.06% 0.08% 1.98%
UltraBull 2 0.75% 1.11% 0.25% 2.11% 0.13% 1.98%
OTC 0.75% 1.21% 0.25% 2.21% 0.23% 1.98%
Short OTC 0.75% 1.16% 0.25% 2.16% 0.18% 1.98%
UltraOTC 0.75% 1.65% 0.25% 2.65% 0.67% 1.98%
Mid-Cap Value 0.75% 1.10% 0.25% 2.10% 0.12% 1.98%
Mid-Cap Growth 0.75% 1.16% 0.25% 2.16% 0.18% 1.98%
UltraMid-Cap 0.75% 1.14% 0.25% 2.14% 0.16% 1.98%
Small-Cap Value 0.75% 1.14% 0.25% 2.14% 0.16% 1.98%
Small-Cap Growth 0.75% 1.65% 0.25% 2.65% 0.67% 1.98%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Portfolio
Expenses Expense Operating
Reimburse-mentExpenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
UltraSmall-Cap 0.75% 1.15% 0.25% 2.15% 0.17% 1.98%
U.S. Government Plus 0.50% 0.96% 0.25% 1.71% N/A 1.71%
Rising Rates Opportunity 0.75% 1.13% 0.25% 2.13% 0.15% 1.98%
First Defined Portfolio Fund LLC:
First Trust(R)10 Uncommon Values 0.60% 2.29% 0.25% 3.14% 1.95% 1.37%
The Prudential Series Fund, Inc.:
SP Jennison International Growth 0.85% 0.70% 0.25% 1.80% 0.16% 1.64%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ -------------
1 The Investment Manager of American Skandia Trust (the "Trust") has agreed to reimburse and/or waive fees for certain
Portfolios until at least April 30, 2004. The caption "Total Annual Portfolio Operating Expenses" reflects the Portfolios' fees
and expenses before such waivers and reimbursements, while the caption "Net Annual Portfolio Operating Expenses" reflects the
effect of such waivers and reimbursements. 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 under the Distribution
Plan. Although there are no maximum amounts allowable, actual commission amounts directed under the Distribution Plan will vary
and the amounts directed during the last full fiscal year of the Plan's operations may differ from the amounts listed in the
above chart.
2 Effective May 1, 2003, the ProFunds VP Bull Plus portfolio changed its name to ProFund VP UltraBull to reflect a change in
its investment objective.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various expenses you may incur with the Annuity over certain periods
of time based on specific assumptions. The examples reflect the Contingent Deferred Sales Charges (when applicable), Annual
Maintenance Fee (when applicable), Insurance Charge and the maximum total annual portfolio operating expenses for the underlying
Portfolio (shown above). The Securities and Exchange Commission ("SEC") requires these examples.
Below are examples showing what you would pay in expenses at the end of the stated time periods for each Sub-account had you invested
$10,000 in the Annuity and received a 5% annual return on assets.
The examples shown assume that: (a) you only allocate Account Value to the Sub-account with the maximum total annual portfolio
operating expenses for the underlying Portfolio (shown above), not to a Fixed Allocation; (b) the Insurance Charge is assessed as
1.40% per year; (c) the Annual Maintenance Fee (when applicable) is reflected as an asset-based charge 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 for which we charge a fee during the period shown; (f) no tax charge applies; and (g) the maximum
total annual portfolio operating expenses for the underlying Portfolio (shown above) are reflected. Amounts shown in the examples
are rounded to the nearest dollar.
Expense Examples are provided as follows: 1.) if you surrender the Annuity at the end of the stated time period; 2.) if you annuitize
at the end of the stated time period; and 3.) if you do not surrender your Annuity.
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 WILL BE LESS THAN THOSE SHOWN IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE
SUB-ACCOUNTS.
If you surrender your contract at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
1220 1963 2710 4740
----------------------------- --------------------------- --------------------------- --------------------------
If you annuitize at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
470 1413 2360 4740
----------------------------- --------------------------- --------------------------- --------------------------
If you do not surrender your contract:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
470 1413 2360 4740
----------------------------- --------------------------- --------------------------- --------------------------
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a 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 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, an affiliated company of American Skandia. However, a sub-advisor, as noted below, is engaged to conduct day-to-day
investment decisions.
The Portfolios are not publicly traded mutual funds. They are only available as investment options in variable annuity contracts and
variable life insurance policies issued by insurance companies, or in some cases, to participants in certain qualified retirement
plans. However, 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 of the same or similar name that the Portfolio may have been modeled after at its inception.
Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the retail
mutual funds and the Portfolios may be substantially similar, the actual investments will differ to varying degrees. Differences in
the performance of the funds can be expected, and in some cases could be substantial. You should not compare the performance of a
publicly traded mutual fund with the performance of any similarly named Portfolio offered as a Sub-account. Details about the
investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying
mutual funds. The current prospectus and statement of additional information for the underlying Portfolios can be obtained by
calling 1-800-766-4530.
=======================================================================================================================================
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 Annuities 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 Annuities issued before March 16, 2001, and/or their
authorized investment 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. Annuity Owners and/or their authorized investment 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
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.
=======================================================================================================================================
=======================================================================================================================================
Effective close of business June 28, 2002, the AST Goldman Sachs Small-Cap Value portfolio is no longer offered as a Sub-account
under the Annuity, except as noted below. Annuity contracts with Account Value allocated to the AST Goldman Sachs Small-Cap Value
Sub-account on or before June 28, 2002 may continue to allocate Account Value and make transfers into the AST Goldman Sachs Small-Cap
Value Sub-account, including any bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Owners of
Annuities issued after June 28, 2002 will not be allowed to allocate Account Value to the AST Goldman Sachs Small-Cap Value
Sub-account.
=======================================================================================================================================
=======================================================================================================================================
=======================================================================================================================================
=======================================================================================================================================
The AST Goldman Sachs Small-Cap Value Sub-account may be offered to new 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.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
INTER-NATIONAL AST Strong International Equity: seeks long-term capital growth by investing in a diversified Strong Capital
EQUITY portfolio of international equity securities the issuers of which are considered to have Management, Inc.
strong earnings momentum. The Portfolio seeks to meet its objective by investing, under
normal market conditions, at least 80% of its total assets in a diversified portfolio of
equity securities of companies located or operating in developed non-U.S. countries and
emerging markets of the world. The Sub-advisor intends to focus on companies with an
above-average potential for long-term growth and attractive relative valuations. The
Sub-advisor selects companies based on five key factors: growth, valuation, management, risk
and sentiment.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
INTER-NATIONAL AST William Blair International Growth (f/k/a AST Janus Overseas Growth): seeks long-term William Blair &
EQUITY growth of capital. The Portfolio pursues its objective primarily through investments in Company, L.L.C.
equity securities of issuers located outside the United States. The Portfolio normally
invests at least 80% of its total assets in securities of issuers from at least five different
countries, excluding the United States. The Portfolio invests primarily in companies selected
for their growth potential. Securities are generally selected without regard to any defined
allocation among countries, geographic regions or industry sectors, or other similar selection
procedure.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
INTER-NATIONAL AST American Century International Growth: seeks capital growth. The Portfolio will seek to American Century
EQUITY achieve its investment objective by investing primarily in equity securities of international Investment
companies that the Sub-advisor believes will increase in value over time. Under normal Management, Inc.
conditions, the Portfolio will invest at least 65% of its assets in equity securities of
issuers from at least three countries outside of the United States. The Sub-advisor uses a
growth investment strategy it developed that looks for companies with earnings and revenue
growth. The Sub-advisor will consider a number of other factors in making investment
selections, including the prospects for relative economic growth among countries or regions,
economic and political conditions, expected inflation rates, currency exchange fluctuations
and tax considerations.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST DeAM International Equity: seeks capital growth. The Portfolio pursues its objective by
investing at least 80% of the value of its assets in the equity securities of companies in
developed non-U.S. countries that are represented in the MSCI EAFE(R)Index. The target of this
INTER-NATIONAL Portfolio is to track the performance of the MSCI EAFE(R)Index within 4% with a standard Deutsche Asset
EQUITY deviation expected of +/- 4%. The Sub-advisor considers a number of factors in determining Management, Inc.
whether to invest in a stock, including earnings growth rate, analysts' estimates of future
earnings and industry-relative price multiples.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST MFS Global Equity: seeks capital growth. Under normal circumstances the Portfolio invests
at least 80% of its assets in equity securities of U.S. and foreign issuers (including issuers Massachusetts
GLOBAL EQUITY in developing countries). The Portfolio generally seeks to purchase securities of companies Financial Services
with relatively large market capitalizations relative to the market in which they are traded. Company
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST PBHG Small-Cap Growth: seeks capital growth. The Portfolio pursues its objective by
primarily investing at least 80% of the value of its assets in the common stocks of
small-sized companies, whose market capitalizations are similar to market capitalizations of Pilgrim Baxter &
SMALL CAP GROWTH the companies in the Russell 2000(R)Index at the time of the Portfolio's investment. The Associates, Ltd.
Sub-advisor expects to focus primarily on those securities whose market capitalizations or
annual revenues are less than $1billion at the time of purchase.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
SMALL CAP GROWTH AST DeAM Small-Cap Growth: seeks maximum growth of investors' capital from a portfolio of Deutsche Asset
growth stocks of smaller companies. The Portfolio pursues its objective, under normal Management, Inc.
circumstances, by primarily investing at least 80% of its total assets in the equity
securities of small-sized companies included in the Russell 2000 Growth(R)Index. The
Sub-advisor employs an investment strategy designed to maintain a portfolio of equity
securities which approximates the market risk of those stocks included in the Russell 2000
Growth(R)Index, but which attempts to outperform the Russell 2000 Growth(R)Index.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
SMALL CAP AST Federated Aggressive Growth: seeks capital growth. The Portfolio pursues its investment
GROWTH objective by investing in the stocks of small companies that are traded on national security
exchanges, NASDAQ stock exchange and the over-the-counter-market. Small companies will be Federated Investment
defined as companies with market capitalizations similar to companies in the Russell 2000 Counseling/Federated
Index or the Standard & Poor's Small Cap 600 Index. Up to 25% of the Portfolio's net assets Global Investment
may be invested in foreign securities, which are typically denominated in foreign currencies. Management Corp.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Goldman Sachs 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 stock. The Portfolio will have a non-fundamental Goldman Sachs Asset
SMALL CAP VALUE policy to invest, under normal circumstances, at least 80% of the value of its assets in small Management
capitalization companies. The 80% investment requirement applies at the time the Portfolio
invests its assets. The Portfolio generally defines small capitalization companies as
companies with a capitalization of $5 billion or less.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------ -----------------------
SMALL CAP VALUE AST Gabelli Small-Cap Value: seeks to provide long-term capital growth by investing primarily GAMCO
in small-capitalization stocks that appear to be undervalued. The Portfolio will have a Investors, Inc.
non-fundamental policy to invest, under normal circumstances, at least 80% of the value of its
assets in small capitalization companies. The 80% investment requirement applies at the time
the Portfolio invests its assets. The Portfolio generally defines small capitalization
companies as those with a capitalization of $1.5 billion or less. Reflecting a value approach
to investing, the Portfolio will seek the stocks of companies whose current stock prices do
not appear to adequately reflect their underlying value as measured by assets, earnings, cash
flow or business franchises.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
SMALL CAP VALUE AST DeAM Small-Cap Value: seeks maximum growth of investors' capital. The Portfolio pursues Deutsche Asset
its objective, under normal market conditions, by primarily investing at least 80% of its Management, Inc.
total assets in the equity securities of small-sized companies included in the Russell 2000(R)
Value Index. The Sub-advisor employs an investment strategy designed to maintain a portfolio
of equity securities which approximates the market risk of those stocks included in the
Russell 2000(R)Value Index, but which attempts to outperform the Russell 2000(R)Value Index.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
MID-CAP GROWTH AST Goldman Sachs Mid-Cap Growth (f/k/a AST Janus Mid-Cap Growth): seeks long-term capital Goldman Sachs Asset
growth. The Portfolio pursues its investment objective, by investing primarily in equity Management
securities selected for their growth potential, and normally invests at least 80% of the value
of its assets in medium capitalization companies. For purposes of the Portfolio, medium-sized
companies are those whose market capitalizations (measured at the time of investment) fall
within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor
seeks to identify individual companies with earnings growth potential that may not be
recognized by the market at large.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
MID-CAP GROWTH AST Neuberger Berman Mid-Cap Growth: seeks capital growth. Under normal market conditions, Neuberger Berman
the Portfolio primarily invests at least 80% of its net assets in the common stocks of mid-cap Management Inc.
companies. For purposes of the Portfolio, companies with equity market capitalizations that
fall within the range of the Russell Midcap(R)Index, at the time of investment, are considered
mid-cap companies. Some of the Portfolio's assets may be invested in the securities of
large-cap companies as well as in small-cap companies. The Sub-advisor looks for fast-growing
companies that are in new or rapidly evolving industries.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
MID-CAP VALUE AST Neuberger Berman Mid-Cap Value: seeks capital growth. Under normal market conditions, the Neuberger Berman
Portfolio primarily invests at least 80% of its net assets in the common stocks of mid-cap Management Inc.
companies. For purposes of the Portfolio, companies with equity market capitalizations that
fall within the range of the Russell Midcap(R)Index at the time of investment are considered
mid-cap companies. Some of the Portfolio's assets may be invested in the securities of
large-cap companies as well as in small-cap companies. Under the Portfolio's value-oriented
investment approach, the Sub-advisor looks for well-managed companies whose stock prices are
undervalued and that may rise in price before other investors realize their worth.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
ALL-CAP AST Alger All-Cap Growth: seeks long-term capital growth. The Portfolio invests primarily in Fred Alger
GROWTH equity securities, such as common or preferred stocks, that are listed on U.S. exchanges or in Management, Inc.
the over-the-counter market. The Portfolio may invest in the equity securities of companies
of all sizes, and may emphasize either larger or smaller companies at a given time based on
the Sub-advisor's assessment of particular companies and market conditions.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST 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
VALUE smaller companies at a given time based on the Sub-advisor's assessment of particular GAMCO Investors, Inc.
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 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 80% of its total assets) in the common stocks of natural resource
SECTOR companies whose earnings and tangible assets could benefit from accelerating inflation. The T. Rowe Price
Portfolio looks for companies that have the ability to expand production, to maintain superior Associates, Inc.
exploration programs and production facilities, and the potential to accumulate new
resources. At least 50% of Portfolio assets will be invested in U.S. securities, up to 50% of
total assets also may be invested in foreign securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
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.
LARGE CAP GROWTH Normally, about 40-60 companies will be represented in the Portfolio, with the 25 companies Alliance Capital
most highly regarded by the Sub-advisor usually constituting approximately 70% of the Management, L.P.
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 GROWTH 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,
of companies that the Sub-advisor believes offer better than average prospects for long-term Massachusetts
growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run Financial Services
and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign Company
securities.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
LARGE CAP GROWTH AST Marsico Capital Growth: seeks capital growth. Income realization is not an investment Marsico Capital
objective and any income realized on the Portfolio's investments, therefore, will be Management, LLC
incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing
primarily in common stocks of larger, more established companies. In selecting investments
for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis
with "bottom up" stock selection. The "top down" approach identifies sectors, industries and
companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor
then looks for individual companies with earnings growth potential that may not be recognized
by the market at large, a "bottom up" stock selection.
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
- ------------------- ------------------------------------------------------------------------------------------------ -----------------------
AST Goldman Sachs Concentrated Growth (f/k/a 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
LARGE CAP GROWTH objective by investing primarily in equity securities of companies that the Sub-advisor Goldman Sachs Asset
believes have potential to achieve capital appreciation over the long-term. The Portfolio Management
seeks to achieve its investment objective by investing, under normal circumstances, in
approximately 30 - 45 companies that are considered by the Sub-advisor to be positioned for
long-term growth.
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AST DeAM Large-Cap Growth: seeks maximum growth of capital by investing primarily in the
growth stocks of larger companies. The Portfolio pursues its objective, under normal market
conditions, by primarily investing at least 80% of its total assets in the equity securities
LARGE CAP GROWTH of large-sized companies included in the Russell 1000(R)Growth Index. The Sub-advisor employs Deutsche Asset
an investment strategy designed to maintain a portfolio of equity securities which Management, Inc.
approximates the market risk of those stocks included in the Russell 1000(R)Growth Index, but
which attempts to outperform the Russell 1000(R)Growth Index through active stock selection.
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AST DeAM Large-Cap Value (f/k/a AST Janus Strategic Value): seeks maximum growth of capital by
investing primarily in the value stocks of larger companies. The Portfolio pursues its
objective, under normal market conditions, by primarily investing at least 80% of the value of
its assets in the equity securities of large-sized companies included in the Russell 1000(R) Deutsche Asset
LARGE CAP VALUE Value Index. The Sub-advisor employs an investment strategy designed to maintain a portfolio Management, Inc.
of equity securities which approximates the market risk of those stocks included in the
Russell 1000(R)Value Index, but which attempts to outperform the Russell 1000(R)Value Index
through active stock selection.
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LARGE CAP AST Alliance/Bernstein Growth + Value: seeks capital growth by investing approximately 50% of Alliance Capital
BLEND its assets in growth stocks of large companies and approximately 50% of its assets in value Management, L.P.
stocks of large companies. The Portfolio will invest primarily in commons tocks of large U.S.
companies included in the Russell 1000(R)Index (the "Russell 1000(R)"). The Russell 1000(R)is a
market capitalization-weighted index that measures the performance of the 1,000 largest U.S.
companies. Normally, about 60-85 companies will be represented in the Portfolio, with 25-35
companies primarily from the Russell 1000(R)Growth Index constituting approximately 50% of the
Portfolio's net assets and 35-50 companies primarily from the Russell 1000(R)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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LARGE CAP VALUE AST Sanford Bernstein Core Value: seeks long-term capital growth by investing primarily in Sanford C. Bernstein
common stocks. The Sub-advisor expects that the majority of the Portfolio's assets will be & Co., LLC
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
are undervalued on the basis of investor reactions to near-term problems or circumstances even
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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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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REAL ESTATE AST Cohen & Steers Realty: seeks to maximize total return through investment in real estate
(REIT) securities. The Portfolio pursues its investment objective by investing, under normal
circumstances, at least 80% of its net assets in securities of real estate issuers. Under
normal circumstances, the Portfolio will invest substantially all of its assets in the equity
securities of real estate companies, i.e., a company that derives at least 50% of its revenues Cohen & Steers
from the ownership, construction, financing, management or sale of real estate or that has at Capital Management,
least 50% of its assets in real estate. Real estate companies may include real estate Inc.
investment trusts or REITs.
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AST Sanford Bernstein Managed Index 500: will invest, under normal circumstances, at least 80%
of its net assets in securities included in the Standard & Poor's 500 Composite Stock Price
Index (the "S&P(R)500 "). The Portfolio seeks to outperform the S&P 500 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. In
seeking to outperform the S&P 500, the Sub-advisor starts with a portfolio of stocks
MANAGED INDEX representative of the holdings of the index. It then uses a set of fundamental quantitative Sanford C. Bernstein
criteria that are designed to indicate whether a particular stock will predictably perform & Co., LLC
better or worse than the S&P 500. Based on these criteria, the Sub-advisor determines whether
the Portfolio should over-weight, under-weight or hold a neutral position in the stock
relative to the proportion of the S&P 500 that the stock represents. In addition, the
Sub-advisor also may determine that based on the quantitative criteria, certain equity
securities that are not included in the S&P 500 should be held by the Portfolio.
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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
AND 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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AST Alliance 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
GROWTH stocks (and securities convertible into common stocks). The Sub-advisor will take a
AND value-oriented approach, in that it will try to keep the Portfolio's assets invested in Alliance Capital
INCOME securities that are selling at reasonable valuations in relation to their fundamental business Management, L.P.
prospects. The stocks that the Portfolio will normally invest in are those of seasoned
companies.
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AST MFS Growth with Income: seeks long term growth of capital with a secondary objective to
seek reasonable current income. Under normal market conditions, the Portfolio invests at
least 65% of its net assets in common stocks and related securities, such as preferred stocks,
GROWTH convertible securities and depositary receipts. The stocks in which the Portfolio invests Massachusetts
AND generally will pay dividends. While the Portfolio may invest in companies of any size, the Financial Services
INCOME Portfolio generally focuses on companies with larger market capitalizations that the Company
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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EQUITY INCOME AST INVESCO Capital Income (f/k/a AST INVESCO Equity Income): seeks capital growth and current INVESCO Funds Group,
income while following sound investment practices. The Portfolio seeks to achieve its Inc.
objective by investing in securities that are expected to produce relatively high levels of
income and consistent, stable returns. The Portfolio normally will invest at least 65% of its
assets in dividend-paying common and preferred stocks of domestic and foreign issuers. Up to
30% of the Portfolio's assets may be invested in equity securities that do not pay regular
dividends.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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BALANCED AST DeAM Global Allocation: seeks a high level of total return by investing primarily in a Deutsche Asset
diversified portfolio of mutual funds. The Portfolio seeks to achieve its investment Management, Inc.
objective by investing in several other AST Portfolios ("Underlying Portfolios"). The
Portfolio intends its strategy of investing in combinations of Underlying Portfolios to result
in investment diversification that an investor could otherwise achieve only by holding
numerous investments. The Portfolio is expected to be invested in at least six such
Underlying Portfolios at any time. It is expected that the investment objectives of such AST
Portfolios will be diversified.
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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
BALANCED 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.
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ASSET ALLOCA-TION AST T. Rowe Price Asset Allocation: seeks a high level of total return by investing primarily T. Rowe Price
in a diversified portfolio of fixed income and equity securities. The Portfolio normally Associates, Inc.
invests approximately 60% of its total assets in equity securities and 40% in fixed income
securities. The Sub-advisor concentrates common stock investments in larger, more established
companies, but the Portfolio may include small and medium-sized companies with good growth
prospects. The fixed income portion of the Portfolio will be allocated among investment grade
securities, high yield or "junk" bonds, foreign high quality debt securities and cash reserves.
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GLOBAL BOND AST T. Rowe Price Global Bond: seeks to provide high current income and capital growth by T. Rowe Price
investing in high-quality foreign and U.S. dollar-denominated bonds. The Portfolio will International, Inc.
invest at least 80% of its total assets in all types of high quality bonds including those
issued or guaranteed by U.S. or foreign governments or their agencies and by foreign
authorities, provinces and municipalities as well as investment grade corporate bonds and
mortgage and asset-backed securities of U.S. and foreign issuers. The Portfolio generally
invests in countries where the combination of fixed-income returns and currency exchange rates
appears attractive, or, if the currency trend is unfavorable, where the Sub-advisor believes
that the currency risk can be minimized through hedging. The Portfolio may also invest up to
20% of its assets in the aggregate in below investment-grade, high-risk bonds ("junk bonds").
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.
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HIGH YIELD BOND AST Federated High Yield: seeks high current income by investing primarily in a diversified Federated Investment
portfolio of fixed income securities. The Portfolio will invest at least 80% of its assets in Counseling
fixed income securities rated BBB and below. These fixed income securities may include
preferred stocks, convertible securities, bonds, debentures, notes, equipment lease
certificates and equipment trust certificates. A fund that invests primarily in lower-rated
fixed income securities will be subject to greater risk and share price fluctuation than a
typical fixed income fund, and may be subject to an amount of risk that is comparable to or
greater than many equity funds.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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BOND AST Lord Abbett Bond-Debenture: seeks high current income and the opportunity for capital Lord, Abbett & Co. LLC
appreciation to produce a high total return. To pursue its objective, the Portfolio will
invest, under normal circumstances, at least 80% of the value of its assets in fixed income
securities and normally invests primarily in high yield and investment grade debt securities,
securities convertible in common stock and preferred stocks. 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%
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
maintain a weighted average maturity in the range of five to twelve years, there are no
restrictions on the overall Portfolio or on individual securities. The Portfolio may invest
up to 20% of its net assets in equity securities.
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AST DeAM Bond: seeks a high level of income, consistent with the preservation of capital.
Under normal circumstances, the Portfolio invests at least 80% of its total assets in
intermediate-term U.S. Treasury, corporate, mortgage-backed and asset-backed, taxable
BOND municipal and tax-exempt municipal bonds. The Portfolio invests primarily in investment grade Deutsche Asset
fixed income securities rated within the top three rating categories of a nationally Management, Inc.
recognized rating organization. Fixed income securities may be issued by U.S. and foreign
corporations or entities including banks and various government entities.
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BOND 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
portfolio of fixed-income securities of varying maturities. The average portfolio duration of
the Portfolio generally will vary within a three- to six-year time frame based on the Pacific Investment
Sub-advisor's forecast for interest rates. Management Company LLC
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BOND 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
portfolio of fixed-income securities of varying maturities. The average portfolio duration of
the Portfolio generally will vary within a one- to three-year time frame based on the Pacific Investment
Sub-advisor's forecast for interest rates. Management Company LLC
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MONEY MARKET AST Money Market: seeks high current income and maintain high levels of liquidity. The Wells Capital
Portfolio attempts to accomplish its objective by maintaining a dollar-weighted average Management, Inc.
maturity of not more than 90 days and by investing in securities which have effective
maturities of not more than 397 days.
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EMERGING MARKETS Montgomery Variable Series - Emerging Markets: seeks long-term capital appreciation, under
normal conditions by investing at least 80% of its total assets in stocks of companies of any Gartmore Global Asset
size based in the world's developing economies. Under normal market conditions, investments Management
are maintained in at least six countries at all times and no more than 35% of total assets in Trust/Gartmore Global
any single one of them. Partners
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LARGE CAP EQUITY WFVT Equity Value: seeks long-term capital appreciation and above-average dividend income. Wells Fargo Funds
The Portfolio pursues its objective by investing primarily in equity securities of U.S. Management, LLC
companies with strong return potential based on current market valuations. Under normal
circumstances, the Portfolio invests at least 80% of its assets in equity securities with the
same characteristics as common stocks, and in preferred stocks, warrants, and securities of
foreign companies through ADRs and similar investments.
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EQUITY INCOME WFVT Equity Income: seeks long-term capital appreciation and above-average dividend income. Wells Fargo Funds
The Portfolio pursues its objective primarily by investing in the common stocks of large, Management, LLC
domestic companies with above-average return potential based on current market valuations and
above-average dividend income. Under normal market conditions, the Portfolio invests at least
80% of its total assets in income producing equity securities and in issues of companies with
market capitalizations of $3 billion or more.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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Rydex Variable Trust - Nova: seeks to provide investment results that match the performance of
a specific benchmark on a daily basis. The Portfolio's current benchmark is 150% of the
performance of the S&P 500(R)Index (the "underlying index"). If the Portfolio meets its
objective, the value of the Portfolio's shares will tend to increase on a daily basis by 150%
STRATEGIC OR of the value of any increase in the underlying index. When the value of the underlying index
TACTICAL declines, the value of the Portfolio's shares should also decrease on a daily basis by 150% of
ALLOCA-TION the value of any decrease in the underlying index (e.g., if the underlying index goes down by Rydex Global Advisors
5%, the value of the Portfolio's shares should go down by 7.5% on that day). Unlike a (f/k/a PADCO Advisors
traditional index fund, as its primary investment strategy, the Portfolio invests to a II, Inc.)
significant extent in leveraged instruments, such as swap agreements, futures contracts and
options on securities, futures contracts, and stock indices, as well as equity securities.
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Rydex Variable Trust - Ursa: seeks to provide investment results that will inversely correlate
to the performance of the S&P 500(R)Index (the "underlying index"). If the Portfolio meets its
objective, the value of the Portfolio's shares will tend to increase during times when the
value of the underlying index is decreasing. When the value of the underlying index is
increasing, however, the value of the Portfolio's shares should decrease on a daily basis by
STRATEGIC OR an inversely proportionate amount (e.g., if the underlying index goes up by 5%, the value of
TACTICAL the Portfolio's shares should go down by 5% on that day). Unlike a traditional index fund,
ALLOCA-TION the Portfolio's benchmark is to perform exactly opposite the underlying index, and the Ursa Rydex Global Advisors
Fund will not own the securities included in the underlying index. Instead, as its primary (f/k/a PADCO Advisors
investment strategy, the Portfolio invests to a significant extent in short sales of II, Inc.)
securities or futures contracts and in options on securities, futures contracts, and stock
indices.
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Rydex Variable Trust - OTC: seeks to provide investment results that correspond to a benchmark
for over-the-counter securities. The Portfolio's current benchmark is the NASDAQ 100 Index(R)
(the "underlying index"). If the Portfolio meets its objective, the value of the Portfolio's
shares should increase on a daily basis by the amount of any increase in the value of the
STRATEGIC OR underlying index. However, when the value of the underlying index declines, the value of the Rydex Global Advisors
TACTICAL Portfolio's shares should also decrease on a daily basis by the amount of the decrease in (f/k/a PADCO Advisors
ALLOCA-TION value of the underlying index. The Portfolio invests principally in securities of companies II, Inc.)
included in the underlying index. It also may invest in other instruments whose performance
is expected to correspond to that of the underlying index, and may engage in futures and
options transactions and enter into swap agreements.
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MID-CAP EQUITY INVESCO Variable Investment Funds - Dynamics: seek long-term capital growth. The Portfolio INVESCO Funds Group,
invests at least 65% of its assets in common stocks of mid-sized companies. INVESCO defines Inc.
mid-sized companies as companies that are included in the Russell Midcap Growth Index at the
time of purchase, or if not included in that Index, have market capitalizations of between
$2.5 billion and $15 billion at the time of purchase. The core of the Portfolio's investments
are in securities of established companies that are leaders in attractive growth markets with
a history of strong returns. The remainder of the Portfolio is invested in securities of
companies that show accelerating growth, driven by product cycles, favorable industry or
sector conditions, and other factors that INVESCO believes will lead to rapid sales or
earnings growth.
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SECTOR INVESCO Variable Investment Funds - Technology: seeks capital growth. The Portfolio normally INVESCO Funds Group,
invests 80% of its net assets in the equity securities and equity-related instruments of Inc.
companies engaged in technology-related industries. These include, but are not limited to,
various applied technologies, hardware, software, semiconductors, telecommunications equipment
and services and service-related companies in information technology. Many of these products
and services are subject to rapid obsolescence, which may lower market value of the securities
of the companies in this sector. At any given time, 20% of the Portfolio's assets is not
required to be invested in the sector.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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SECTOR INVESCO Variable Investment Funds - Health Sciences: seeks capital growth. The Portfolio INVESCO Funds Group,
normally invests at least 80% of its net assets in the equity securities and equity-related Inc.
instrumentsof 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, biotechnology and healthcare providers and service companies. At any given
time, 20% of the Portfolio's assets is not required to be invested in the sector.
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SECTOR INVESCO Variable Investment Funds - Financial Services: seeks capital growth. The Portfolio INVESCO Funds Group,
normally invests at least 80% of its net assets in the equity securities and equity-related
instruments of companies involved in the financial services sector. These companies include,
but are not limited to, banks (regional and money-centers), insurance companies (life,
property and casualty, and multiline), investment and miscellaneous industries (asset
managers, brokerage firms, and government-sponsored agencies) and suppliers to financial
services companies. At any given time, 20% of the Portfolio's assets is not required to be Inc.
invested in the sector.
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SECTOR INVESCO Variable Investment Funds - Telecommunications: seeks capital growth and current INVESCO Funds Group,
income. The Portfolio normally invests 80% of its net assets in the equity securities and Inc.
equity-related instruments of companies 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 companies. The telecommunications sector
includes, but is not limited to, companies that offer telephone services, wireless
communications, satellite communications, television and movie programming, broadcasting and
Internet access. Many of these products and services are subject to rapid obsolescence, which
may lower the market value of the securities of the companies in this sector. At any given
time, 20% of the Portfolio's assets is not required to be invested in the sector.
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GLOBAL EQUITY 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
non-U.S. equity securities of companies located in the world's major industrialized
countries. The Portfolio will invest in no less than three countries, which may include the
U.S., but may invest more than 25% of its assets in one country. The Portfolio invests only Evergreen Investment
in the best 100 companies, which are selected by the Portfolio's manager based on as high Management Company,
return on equity, consistent earnings growth, established market presence and industries or LLC
sectors with significant growth prospects.
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SMALL CAP EQUITY Evergreen VA Special Equity: seeks capital growth. The Portfolio normally invests at least
80% of its assets in common stocks of small U.S. companies (i.e., companies whose market
capitalizations fall within the range of the Russell 2000(R)Index, at the time of purchase).
The remaining 20% of the Portfolio's assets may be represented by cash or invested in various Evergreen Investment
cash equivalents. The Portfolio's manager selects stocks of companies which it believes have Management Company,
the potential for accelerated growth in earnings and price. LLC
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MID-CAP EQUITY Evergreen VA Omega: seeks long-term capital growth. The Portfolio invests primarily in common
stocks and securities convertible into common stocks of U.S. companies across all market
capitalizations. The Portfolio's managers employ a growth style of equity management. Evergreen Investment
"Growth" stocks are stocks of companies that the Portfolio's managers believe have anticipated Management Company,
earnings ranging from steady to accelerated growth. LLC
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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INTER-NATIONAL ProFund VP Europe 30: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
EQUITY correspond to the daily performance of the ProFunds Europe 30 Index. The ProFunds Europe 30
Index, created by ProFund Advisors, is composed of 30 companies whose principal offices are
located in Europe and whose securities are traded on U.S. exchanges or on the NASDAQ as
depositary receipts or ordinary shares. The component companies in the ProFunds Europe 30
Index are determined annually based upon their U.S. dollar-traded volume. Their relative
weights are determined based on a modified market capitalization method.
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INTER-NATIONAL ProFund VP Asia 30: seeks daily investment results, before fees and expenses, that correspond ProFund Advisors LLC
EQUITY to the daily performance of the ProFunds Asia 30 Index. The ProFunds Asia 30 Index, created
by ProFund Advisors, is composed of 30 of the companies whose principal offices are located in
the Asia/Pacific region, excluding Japan, and whose securities are traded on U.S. exchanges or
on the NASDAQ as depository receipts or ordinary shares. The component companies in the
ProFunds Asia 30 Index are determined annually based upon their U.S. dollar-traded volume.
Their relative weights are determined based on the modified market capitalization method.
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ProFund VP Japan: seeks daily investment results, before fees and expenses, that correspond to
the daily performance of the Nikkei 225 Stock Average. Since the Japanese markets are not
open when ProFund VP Japan values its shares, ProFund VP Japan determines its success in
INTER-NATIONAL meeting this investment objective by comparing its daily return on a given day with the daily ProFund Advisors LLC
EQUITY performance of related futures contracts traded in the United States. The Nikkei 225 Stock
Average is a price-weighted index of 225 large, actively traded Japanese stocks traded on the
Tokyo Stock Exchange. The Index is computed and distributed by the Nihon Keizai Shimbun.
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SECTOR ProFund VP Banks: seeks daily investment results, before fees and expenses, that correspond to ProFund Advisors LLC
the daily performance of the Dow Jones U.S. Banks Sector Index. The Dow Jones U.S. Banks
Index measures the performance of the banking industry of the U.S. equity market. Component
companies include all regional and major U.S. domiciled international banks, savings and
loans, savings banks, thrifts, building associations and societies. Investment and merchant
banks are excluded.
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ProFund VP Basic Materials: seeks daily investment results, before fees and expenses, that
correspond to the daily performance of the Dow Jones U.S. Basic Materials Sector Index. The
Dow Jones U.S. Basic materials Sector Index measures the performance of the basic materials
SECTOR economic sector of the U.S. equity market. Component companies are involved in the production ProFund Advisors LLC
of aluminum, commodity chemicals, specialty chemicals, forest products, non-ferrous metals,
paper products, precious metals and steel.
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ProFund VP Biotechnology: seeks daily investment results, before fees and expenses, that
correspond to the daily performance of the Dow Jones U.S. Biotechnology Index. The Dow Jones
U.S. Biotechnology Index measures the performance of the biotechnology industry of the U.S.
SECTOR equity market. Component companies include those engaged in genetic research, and/or the ProFund Advisors LLC
marketing and development of recombinant DNA products. Makers of artificial blood and
contract biotechnology researchers are also included in the Index.
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ProFund VP Consumer Cyclical: seeks daily investment results, before fees and expenses, that
correspond to the daily performance of the Dow Jones U.S. Consumer Cyclical Sector Index. The
Dow Jones U.S. Consumer Cyclical Sector Index measures the performance of the consumer
SECTOR cyclical economic sector of the U.S. equity market. Component companies include airlines, ProFund Advisors LLC
auto manufacturers, auto parts, tires, casinos, consumer electronics, recreational products
and services, restaurants, lodging, toys, home construction, home furnishings and appliances,
footwear, clothing and fabrics.
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SECTOR ProFund VP Consumer Non-Cyclical: seeks daily investment results, before fees and expenses, ProFund Advisors LLC
that correspond to the daily performance of the Dow Jones U.S. Consumer Non-Cyclical Sector
Index. The Dow Jones U.S. Consumer Non-Cyclical Sector Index measures the performance of the
consumer non-cyclical economic sector of the U.S. equity market. Component companies include
beverage companies, consumer service companies, durable and non-durable household product
manufacturers, cosmetic companies, food products and agriculture and tobacco products.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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SECTOR ProFund VP Energy: seeks daily investment results, before fees and expenses, that correspond ProFund Advisors LLC
to the daily performance of the Dow Jones U.S. Energy Sector Index. The Dow Jones U.S. Energy
Sector Index measures the performance of the energy sector of the U.S. equity market.
Component companies include oil drilling equipment and services, coal, oil companies-major,
oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service
companies.
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SECTOR ProFund VP Financial: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Financial Sector Index. The Dow
Jones U.S. Financial Sector Index measures the performance of the financial services economic
sector of the U.S. equity market. Component companies include regional banks, major U.S.
domiciled international banks, full line, life, and property and casualty insurance companies,
companies that invest, directly or indirectly in real estate, diversified financial companies
such as Fannie Mae, credit card insurers, check cashing companies, mortgage lenders,
investment advisers and securities broker-dealers, investment banks, merchant banks, online
brokers, publicly traded stock exchanges.
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SECTOR ProFund VP Healthcare: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Healthcare Sector Index. The Down
Jones U.S. healthcare Sector Index measures the performance of the healthcare economic sector
of the U.S. equity market. Component companies include health care providers, biotechnology
companies, medical supplies, advanced medical devices and pharmaceuticals.
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SECTOR ProFund VP Industrial: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Industrial Sector Index. The Dow
Jones U.S. Industrial Sector Index measures the performance of the industrial economic sector
of the U.S. equity market. Component companies include building materials, heavy
construction, factory equipment, heavy machinery, industrial services, pollution control,
containers and packaging, industrial diversified, air freight, marine transportation,
railroads, trucking, land-transportation equipment, shipbuilding, transportation services,
advanced industrial equipment, electric components and equipment, and aerospace.
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SECTOR ProFund VP Internet: seeks daily investment results, before fees and expenses, that correspond ProFund Advisors LLC
to the daily performance of the Dow Jones U.S. Internet Index. The Dow Jones Composite
Internet Index measures the performance of stocks in the U.S. equity markets that generate the
majority of their revenues from the Internet. The Index is composed of two sub-groups:
Internet Commerce - companies that derive the majority of their revenues from providing goods
and/or services through an open network, such as a web site; and Internet Services - companies
that derive the majority of their revenues from providing access to the Internet or providing
services to people using the Internet.
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SECTOR ProFund VP Pharmaceuticals: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Pharmaceuticals Sector Index. The
Dow Jones U.S. Pharmaceuticals Index measures the performance of the pharmaceuticals industry
of the U.S. equity market. Component companies include the makers of prescription and
over-the-counter drugs, such as aspirin, cold remedies, birth control pills, and vaccines, as
well as companies engaged in contract drug research..
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SECTOR ProFund VP Precious Metals: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Philadelphia Stock Exchange Gold & Silver Sector
Index. The Philadelphia Stock Exchange Gold and Silver Sector Index measures the performance
of the gold and silver mining industry of the global equity market. Component companies
include companies involved in the mining and production of gold, silver, and other precious
metals, precious stones and pearls. The Index does not include producers of commemorative
medals and coins that are made of these metals.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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SECTOR ProFund VP Real Estate: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Real Estate Index. The Dow Jones
U.S. Real Estate Index measures the performance of the real estate industry of the U.S. equity
market. Component companies include those that invest directly or indirectly through
development, management or ownership of shopping malls, apartment buildings, housing
developments 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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SECTOR ProFund VP Semiconductor: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Semiconductor Index. The Dow Jones
U.S. Semiconductor Index measures the performance of the semiconductor industry of the U.S.
equity market. Component companies are engaged in the production of semiconductors and other
integrated chips, as well as other related products such as circuit boards and motherboards.
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SECTOR ProFund VP Technology: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Technology Sector Index. The Dow
Jones U.S. Technology Sector Index measures the performance of the technology sector of the
U.S. equity market. Component companies include those involved in computers and office
equipment, software, communications technology, semiconductors, diversified technology
services and internet services.
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SECTOR ProFund VP Telecommunications: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the Dow Jones U.S. Telecommunications Sector Index. The
Dow Jones U.S. Telecommunications Sector Index measures the performance of the
telecommunications economic sector of the U.S. equity market. Component companies include
fixed line communications and wireless communications companies.
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ProFund VP Utilities: seeks daily investment results, before fees and expenses, that
correspond to the daily performance of the Dow Jones U.S. Utilities Sector Index. The Dow
SECTOR Jones U.S. Utilities Sector Index measures the performance of the utilities economic sector of ProFund Advisors LLC
the U.S. equity market. Component companies include electric utilities, gas utilities and
water utilities.
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THE PROFUND VP PORTFOLIOS DESCRIBED BELOW ARE AVAILABLE AS SUB-ACCOUNTS TO ALL ANNUITY OWNERS. EACH PORTFOLIO PURSUES AN INVESTMENT
STRATEGY THAT SEEKS TO PROVIDE DAILY INVESTMENT RESULTS, BEFORE FEES AND EXPENSES, THAT MATCH A WIDELY FOLLOWED INDEX, INCREASE BY A
SPECIFIED FACTOR RELATIVE TO THE INDEX, MATCH THE INVERSE OF THE INDEX OR THE INVERSE OF THE INDEX MULTIPLIED BY A SPECIFIED FACTOR. THE
INVESTMENT STRATEGY OF SOME OF THE PORTFOLIOS MAY MAGNIFY (BOTH POSITIVELY AND NEGATIVELY) THE DAILY INVESTMENT RESULTS OF THE APPLICABLE
INDEX. IT IS RECOMMENDED THAT ONLY THOSE ANNUITY OWNERS WHO ENGAGE A FINANCIAL ADVISOR TO ALLOCATE THEIR ACCOUNT VALUE USING A STRATEGIC
OR TACTICAL ASSET ALLOCATION STRATEGY INVEST IN THESE PORTFOLIOS. WE HAVE ARRANGED THE PORTFOLIOS BASED ON THE INDEX ON WHICH IT'S
INVESTMENT STRATEGY IS BASED.
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The S&P 500 Index(R)is a widely used measure of large-cap U.S. stock market performance. It includes a representative sample of leading
companies in leading industries. Companies are selected for inclusion in the Index by Standard & Poor's(R)for being U.S. companies with
adequate liquidity, appropriate market capitalization financial viability and public float.
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ProFund VP Bull: seeks daily investment results, before fees and expenses, that correspond to ProFund Advisors LLC
S&P 500 the daily performance of the S&P 500(R)Index.
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S&P 500 ProFund VP Bear: seeks daily investment results, before fees and expenses, that correspond to ProFund Advisors LLC
the inverse (opposite) of the daily performance of the S&P 500(R)Index. If ProFund VP Bear is
successful in meeting its objective, its net asset value should gain approximately the same,
on a percentage basis, as any decrease in the S&P 500(R)Index when the Index declines on a
given day. Conversely, its net asset value should lose approximately the same, on a
percentage basis, as any increase in the Index when the Index rises on a given day.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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S&P 500 ProFund VP UltraBull (f/k/a ProFund VP Bull Plus): seeks daily investment results, before fees ProFund Advisors LLC
and expenses, that correspond to twice (200%) the daily performance of the S&P 500(R)Index. If
the ProFund VP UltraBull is successful in meeting its objective, its net asset value should
gain approximately twice as much, on a percentage basis, as the S&P 500(R)Index when the Index
rises on a given day. Conversely, its net asset value should lose approximately twice as
much, on a percentage basis, as the Index when the Index declines on a given day. Prior to
May 1, 2003, ProFund VP UltraBull was named "ProFund VP Bull Plus" and sought daily investment
results that corresponded to one and one-half times the daily performance of the S&P 500(R)Index
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The NASDAQ-100 Index(R)is a market capitalization weighted index that includes 100 of the largest domestic and international non-financial
companies listed on The NASDAQ Stock Market.
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NASDAQ 100 ProFund VP OTC: seeks daily investment results, before fees and expenses, that correspond to ProFund Advisors LLC
the daily performance of the NASDAQ-100 Index(R). "OTC" in the name of ProFund VP OTC reflers
to securities that do not trade on a U.S. securities exchange, as registered under the
Securities Exchange Act of 1934.
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NASDAQ 100 ProFund VP Short OTC: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the inverse (opposite) of the daily performance of the NASDAQ-100 Index(R). If
ProFund VP Short OTC is successful in meeting its objective, its net asset value should gain
approximately the same, on a percentage basis, as any decrease in the NASDAQ-100 Index(R)when
the Index declines on a given day. Conversely, its net asset value should lose approximately
the same, on a percentage basis, as any increase in the Index when the Index rises on a given
day. "OTC" in the name of ProFund VP Short OTC refers to securities that do not trade on a
U.S. securities exchange, as registered under the Securities Exchange Act of 1934.
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NASDAQ 100 ProFund VP UltraOTC: seeks daily investment results, before fees and expenses, that correspond ProFund Advisors LLC
to twice (200%) the daily performance of the NASDAQ- 100 Index(R). If ProFund VP UltraOTC is
successful in meeting its objective, its net asset value should gain approximately twice as
much, on a percentage basis, as the NASDAQ-100 Index(R)when the Index rises on a given day.
Conversely, its net asset value should lose approximately twice as much, on a percentage
basis, as the Index when the Index declines on a given day. "OTC" in the name of ProFund VP
UltraOTC refers to securities that do not trade on a U.S. securities exchange, as registered
under the Securities Exchange Act of 1934.
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The S&P MidCap 400 Index(R)is a widely used measure of mid-sized company U.S. stock market performance. Companies are selected for
inclusion in the Index by Standard & Poor's(R)for being U.S. companies with adequate liquidity, appropriate market capitalization,
financial viability and public float.
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S&P MIDCAP 400 ProFund VP Mid-Cap Value: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the S&P MidCap 400/Barra Value Index(R). The S&P
MidCap400/Barra Value Index(R)is designed to differentiate between fast growing companies and
slower growing or undervalued companies. Standard & Poor's and Barra cooperate to employ a
price-to-book value calculation whereby the market capitalization of the S&P MidCap 400 Index(R)
is divided equally between growth and value. The index is rebalanced twice per year.
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S&P MIDCAP 400 ProFund VP Mid-Cap Growth: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the S&P MidCap 400/Barra Growth Index(R). The S&P MidCap
400/Barra Growth Index(R)is designed to differentiate between fast growing companies and slower
growing or undervalued companies. Standard & Poor's and Barra cooperate to employ a
price-to-book value calculation whereby the market capitalization of the S&P MidCap 400 Index(R)
is divided equally between growth and value. The Index is rebalanced twice per year..
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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S&P MIDCAP 400 ProFund VP UltraMid-Cap: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to twice (200%) the daily performance of the S&P MidCap 400 Index(R). If ProFund VP
UltraMid-Cap is successful in meeting its objective, its net asset value should gain
approximately twice as much, on a percentage basis, as the S&P MidCap 400 Index(R)when the
Index rises on a given day. Conversely, its net asset value should lose approximately twice
as much, on a percentage basis, as the Index when the Index declines on a given day.
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The S&P SmallCap 600 Index(R)consists of 600 domestic stocks chosen for market size, liquidity, and industry group representation. The
Index comprises stocks from the industrial, utility, financial, and transportation sectors.
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S&P SMALLCAP 600 ProFund VP Small-Cap Value: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the S&P SmallCap 600/Barra Value Index(R). The S&P
SmallCap 600/Barra Value Index(R)is designed to differentiate between fast growing companies
and slower growing or undervalued companies. Standard & Poor's and Barra cooperate to employ a
price-to-book value calculation whereby the market capitalization of the S&P SmallCap 600
Index(R)is divided equally between growth and value. The Index is rebalanced twice per year.
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S&P SMALLCAP 600 ProFund VP Small-Cap Growth: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to the daily performance of the S&P SmallCap 600/Barra Growth Index(R). The S&P
SmallCap 600/Barra Growth Index(R)is designed to differentiate between fast growing companies
and slower growing or undervalued companies. Standard & Poor's and Barra cooperate to employ
a price-to-book value calculation whereby the market capitalization-of the S&P SmallCap 600
Index(R)is divided equally between growth and value. The Index is rebalanced twice per year.
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The Russell 2000 Index(R)measures the performance of the 2,000 small companies in the Russell 3000 Index(R)representing approximately 8% of
the total market capitalization of the Russell 3000 Index(R), which in turn represents approximately 98% of the investable U.S. equity
market.
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RUSSELL 2000 ProFund VP UltraSmall-Cap: seeks daily investment results, before fees and expenses, that ProFund Advisors LLC
correspond to twice (200%) the daily performance of the Russell 2000(R)Index. If ProFund VP
UltraSmall-Cap is successful in meeting its objective, its net asset value should gain
approximately twice as much, on a percentage basis, as the Russell 2000 Index(R)when the Index
rises on a given day. Conversely, its net asset value should lose approximately twice as
much, on a percentage basis, as the Index when the Index declines on a given day.
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U.S. GOV'T BOND ProFund VP U.S. Government Plus: seeks daily investment results, before fees and expenses, ProFund Advisors LLC
that correspond to one and one-quarter times (125%) the daily price movement of the most
recently issued 30-year U.S. Treasury Bond ("Long Bond"). In accordance with its stated
objective, the net asset value of ProFund VP U.S. Government Plus generally should decrease as
interest rates rise. If ProFund VP U.S. Government Plus is successful in meeting its
objective, its net asset value should gain approximately one and one-quarter times (125%) as
much, on a percentage basis, as any daily increase in the Long Bond on a given day.
Conversely, its net asset value should lose approximately one and one-quarter (125%) as much,
on a percentage basis, as any daily decrease in the Long Bond on a given day.
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U.S. GOV'T BOND ProFund VP Rising Rates Opportunity: seeks daily investment results, before fees and expenses, ProFund Advisors LLC
that correspond to one and one-quarter times (125%) the inverse (opposite) of the daily price
movement of the most recently issued Long Bond. In accordance with its stated objective, the
net asset value of ProFund VP rising Rates Opportunity generally should decrease as interest
rates fall. If ProFund VP Rising Rates Opportunity is successful in meeting its objective,
its net asset value should gain approximately one and one-quarter times (125%) as much, on a
percentage basis, as any daily decrease in the Long Bond on a given day. Conversely, its net
asset value should lose approximately one and one-quarter times (125%) as much, on a
percentage basis, as any daily increase in the Long Bond on a given day.
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STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
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Each portfolio of the First Defined Portfolio Fund LLC invests in the securities of a relatively few number of issuers or in a particular
sector of the economy. Since the assets of each portfolio are invested in a limited number of issuers or a limited sector of the economy,
the net asset value of the portfolio may be more susceptible to a single adverse economic, political or regulatory occurrence. Certain of
the portfolios may also be subject to additional market risk due to their policy of investing based on an investment strategy and
generally not buying or selling securities in response to market fluctuations. Each portfolio's relative lack of diversity and limited
ongoing management may subject Owners to greater market risk than other portfolios.
The stock selection date for each of the strategy Portfolios of the First Defined Portfolio Fund LLC is on or about December 31st of each
year. The holdings for each strategy Portfolio will be adjusted annually on or about December 31st in accordance with the Portfolio's
investment strategy. At that time, the percentage relationship among the shares of each issuer held by the Portfolio is established.
Through the next one-year period that percentage will be maintained as closely as practicable when the Portfolio makes subsequent
purchases and sales of the securities.
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LARGE CAP First Trust(R)10 Uncommon Values: seeks to provide above-average capital appreciation. The First Trust Advisors
BLEND Portfolio seeks to achieve its objective by investing primarily in the ten common stocks L.P.
selected by the Investment Policy Committee of Lehman Brothers Inc. ("Lehman Brothers") with
the assistance of the Research Department of Lehman Brothers which, in their opinion have the
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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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
value over a period of years. The Portfolio invests primarily in the common stock of large
and medium-sized foreign companies. Under normal circumstances, the Portfolio invests at
INTER- least 65% of its total assets in common stock of foreign companies operating or based in at
NATIONAL EQUITY least five different countries. The Portfolio looks primarily for stocks of companies whose Prudential
earnings are growing at a faster rate than other companies and that have above-average growth Investments LLC/
in earnings and cash flow, improving profitability, strong balance sheets, management strength Jennison Associates
and strong market share for its products. The Portfolio also tries to buy such stocks at LLC
attractive prices in relation to their growth prospects.
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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 may not be available in all states. Availability of Fixed Allocations is subject to change and may differ by state
and by the annuity product you purchase. Please call American Skandia at 1-800-766-4530 to determine availability of Fixed
Allocations in your state and for your annuity product.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
Contingent Deferred Sales Charge: We do not deduct a sales charge from Purchase Payments you make to your Annuity. However, we may
deduct a Contingent Deferred Sales Charge or CDSC if you surrender your Annuity or when you make a partial withdrawal. The CDSC
reimburses us for expenses related to sales and distribution of the Annuity, including commissions, marketing materials and other
promotional expenses. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn during the
applicable Annuity Year. For purposes of calculating the CDSC, we consider the year following the date we receive a Purchase Payment
as Year 1. The amount of the CDSC applicable to each Purchase Payment 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+
------------------ ------- ----- ------ ------ ------ ----- ------ ------
------------------ ------- ----- ------ ------ ------ ----- ------ ------
CHARGE (%) 7.5 6.5 5.5 4.5 3.5 2.5 1.5 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 seven (7) 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." Free Withdrawals are
not treated as a withdrawal of Purchase Payments for purposes of calculating the CDSC on a subsequent withdrawal or surrender.
Withdrawals of amounts greater than the maximum Free Withdrawal amount are treated as a withdrawal of Purchase Payments and will be
assessed a CDSC. For purposes of calculating the CDSC on a surrender or a partial withdrawal, the Purchase Payments being withdrawn
may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have
made prior withdrawals under the Free Withdrawal provision or if your Account Value has declined in value due to negative market
performance.
We may waive the CDSC when taking a Minimum Distribution from an Annuity purchased as a "qualified" investment. Free Withdrawals and
Minimum Distributions are each explained more fully in the section entitled "Access to Your Account Value".
Exceptions to the Contingent Deferred Sales Charge
To the extent permitted by law, we do not apply the CDSC provision on Annuities owned by a member of the designated class: (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) above; and (j) the siblings of any such persons noted in (b) through (h) above.
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. If you fail to inform us that you qualify as a
member of the designated class, your Annuity will not be eligible for this exception to the CDSC.
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.
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.
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 Insurance
Charge is the combination of the Mortality & Expense Risk Charge (1.25%) and the Administration Charge (0.15%). The total 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 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 mortality risks and expenses under this Annuity are incorrect and that we
have agreed not to increase these charges over time despite our actual costs. We may increase the portion of the total Insurance
Charge that is deducted 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 promoting, distributing, issuing and administering the Annuity.
The Insurance Charge is not deducted against assets allocated to a Fixed Allocation. However, the amount we credit to Fixed
Allocations may also reflect similar assumptions about the insurance guarantees provided 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. These fees are deducted
daily by each Portfolio before it provides American Skandia with the net asset value as of the close of business each day. 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 PAYMENT OPTION?
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 total Insurance Charge that is deducted as an Administration Charge. 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 $10,000. The minimum initial Purchase Payment for
annuities designed to qualify for special tax treatment under the Code is $2,000. 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 $10,000 (for non-qualified contracts) or $2,000 (for qualified contracts) 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, limiting the right to make additional Purchase Payments, changing the number
of transfers allowable under the Annuity or restricting the Sub-accounts that are available. Other limitations and/or restrictions
may apply.
Except as noted below, Purchase Payments must be submitted by check drawn on a U.S. bank, in U.S. dollars, and made payable to
American Skandia. Purchase Payments may also be submitted via 1035 exchange or direct transfer of funds. Under certain
circumstances, Purchase Payments may be transmitted to American Skandia via wiring funds through your investment professional's
broker-dealer firm. Additional Purchase Payments may also be applied to your Annuity under an arrangement called "bank drafting"
where you authorize us to deduct money directly from your bank account. We may reject any payment if it is received in an
unacceptable form. Our acceptance of a check is subject to our ability to collect funds.
Age Restrictions: There is no age restriction to purchase the Annuity. However, the Death Benefit provides greater protection for
persons under age 85. You should consider your need to access your Account Value 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 named
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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 Owner or Annuitant who does not meet our current underwriting guidelines;
|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 beneficiary of 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, including the CDSC when applicable.
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?
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. This is often referred to as a "free-look." The right to cancel period is
twenty-one (21) days, measured from the time that you received your Annuity. If you are exercising your right to return the Annuity,
notice by mail is effective on being postmarked, properly addressed and postage prepaid. If you return the Annuity to the agent,
other than by mail, the effective date of the right to cancel will be the date the Annuity is received by the agent.
If you exercise your right to return your Annuity, we will calculate the amount to be refunded to you as follows:
For amounts allocated to the Variable Investment Options, we will refund your Account Value plus any fees or charges deducted, as of
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the date the cancellation request is either postmarked or returned to the agent.
For amounts allocated to the Fixed Investment Options, we will refund the greater of:
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|X| the Purchase Payment, less any withdrawals; or
|X| the current Account Value plus any fees or charges deducted, as of the date the cancellation request is either postmarked or
returned to the agent.
The amount refunded may be higher or lower than your original Purchase Payment and you bear the investment risk during this period.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in American Skandia's Systematic
Investment Plan or a periodic purchase payment program. We will allocate any additional Purchase Payments you make according to your
most recent allocation instructions, unless you request new allocations when you submit a new Purchase Payment.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and
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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 your Annuity with a lower initial Purchase Payment, as long as you
authorize payments that will equal at least $10,000 or $2,000 (as applicable) 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 $10,000 or $2,000 (as
applicable).
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.
Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation
instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program. We
assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those
allocations or request new allocations when you submit a new Purchase Payment.
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation 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 a program 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 this program 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.
MAY I AUTHORIZE MY INVESTMENT PROFESSIONAL TO MANAGE MY ACCOUNT?
Yes. You may authorize your investment 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. You must contact us immediately if and when you
revoke such authority. We will not be responsible for acting on instructions from your investment professional if you fail to inform
us that such person's authority has been revoked. We may also suspend, cancel or limit 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 investment professionals or investment advisors
who you authorize to make financial transactions on your behalf. These investment 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 investment 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 investment 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 investment 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 investment professional's or investment advisor's ability to
request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of an investment
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 investment professional. Your investment professional will be informed of all such restrictions on an ongoing
basis. We may also require that your investment 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 investment
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?
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. Fixed
Allocations may not be available in all states and may not always be available for all Guarantee Periods depending on market factors
and other considerations.
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.
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. In certain states the interest rate may be subject to a minimum under state law or regulation.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation more than 30 days 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. In certain states the amount of any Market Value Adjustment may be
limited under state law or regulation. If your Annuity is governed by the laws of that state, any Market Value Adjustment that
applies will be subject to our rules for complying with such law or regulation.
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)]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
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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.
No MVA applies in determining a Fixed Allocation's Account Value for the 30 days prior to the Maturity Date. 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]N/12 = [1.05/1.035]2 = 1.029196
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $59,571.15.
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]N/12 = [1.05/1.060)]2 = 0.981221
Interim Value = $57,881.25
Account Value after MVA = Interim Value X MVA Factor = $56,794.30.
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. You are not allowed to renew any Fixed
Allocation if the Maturity Date is within 30 days of the date we will apply your Account Value to determine the amount of Annuity
payments on the Annuity Date. We will notify you at least 45 days and not more than 60 days before the end of the Guarantee Period
about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being offered. The rates being
credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you choose to renew a Fixed
Allocation within 30 days prior to the Maturity Date or transfer the Account Value of the Fixed Allocation to one or more variable
investment options.
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 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 from your Annuity during each of Annuity Years 1-7 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. Amounts withdrawn as a Free Withdrawal do not reduce the amount of CDSC that may apply upon a
subsequent withdrawal or surrender of the 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 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.
You may request a withdrawal for an exact dollar amount after deduction of any CDSC that applies (called a "net withdrawal") or
request a gross withdrawal from which we will deduct any CDSC that applies, resulting in less money being payable to you than the
amount you requested. If you request a net withdrawal, the amount deducted from your Account Value to pay the CDSC may also 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, call 1-800-766-4530 or visit our Internet Website at
www.americanskandia.com.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The Free Withdrawal provision that applies to your Annuity depends on whether your Annuity is used as a funding vehicle for a
qualified plan under Section 401 of the Code. As of the date of this Prospectus, we are no longer offering the Annuity for use with
Section 401 plans.
All Annuities (except Section 401 plans)
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, seven (7) years). The 10% amount is not cumulative.
Section 401 plans only
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 20% of Purchase Payments that, as of the date of the withdrawal, have been invested for less than the CDSC period (with your
Annuity, seven (7) 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.
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 apply a Market Value Adjustment to any Fixed Allocations.
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 $11,500. Your maximum Free Withdrawal amount would be the greater of
Growth (Account Value minus Purchase Payments = $1,500) or 10% of Purchase Payments ($1,000). Your maximum Free Withdrawal amount
would therefore be $1,500.
Further assume that in your third Annuity Year, you choose to surrender your Annuity. Assume that after taking your $1,500 Free
Withdrawal in Year 2, your Account Value has increased to $12,000 due to positive investment performance. Upon surrender, we will
deduct a CDSC of 5.5% 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 (5.5% of $10,000 = $550). 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 $11,450 minus the Annual Maintenance Fee.
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, seven (7) 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.
For purposes of calculating the CDSC on a partial withdrawal, the Purchase Payments being withdrawn may be greater than your
remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior
withdrawals under the Free Withdrawal provision or if your Account Value has declined in value due to negative market performance.
3. If the amount requested exceeds the amounts available under Item #2 above, we withdraw the remaining amount from any other
Account Value.
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. We may
apply a Market Value Adjustment to any Fixed Allocations. 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. 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.
For purposes of calculating the CDSC on surrender, the Purchase Payments being withdrawn may be greater than your remaining Account
Value or the amount of your withdrawal request. This is most likely to occur if you have made prior withdrawals under the Free
Withdrawal provision or if your Account Value has declined in value due to negative market performance. We may apply a Market Value
Adjustment to any Fixed Allocations.
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, call 1-800-766-4530 or visit our Internet Website at
www.americanskandia.com.
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. For additional information on annuity payment options you
may request a Statement of Additional Information.
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 before the Annuity Date under the terms of your contract. A maximum Annuity Date may be
required by law. 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 or 15 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 until 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 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 6
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Variable Payments for Life with a Cash Value and Guarantee: Under this option, benefits are payable as described in Option 5; except
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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 seven 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 1983a 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. You will not receive annuity
payments until you choose an AIR. The remaining annuity payments will fluctuate based on the performance of the Sub-accounts
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.
Within payment options 1-3, if the Sub-accounts you choose perform exactly the same as the AIR, then subsequent annuity payments will
be the same as the first annuity payment. If the Sub-accounts you choose perform better than the AIR, then subsequent annuity
payments will be higher than the first annuity payment. If the Sub-accounts you choose perform worse than the AIR, then subsequent
annuity payments will be lower than the first. Within payment options 5 and 6, the 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 are adjusted based on
the performance of the Sub-accounts relative to the AIR; however, subsequent annuity payments do not always increase or decrease
based on the performance of the Sub-accounts relative to the AIR.
|X| Variable Payments (Options 1-3)
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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 5)
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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, meaning the AIR, 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 (Option 6)
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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%.
The variable annuity payment options are described in greater detail in a separate prospectus which will be provided to you at the
time you elect one of the variable annuity payment options.
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. The Insurance Charge we deduct daily from your Account Value
allocated to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the Death Benefit guarantee under the
Annuity. 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 amount of the Death Benefit may be reduced by the amount of any remaining Contingent Deferred Sales Charge if the decedent was
age 75 or older at the time of death.
The Death Benefit depends on the decedent's age on the date of death:
If death occurs before the decedent's age 85: The Death Benefit is the greatest of:
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations;
|X| The sum of all Purchase Payments less the sum of all withdrawals;
|X| The Account Value on the later of the Issue Date of the Annuity and each fifth anniversary of the Issue Date of the Annuity
immediately preceding the date of death, plus the sum of all Purchase Payments less the sum of all withdrawals, made
subsequent to such anniversary.
If death occurs when the decedent is age 85 or older: The Death Benefit is the sum of your Account Value in the variable
investment options and your Interim Value in the fixed allocations.
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 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.
The Annuity Rewards Death Benefit enhancement does not affect the calculation of the basic Death Benefit under the Annuity to the
extent such benefit provides for a change in the method of calculation based on the age of the decedent as of the date of death. For
example, if prior to age 90, the basic Death Benefit is equal to the greater of Purchase Payments minus proportional withdrawals or
the Account Value and, at age 90 and older is equal to the Account Value, the Annuity Rewards Death Benefit enhancement will only
apply until age 90. If the Death Benefit amount payable under your Annuity's basic Death Benefit 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.
Who is eligible for the Annuity Rewards benefit?
Owners can elect the Annuity Rewards Death Benefit enhancement following the seventh (7th) 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. 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 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 options 1-4) or as a series of variable annuity payments (annuity
payment options 1-3 or 5 and 6). 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,
including any CDSC that may apply to the additional Purchase Payments.
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.
IRA Beneficiary Continuation Option
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. Upon the Owner's death under an IRA, 403(b) or other "qualified investment", a
Beneficiary may generally elect to continue the Annuity and receive Minimum Distributions under the Annuity instead of receiving the
death benefit in a single payment. 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 31st 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."
Upon election of this IRA Beneficiary Continuation option:
|X| the Annuity contract will be continued in the Owner's name, for the benefit of the Beneficiary.
|X| the Account Value will be equal to any Death Benefit that would have been payable to the Beneficiary if they had taken a
lump sum distribution.
|X| the Beneficiary may request transfers among Sub-accounts, subject to the same limitations and restrictions that applied to
the Owner. NOTE: The Sub-accounts offered under the IRA Beneficiary Continuation option may be limited.
|X| no additional Purchase Payments can be applied to the Annuity.
|X| the basic Death Benefit will no longer apply to the Beneficiary.
|X| the Beneficiary can request a withdrawal of all or a portion of the Account Value at any time without application of a CDSC.
|X| upon the death of the Beneficiary, any remaining Account Value will be paid in a lump sum to the person(s) named by the
Beneficiary.
|X| all amounts in the Annuity must be paid out to the Beneficiary according to the Minimum Distribution rules described above.
Please contact American Skandia for additional information on the availability, restrictions and limitations that will apply to a
Beneficiary under the IRA Beneficiary Continuation option.
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", any instructions we require to determine
the method of payment 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. When determining
the Account Value on a day more than 30 days prior to 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 and the Annual Maintenance Fee. 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 or within 30 days prior
to 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?
American Skandia is generally open to process financial transactions on those days that the New York Stock Exchange (NYSE) is open
for trading. There may be circumstances where the NYSE does not open on a regularly scheduled date or time or closes at an earlier
time than scheduled (normally 4:00 p.m. EST). Financial transactions requested before the close of the NYSE which meet our
requirements will be processed according to the value next determined following the close of business. Financial transactions
requested on a non-business day or after the close of the NYSE will be processed based on the value next computed on the next
business day. There may be circumstances when the opening or closing time of the NYSE is different than other major stock exchanges,
such as NASDAQ or the American Stock Exchange. Under such circumstances, the closing time of the NYSE will be used when valuing and
processing transactions.
There may be circumstances where the NYSE is open, however, due to inclement weather, natural disaster or other circumstances beyond
our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your
Account Value may fluctuate based on changes in the Unit Values, but you may not be able to transfer Account Value, or make a
purchase or redemption request.
The NYSE is closed on the following nationally recognized holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we will not process any
financial transactions involving purchase or redemption orders.
American Skandia will also not process financial transactions involving purchase or redemption orders or transfers on any day that:
|X| trading on the NYSE is restricted;
|X| an emergency exists making redemption or valuation of securities held in the separate account impractical; or
|X| the SEC, by order, permits the suspension or postponement for the protection of security holders.
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 allocation 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 and have all of the required information.
Death Benefits: Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date
we receive at our Office all supporting documentation we require for such transactions 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 NYSE 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 may 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 may be allowed as a deduction on the decedent's final income tax return.
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 within the meaning of Code section 72(m)(7);
|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 (or joint life expectancies) of the taxpayer and the taxpayer's designated 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 on 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
below 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.
Economic Growth and Tax Relief Reconciliation Act (EGTRRA): Certain states do not conform to the pension provisions included in
EGTRRA. We recommend that you consult with your tax advisor to determine the status of your state's statutes as they relate to
EGTRRA and your tax qualified retirement plan.
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.
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 Arrangements 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)
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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 or another qualified plan, 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*;
|X| is made pursuant to an IRS levy;
|X| is made to pay qualified acquisition costs for a first time home purchase (IRA only);
|X| is made to pay qualified higher education expenses (IRA only); and
|X| is not more than the cost of your medical insurance (IRA only).
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 Treasury regulations containing new Minimum Distribution rules. For Minimum Distributions required in 2003 and
later, individuals are required to use the rules under the 2002 Final Regulations. The 2002 Final Regulations contain a provision
which could increase the amount of minimum distributions required for certain individuals. Under the 2002 Final Regulations,
individuals are required to include in their annuity contract value the actuarial value of any other benefits that will be provided
under the annuity. We and other annuity providers are currently seeking clarification of this new rule. You should consult your tax
adviser to determine the impact of this rule on your Minimum Distributions.
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 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 generally take Minimum
Distributions over his/her life expectancy or in a lump sum.
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. Because of the many recent changes to the Minimum Distribution rules, we strongly
encourage you to consult with your tax advisor for more detailed information.
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 expect the underlying mutual fund portfolios to 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 a Minimum Distribution;
|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 is 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 $1.1 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. We may confirm regularly scheduled transactions, such as the Annual Maintenance
Fee, systematic withdrawals (including 72(t) payments and required minimum distributions), bank drafting, dollar cost averaging, and
static rebalancing, in quarterly statements instead of confirming them immediately. You should review the information in these
statements carefully. You may request additional reports. We reserve the right to charge up to $50 for each such additional report.
Any errors or corrections on transactions for your Annuity 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 30 days from the date you receive the confirmation. For transactions that are first confirmed on the
quarterly statement, we assume all transactions are accurate unless you notify us within 30 days from the date you receive the
quarterly statement. All transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 30
day period. We may also send an annual report and a semi-annual report containing applicable financial statements for the Separate
Account and the Portfolios, 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, the District of Columbia and Puerto Rico. American Skandia is a wholly-owned subsidiary of American
Skandia, Inc. ("ASI"). 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 annuity and life insurance products. 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) both fixed and variable immediate adjustable
annuities; and (d) a single premium variable life insurance policy that is registered with the SEC.
On December 20, 2002, Skandia Insurance Company Ltd. (publ), an insurance company organized under the laws of the Kingdom of Sweden
("Skandia"), and on that date, the ultimate parent company of American Skandia, announced that it and Skandia U.S. Inc. had entered
into a definitive Stock Purchase Agreement with Prudential Financial, Inc., a New Jersey corporation ("Prudential Financial"). Under
the terms of the Stock Purchase Agreement, Prudential Financial will acquire Skandia U.S. Inc., a Delaware corporation, from
Skandia. Skandia U.S. Inc. is the sole shareholder of ASI, which is the parent company of American Skandia. The transaction is
expected to close during the second quarter of 2003.
Prudential Financial is a New Jersey insurance holding company whose subsidiary companies serve individual and institutional
customers worldwide and include The Prudential Insurance Company of America, one of the largest life insurance companies in the U.S.
These companies offer a variety of products and services, including life insurance, property and casualty insurance, mutual funds,
annuities, pension and retirement related services and administration, asset management, securities brokerage, banking and trust
services, real estate brokerage franchises, and relocation services.
No company other than American Skandia has any legal responsibility to pay amounts that it owes under its annuity and variable life
insurance contracts. However, following the closing of the acquisition, Prudential Financial will exercise significant influence
over the operations and capital structure of American Skandia.
WHAT ARE SEPARATE ACCOUNTS?
The separate accounts are where American Skandia sets aside and invests the assets of some of our annuities. In the accumulation
period, assets supporting Account Values of the Annuities are held in a separate account established under the laws of the State of
Connecticut. We are the legal owner of assets in the separate accounts. In the payout period, assets supporting fixed annuity
payments and any adjustable annuity payments we make available are held in our general account. Assets supporting variable annuity
payment options may be invested in our separate accounts. 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 Annuities issued by
American Skandia. 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
Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate
Account B was established by us pursuant to Connecticut law on November 25, 1987. 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.
Separate Account B consists of multiple Sub-accounts. Each Sub-account invests only in a single mutual fund or mutual fund
portfolio. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. Each Sub-account in Separate
Account B may have several different Unit Prices to reflect the Insurance Charge and the charges for any optional benefits that may
be offered under this Annuity and other annuities issued by us through Separate Account B. 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. The SEC does not supervise investment policies, management or practices of Separate Account B.
Prior to November 18, 2002, Separate Account B was organized as a single separate account with six different Sub-account classes,
each of which was registered as a distinct unit investment trust under the Investment Company Act. Effective November 18, 2002, each
Sub-account class of Separate Account B will be consolidated into the unit investment trust formerly named American Skandia Life
Assurance Corporation Variable Account B (Class 1 Sub-accounts), which will subsequently be renamed American Skandia Life Assurance
Corporation Variable Account B. Each Sub-account of Separate Account B will have multiple Unit Prices to reflect the daily charge
deducted for each combination of the applicable Insurance Charge, Distribution Charge (when applicable) and the charge for each
optional benefit offered under Annuity contracts funded through Separate Account B. The consolidation of Separate Account B will
have no impact on Annuity Owners.
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. 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. There is no assurance that the Account Value of
your Annuity will equal or be greater than the total of the Purchase Payments you make to us.
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 currently employ investment managers 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) and have sole discretion over the investment managers we retain.
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 based on instructions received from 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 proxy materials and the necessary forms to provide us with their
voting 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 to American Skandia
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.
In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel, marketing
or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain firms.
These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules
and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or other
compensation.
Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we calculate
performance for the Sub-accounts are found in the Statement of Additional Information. This information may help you review the
performance of the investment options and provide a basis for comparison with other annuities. This information 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 Portfolios in the form of "Standard" and "Non-standard" Total Returns calculated for each
Sub-account. "Standard Total Return" figures assume a hypothetical initial investment of $1,000 allocated to a Sub-account during
the most recent, one, five and ten year periods (or since the inception date that the Portfolio has been offered as a Sub-account, if
less). "Standard Total Return" figures assume that the applicable Insurance Charge and the Annual Maintenance Fee are deducted and
that the Annuity is surrendered at the end of the applicable period, meaning that any Contingent Deferred Sales Charge that would
apply upon surrender is also deducted. "Non-standard Total Return" figures include any performance figures that do not meet the
SEC's rules for Standard Total Returns. Non-standard Total Returns are calculated in the same manner as standardized returns except
that the figures may not reflect all fees and charges. In particular, they may assume no surrender at the end of the applicable
period so that the CDSC does not apply. Standard and Non-standard Total Returns will not reflect the additional asset-based charge
that is deducted when you elect any optional benefit (if applicable). The additional cost associated with any optional benefit you
elected will reduce your performance. Non-standard Total Returns must be accompanied by Standard Total Returns.
Some of the underlying 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 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 Portfolios prior to the existence of the
Sub-accounts may only be presented as Non-standard Total Returns.
We may advertise the performance of money market-type Sub-accounts using a measure of the "current and effective yield". The current
yield of a money market-type Sub-account is calculated based upon the previous seven-day period ending on the date of calculation.
The effective yield of a money market-type Sub-account reflects the reinvestment of net income earned daily on the assets of such a
Sub-account. The current and effective yields reflect the Insurance Charge and the charge for any optional benefit (if applicable)
deducted against the Sub-account. In a low interest rate environment, yields for money market-type Sub-accounts, after deduction of
the Insurance Charge, and the charge for any optional benefit (if applicable) may be negative even though the yield (before deducting
for such charges) is positive. Current and effective yield information will fluctuate. This information may not provide a basis for
comparisons with deposits in banks or other institutions which pay a fixed yield over a stated period of time, or with investment
companies which do not serve as underlying mutual funds for variable annuities and/or do not have additional asset-based charges
deducted for the insurance protection provided by the Annuity.
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 total amount of asset-based charges assessed against each Sub-account will
affect performance.
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, The
Woolworth Building, 233 Broadway, New York, NY and 175 W. Jackson Boulevard, Suite 900, 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, 2002 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 Skandia's Telephone Automated Response System (STARS) at 1-800-766-4530.
|X| writing to us via regular mail at American Skandia - Variable Annuities, P.O. Box 7040, Bridgeport, Connecticut 06601-7040
OR for express mail American Skandia - Variable Annuities, One Corporate Drive, Shelton, Connecticut 06484. NOTE: Failure to
send mail to the proper address may result in a delay in our receiving and processing your request.
|X| sending an email to customerservice@skandia.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 Skandia's Telephone Automated 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 an investment 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 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, facsimile, Internet or any other electronic information or that we will be
able to accept transaction instructions via such means at all times. Regular and/or express mail will be the only means by which we
will accept transaction instructions when telephonic, facsimile, Internet or any other electronic means are unavailable or delayed.
American Skandia reserves the right to limit, restrict or terminate telephonic, facsimile, Internet or any other 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, American Skandia and its affiliates are not involved in any legal proceedings outside of the
ordinary course of business. American Skandia and its affiliates are involved in pending and threatened legal proceedings in the
normal course of its business, however, we do not anticipate that the outcome of any such legal proceedings will have a material
adverse affect on the Separate Account, or American Skandia's ability to meet its obligations under the Annuity, or on the
distribution of the Annuity.
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
|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
Annuitization
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
SELECTED FINANCIAL DATA (dollars in thousands)
The following table summarizes information with respect to the operations of the Company:
For the Year Ended December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
STATEMENTS OF INCOME DATA
Revenues:
Annuity and life insurance $ 370,004 $ 388,696 $ 424,578 $ 289,989 $ 186,211
charges and fees (a) (b)
Fee income (b) 97,650 111,196 130,610 83,243 50,839
Net investment income 19,632 20,126 18,595 11,477 11,130
Net realized capital (losses)
gains and other revenues (e) (7,438) 2,698 4,195 3,688 1,360
------------- ------------ ------------ ------------ ------------
Total revenues $ 479,848 $ 522,716 $ 577,978 $ 388,397 $ 249,540
============ ============ ============ ============ ============
Benefits and Expenses:
Annuity and life insurance $ 3,391 $ 1,955 $ 751 $ 612 $ 558
benefits
Change in annuity and life
insurance policy reserves 2,741 (39,898) 49,339 (671) 1,053
(c)
Guaranteed minimum death
benefit claims, net of 23,256 20,370 2,618 4,785 -
hedge (b)
Return credited to contract 5,196 5,796 8,463 (1,639) (8,930)
owners
Underwriting, acquisition and
other insurance expenses 188,728 196,755 150,597 125,434 86,306
Amortization of deferred
acquisition costs (b) (d) 510,059 224,047 184,616 83,861 86,628
Interest expense 14,544 73,424 85,998 69,502 41,004
------------ ------------ ------------ ------------ ------------
Total benefits and expenses $ 747,915 $ 482,449 $ 482,382 $ 281,884 $ 206,619
============ ============ ============ ============ ============
Income tax (benefit) expense $ (102,810) $ 7,168 $ 30,779 $ 30,344 $ 8,154
============ ============ ============ ============ ============
Net (loss) income $ (165,257) $ 33,099 $ 64,817 $ 76,169 $ 34,767
============ ============ ============ ============ ============
STATEMENTS OF FINANCIAL
CONDITION DATA
Total assets (b) $ 23,708,585 $ 28,009,782 $ 31,702,705 $ 30,881,579 $ 18,848,273
============ ============ ============ ============ ============
Future fees payable to parent $ 708,249 $ 799,472 $ 934,410 $ 576,034 $ 368,978
============ ============ ============ ============ ============
Surplus notes $ 110,000 $ 144,000 $ 159,000 $ 179,000 $ 193,000
============ ============ ============ ============ ============
Shareholder's equity $ 683,061 $ 577,668 $ 496,911 $ 359,434 $ 250,417
============ ============ ============ ============ ============
a. On annuity and life insurance sales of $3,472,044, $3,834,167, $8,216,167, $6,862,968, and $4,159,662, during the years
ended December 31, 2002, 2001, 2000, 1999, and 1998, respectively, with contract owner assets under management of $21,894,636,
$26,017,847, $29,751,822, $29,396,693, and $17,854,761, as of December 31, 2002, 2001, 2000, 1999, and 1998, respectively.
b. These items are significantly impacted by equity market volatility.
c. For the year ended December 31, 2000, change in annuity and life insurance policy reserves reflected increases to those
reserves for guaranteed minimum death benefit ("GMDB") exposure. For the year ended December 31, 2001, the Company changed
certain of its assumptions related to its GMDB exposure resulting in a benefit to operations. See Results of Operations in
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for a further discussion.
d. During the year ended December 31, 2002, the Company recorded an acceleration of amortization of $206,000 against the
deferred acquisition cost asset. See the MD&A for a further discussion.
e. Net realized capital (losses) gains and other revenues include $5,845 of net realized capital losses on sales of securities
during 2002 and an other than temporary impairment charge of $3,769 recorded during 2002 on the Company's equity securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands)
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.
Results of Operations
---------------------
Annuity and life insurance sales were $3,472,044, $3,834,167 and $8,216,167, in 2002, 2001 and 2000, respectively. The decrease in
sales in 2002 and 2001 was primarily the result of the general decline in sales in the industry, attributed in large part to the
continued uncertainty in the equity markets. In addition, the Company believes uncertainty regarding its future ownership has
adversely impacted sales, primarily in the latter part of 2002. The Company announced, in the first quarter of 2002, its intention
to focus on the growth of its core variable annuity business.
Average assets under management totaled $23,637,559 in 2002, $26,792,877 in 2001 and $31,581,902 in 2000, representing a decrease of
12% and 15% in 2002 and 2001, respectively, due primarily to weak equity markets. The decrease in annuity and life insurance charges
and fees and fee income before surrender charge income and reinsurance was consistent with the decline in assets under management.
Surrender charge income increased in 2002 as compared to 2001. This was caused by higher lapses when compared to the applicable
prior year periods, and was primarily attributable, the Company believes, to concerns by contract holders, rating agencies and the
Company's distribution channels, surrounding the uncertainty in the equity markets and its impact on variable annuity companies
generally and, prior to the announcement of the Acquisition, uncertainty concerning the Company's future (See Liquidity and Capital
Resources for rating agency actions).
Net realized capital losses in 2002 were primarily from $9,593 of losses on sales and $3,769 of other-than-temporary impairments of
mutual fund investments that are held in support of a deferred compensation program for certain of the Company's employees. The
deferred compensation program losses were offset by net gains of $3,746 during 2002 on sales of fixed maturities. Included in those
net gains on sales of fixed maturities for 2002, was a realized loss of approximately $1,236 on the sale of a WorldCom, Inc. bond.
The net capital gains in 2001 related primarily to sales of fixed maturity investments, were partially offset by losses on securities
in the fixed maturity portfolio. The most significant loss was $2,636 related to Enron securities. In addition net realized capital
losses of $3,534 in 2001 were incurred due to sales of mutual fund holdings in support of the Company's non-qualified deferred
compensation program.
The change in annuity and life insurance policy reserves includes changes in reserves related to annuity contracts with mortality
risks. During 2001, the Company's Guaranteed Minimum Death Benefit ("GMDB") reserve decreased $43,984, as the result of an update of
certain reserve assumptions as to risks inherent in the benefit. Previous assumptions had been based on statutory valuation
principles as an approximation for U.S. GAAP. In addition, future mortality rates were lowered in 2001 to reflect favorable past
experience. However, offsetting the resulting increase in earnings and equity as a result of changes in the GMDB liability in 2001,
assumptions related to GMDB claim costs were also updated in the calculation of the deferred acquisition cost asset, resulting in
additional amortization of this asset.
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 economic GMDB exposure associated with equity market fluctuations. GMDB claims, net of
hedge, consist of GMDB claims offset by the mark to market and realized capital gain/loss results of the Company's option contracts.
During 2002 and 2001, the fluctuations in GMDB claims, net of hedge, were driven by an increase in hedge related benefits of $19,776
and $14,646, respectively. Hedge related benefits were partially offset by increases in GMDB claims of $22,662 and $32,398 during
2002 and 2001, respectively.
Return credited to contract owners consists primarily of net investment results from the Company's fixed, market value adjusted,
separate account investment option and changes in the Company's experience rated reinsurance receivables. The decrease in 2002 was
primarily due to increased net investment results on the Company's fixed, market value adjusted, separate account investment option.
As the equity markets decline, movement from variable investment options to fixed investment options, primarily due to one of the
Company's product features, has increased the assets invested in the fixed separate account investment option. Included in 2002 net
investment results is $9,849 of realized and unrealized losses on certain securities, of which $5,427 related to WorldCom, Inc.
bonds. The increase in net investment results was partially offset by a decrease in experience rated reinsurance receivables in 2002
due to unfavorable experience on certain blocks of variable annuity business. In 2001, return credited to contract owners decreased
primarily due to favorable experience on certain blocks of variable annuity contracts increasing the experience rated reinsurance
receivable. Partially offsetting the 2001 decrease is net investment losses of $1,662 related to Enron securities.
Underwriting, acquisition and other insurance expenses for 2002, 2001 and 2000 were as follows:
2002 2001 2000
---- ---- ----
Commissions and purchase credits $ 287,612 $ 248,187 $ 430,743
General operating expenses 145,438 157,704 214,957
Acquisition costs deferred (244,322) (209,136) (495,103)
----------- ----------- -----------
Underwriting, acquisition and other insurance
expenses $ 188,728 $ 196,755 $ 150,597
=========== =========== ===========
New products launched, as well as a larger proportion of sales of products with higher commissions as compared to 2001 led to an
increase in commissions and purchase credits during 2002. Lower sales and asset levels led to a decrease in commissions and purchase
credits during 2001. Partially offsetting this decline in 2001, the company launched a commission promotion program that increased
commissions as a percentage of new sales. Commission promotions in 2002 were approximately equivalent as compared to 2001.
General operating expenses decreased during 2002 and 2001 as a result of lower sales-based compensation, as well as expense reduction
programs implemented during 2001 and continued strong expense management in 2002. Variable compensation and long-term incentive plan
expenses have decreased due to the slowdown in sales and the decline in the equity markets.
Amortization of deferred acquisition costs increased over the past two years, in general, due to the further depressed equity markets
in 2002 and 2001, thereby decreasing expectations of future gross profits and actual gross profits from asset based fees and
increased expected and actual claim costs associated with minimum death benefit guarantees. During 2002, the Company also performed
a recoverability study and an analysis of its short-term assumptions of future gross profits and determined those assumptions of
future profits to be excessive. This analysis resulted in a current year acceleration of amortization of $206,000. During 2002 and
2001, the Company also updated its future estimated gross profits with respect to certain mortality assumptions reflecting actual
experience and the decline in the equity markets resulting in additional increased amortization. See Note 2 of Notes to Consolidated
Financial Statements for a further discussion on amortization of deferred acquisition costs.
Interest expense decreased during 2002 primarily due to lower interest expense related to the future fees payable to ASI liability
(See Note 8). Interest expense on these obligations is driven by the cash flows from the underlying annuity contracts acting as
collateral. Due to the depressed asset values of those annuity contracts driven by the decline in the equity markets, the cash
flows, and therefore the interest expense, decreased from prior year levels. Interest expense decreased in 2001 as a result of a
reduction in borrowing.
The Company's income tax (benefit) expense varies directly with increases or decreases in (loss) income from operations. The
effective income tax rate varied from the corporate rate of 35% due primarily to the deduction for dividends received.
Total assets and liabilities decreased $4,301,197 and $4,406,590, respectively, from December 31, 2001. This change resulted
primarily from the declining equity markets.
Significant Accounting Policies
-------------------------------
Deferred Acquisition Costs
The costs of acquiring new business, which vary with and are primarily related to new business generated, are deferred, net of
reinsurance. These costs include commissions, purchase credits, costs of contract issuance, and certain selling expenses that vary
with production.
The Company uses the retrospective deposit method for amortizing deferred acquisition costs. This method results in deferred
acquisition costs being amortized in proportion to expected gross profits from surrender charges and policy and asset based fees, net
of operating and claim costs. The deferred acquisition cost asset is adjusted retrospectively and prospectively when estimates of
current and future gross profits to be realized from a group of products are revised. Critical assumptions in estimating gross
profits include those for surrenders, long-term fund growth rate, expenses and death benefits. The long-term fund growth rate, in
large part, determines the estimated future asset levels on which the most significant revenues are based. The Company's long-term
fund growth rate assumption is 8% (net of charges assessed against the underlying mutual fund, but before charges assessed at the
separate account and contract level). When current period actual asset growth is greater or less than the Company's long-term
expectation, the Company adjusts the short-term asset growth rate to a level that will allow the Company, in the short-term, to
resume the long-term asset growth rate expectation. The short-term asset growth rate is subject to constraints surrounding actual
market conditions. If the Company's long-term fund growth rate assumption was 7% instead of 8%, the Company's deferred acquisition
cost asset at December 31, 2002 would be reduced by $26,273.
Future Fees Payable to ASI
In a series of transactions with ASI, the Company transferred certain rights to receive a portion of future fees and contract charges
expected to be realized on 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, through special purpose trusts, 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 securitization 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 (generally 6 to 8
years). The liability for future fees payable to ASI at the balance sheet date is based on the consideration received less principal
repayments according to amortization schedules that were developed at the inception of the transactions. If actual mortality and
expense charges and contingent deferred sales charges are less than those projected in the original amortization schedules,
calculated on a transaction by transaction basis, ASI has no recourse against the Company. As account values associated with the
designated contracts have declined, consistent with the overall decline in the equity markets, historical mortality and expense
charges have been lower than expected on certain transactions and it is likely that future mortality and expense charges, on those
same transactions, will be lower than originally projected. As a result, the ultimate cash flows associated with these transactions
that will transfer to ASI may be lower than the current carrying amount of the liability.
The Company has determined, using assumptions for lapses, mortality, free withdrawals and a long-term fund growth rate of 8% on the
Company's assets under management, that the present value of future payments to ASI would be $429,773.
Deferred Taxes
The Company evaluates the necessity of recording a valuation allowance against its deferred tax asset in accordance with Statement of
Financial Accounting Standards No. 109, Income Taxes ("SFAS 109"). In performing this evaluation, the Company considers all
available evidence in making the determination as to whether it is more likely than not that deferred tax assets are not realizable.
For the Company, that evidence includes: cumulative U.S. GAAP pre-tax income in recent years past, whether or not operating losses
have expired unused in the past, the length of remaining carryback or carryforward periods, and net taxable income or loss
expectations in early future years. The net taxable income or loss projections are based on profit assumptions consistent with those
used to amortize deferred acquisition costs (see above discussion on deferred acquisition costs).
As of December 31, 2002, the Company has approximately $361,000 gross deferred tax assets related principally to net operating loss
carryforwards that expire in 2016 and 2017 and insurance reserve differences. After considering the impact of gross reversing
temporary liabilities of $323,000, the Company estimates that the Company will generate sufficient taxable income to fully utilize
gross deferred tax assets within 2 years (prior to the expiration of the net operating losses).
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirements have generally been met by cash from insurance operations, investment activities, borrowings
from ASI, reinsurance, capital contributions and securitization transactions with ASI (see Note 8).
The Company's cash from insurance operations is primarily comprised of fees generated off of assets under management, less commission
expense on sales, sales and marketing expenses and other operating expenses. Fund performance driven by the equity markets directly
impact assets under management and therefore, the fees the Company can generate off of those assets. During 2002 and 2001, assets
under management declined consistent with the equity market declines resulting in reductions in fee revenues. In addition, the
equity markets impact sales of variable annuities. As sales have declined in a declining equity market, non-promotional commission
expense declined, however, in order to boost sales levels, the Company has offered various sales promotions increasing the use of
cash for commission expense.
In order to fund the cash strain generated from acquisition costs on current sales, the Company has relied on cash generated from its
direct insurance operations as well as reinsurance and securitization transactions. The Company has used modified coinsurance
reinsurance arrangements whereby the reinsurer shares in the experience of a specified book of business. These reinsurance
transactions result in the Company receiving from the reinsurer an upfront ceding commission on the book of business ceded in
exchange for the reinsurer receiving , the future fees generated from that book of business. These reinsurance agreements also
mitigate the recoverability risk associated with the payment of up-front commissions and other acquisition costs. Similarly, the
Company has entered into securitization transactions whereby the Company issues to ASI, in exchange for cash, the right to receive
future fees generated off of a specific book of business. On April 12, 2002, the Company entered into a new securitization
transaction with ASI. This transaction covers designated blocks of business issued from November 1, 2000 through December 31, 2001.
The estimated present value of the transaction at April 12, 2002, using a discount rate of 6.00%, was approximately $101,713.
As of December 31, 2002, 2001 and 2000, the Company had short-term borrowings of $10,000, $10,000 and $10,000, respectively, and had
long-term surplus notes liabilities of $110,000, $144,000 and $159,000, respectively. During 2002, the Company borrowed $263,091 and
paid back $263,091 related to short-term borrowing. During 2002 and 2001, the Company received permission from the State of
Connecticut Insurance Department to pay down surplus notes in the amount of $34,000 and $15,000, respectively. See Notes 14 and 15
of Notes to Consolidated Financial Statements for more information on surplus notes and short-term borrowing, respectively.
As of December 31, 2002, 2001 and 2000, shareholder's equity totaled $683,061, $577,668 and $496,911, respectively. The Company
received capital contributions of $259,720 and $48,000 from ASI during 2002 and 2001, respectively. Of this, $4,520 and $2,500,
respectively, was used to support its investment in Skandia Vida. Net (loss) income of ($165,257) and $33,099, for the years ended
December 31, 2002 and 2001, respectively, contributed to the respective changes in shareholder's equity in 2002 and 2001.
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.
During 2002, all of the major rating agencies reviewed the U.S. life insurance sector, including the Company. Based on these reviews
the rating agencies have evolving concerns surrounding the risk profile of variable annuity companies due to their significant
exposure to equity market performance. This exposure has resulted, and may continue to result, in earnings volatility. Based on the
reviews made during 2002, the following ratings actions took place:
On May 8, 2002, Fitch Ratings downgraded the Company's "insurer financial strength" rating to A+ from AA- with a "stable" outlook.
On September 19, 2002, Fitch Ratings lowered the Company's "insurer financial strength" rating to A- from A+ with an "evolving"
outlook.
On September 27, 2002, A.M. Best Co. lowered the Company's "financial strength" rating to A- from A with negative implications.
On October 16, 2002, Standard and Poor's lowered the Company's "counter party credit" and "financial strength" ratings to A- from A+
with a negative outlook and removed the Company from Credit Watch.
Subsequent to the announcement of the Acquisition, Standard and Poor's placed the Company on CreditWatch with positive implications.
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 planning concerns and
supplemental retirement needs. The Company has renewed its focus on its core variable annuity business, offering innovative
long-term savings and income products, strengthening its wholesaling efforts and providing consistently good 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 and capital gains and estate tax changes.
These include the proposed exclusion from tax for corporate dividends, potential changes to the deductibility of dividends received
from the Company's separate accounts and newly proposed tax-advantaged savings programs. Additional 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.
In addition, NAIC statutory reserving guidelines and/or interpretations of those guidelines may change in the future. Such changes
may require the Company to modify, perhaps materially, its statutory-based reserves for variable annuity contracts.
Forward Looking Information
- ---------------------------
The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a "safe harbor" for forward-looking statements, so
long as those statements are identified as forward-looking, and the statements are accompanied by meaningful cautionary statements
that identify important factors that could cause actual results to differ materially from those discussed in the statement. We want
to take advantage of these safe harbor provisions.
Certain information contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations is
forward-looking within the meaning of the 1995 Act or Securities and Exchange Commission rules.
These forward-looking statements rely on a number of assumptions concerning future events, and are subject to a number of significant
uncertainties and results may differ materially from these statements. You should not put undue reliance on these forward-looking
statements. We disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new
information, future events or otherwise.
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, and
includes "forward-looking statements" that involve risk and uncertainties. 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. At December 31, 2002, 91% of assets
held under management by the Company are in non-guaranteed Separate Accounts for which the Company's interest rate and equity market
exposure is not significant, as the contract owner assumes substantially all of the investment risk. Of the remaining 9% 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, 2002, 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, fixed supplementary contracts, the fixed
investment option offered in its 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 investment 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 contract owner. Guarantee period options available
range from one to ten years. Withdrawal of funds, or transfer of funds to variable investment options, before the end of the
guarantee period subjects the contract owner 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 guaranteed separate account as of December 31, 2002 totaled $1,828,048. Assets, primarily fixed
income investments, supporting those liabilities had a fair value of $1,828,048. The Company performed a sensitivity analysis on
these interest-sensitive liabilities and assets at December 31, 2002. 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 $69,150 and
$68,500, respectively. An analysis of a 100 basis point decline in interest rates at December 31, 2001, showed a net increase in
interest-sensitive liabilities and the corresponding assets of approximately $39,800 and $39,900, 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 will 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, 2002, sustained throughout 2003, would result in an approximate drop in related mortality
and expense charges and annual fee income of $36,350.
Another equity market risk exposure of the Company relates to guaranteed minimum death benefit payments. Declines in equity markets
and, correspondingly, the performance of the funds underlying the Company's products, increase exposure to guaranteed minimum death
benefit payments. As discussed in Note 2D of the consolidated financial statements, the Company uses derivative instruments to hedge
against the risk of significant decreases in equity markets. Prior to the implementation of this program, the Company used
reinsurance to mitigate this risk.
The Company has a portfolio of equity investments consisting of 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
Report of Independent Auditors
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 an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholder's equity and cash flows for each of the three years in the period ended December 31,
2002. 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, 2002 and 2001, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2, in 2002 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets.
As discussed in Note 2, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.
/s/ Ernst & Young LLP
Hartford, Connecticut
February 3, 2003
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands, except share data)
As of December 31,
2002 2001
---- ----
ASSETS
- ------
Investments:
Fixed maturities - at fair value (amortized cost of $379,422
and $356,882, respectively) $ 398,601 $ 362,831
Equity securities - at fair value (amortized cost of $52,017
and $49,886, respectively) 51,769 45,083
Derivative instruments - at fair value 10,370 5,525
Policy loans 7,559 6,559
--------------- ---------------
Total investments 468,299 419,998
Cash and cash equivalents 51,339 -
Accrued investment income 4,196 4,737
Deferred acquisition costs 1,117,544 1,383,281
Reinsurance receivable 5,447 7,733
Receivable from affiliates 3,961 3,283
Income tax receivable - 30,537
Deferred income taxes 38,206 -
Fixed assets, at depreciated cost (accumulated depreciation of
$7,555 and $4,266, respectively) 12,132 17,752
Other assets 101,848 103,912
Separate account assets 21,905,613 26,038,549
--------------- ---------------
Total assets $ 23,708,585 $ 28,009,782
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities:
Reserves for future policy and contract benefits $ 149,349 $ 91,126
Accounts payable and accrued expenses 133,543 192,952
Income tax payable 6,547 -
Deferred income taxes - 54,980
Payable to affiliates 2,223 101,035
Future fees payable to American Skandia, Inc. ("ASI") 708,249 799,472
Short-term borrowing 10,000 10,000
Surplus notes 110,000 144,000
Separate account liabilities 21,905,613 26,038,549
--------------- ---------------
Total liabilities 23,025,524 27,432,114
--------------- ---------------
Commitments and contingent liabilities (Note 18)
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 595,049 335,329
Retained earnings 73,821 239,078
Accumulated other comprehensive income 11,691 761
--------------- ---------------
Total shareholder's equity 683,061 577,668
--------------- ---------------
Total liabilities and shareholder's equity $ 23,708,585 $ 28,009,782
=============== ===============
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Income
(in thousands)
For the Years Ended December 31,
2002 2001 2000
---- ---- ----
REVENUES
- --------
Annuity and life insurance charges and fees $ 370,004 $ 388,696 $ 424,578
Fee income 97,650 111,196 130,610
Net investment income 19,632 20,126 18,595
Net realized capital (losses) gains (9,614) 928 (688)
Other 2,176 1,770 4,883
------------ ------------ ------------
Total revenues 479,848 522,716 577,978
------------ ------------ ------------
EXPENSES
- --------
Benefits:
Annuity and life insurance benefits 3,391 1,955 751
Change in annuity and life insurance policy reserves 2,741 (39,898) 49,339
Guaranteed minimum death benefit claims, net of hedge 23,256 20,370 2,618
Return credited to contract owners 5,196 5,796 8,463
------------ ------------ ------------
Total benefits 34,584 (11,777) 61,171
Other:
Underwriting, acquisition and other insurance
expenses 188,728 196,755 150,597
Amortization of deferred acquisition costs 510,059 224,047 184,616
Interest expense 14,544 73,424 85,998
------------ ------------ ------------
713,331 494,226 421,211
------------ ------------ ------------
Total benefits and expenses 747,915 482,449 482,382
------------ ------------ ------------
(Loss) income from operations before income tax
(benefit) expense (268,067) 40,267 95,596
Income tax (benefit) expense (102,810) 7,168 30,779
------------ ------------ ------------
Net (loss) income $ (165,257) $ 33,099 $ 64,817
============ ============ ============
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
Accumulated Other
Comprehensive Income
----------------------------
-------------- -------------
Additional Foreign Unrealized
Common Paid in Retained Currency Gains
Stock Capital Earnings Translation (Losses) Total
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of December 31, 1999 $2,500 $215,879 $141,162 $148 ($255) $359,434
Net income 64,817 64,817
Other comprehensive income:
Unrealized capital gains 843 843
Reclassification adjustment for
realized losses included in net
realized capital (losses) gains 433 433
Foreign currency translation (66) (66)
------------
------------
Other comprehensive income 1,210
------------
------------
Comprehensive income 66,027
Capital contributions 71,450 71,450
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of December 31, 2000 2,500 287,329 205,979 82 1,021 496,911
Net income 33,099 33,099
Other comprehensive loss:
Unrealized capital losses (261) (261)
Reclassification adjustment for
realized gains included in net
realized capital (losses) gains (14) (14)
Foreign currency translation (67) (67)
------------
------------
Other comprehensive loss (342)
------------
------------
Comprehensive income 32,757
Capital contributions 48,000 48,000
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of December 31, 2001 2,500 335,329 239,078 15 746 577,668
Net loss (165,257) (165,257)
Other comprehensive income:
Unrealized capital gains 10,434 10,434
Reclassification adjustment for
realized losses included in net
realized capital (losses) gains 1,126 1,126
Foreign currency translation (630) (630)
------------
------------
Other comprehensive income 10,930
------------
------------
Comprehensive loss (154,327)
Capital contributions 259,720 259,720
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of December 31, 2002 $2,500 $595,049 $73,821 $(615) $12,306 $683,061
Unrealized capital gains (losses) is shown net of tax expense (benefit) of $5,618, ($140) and $454 for 2002, 2001 and 2000,
respectively. Reclassification adjustment for realized losses (gains) included in net realized capital (losses) gains is shown net of
tax expense (benefit) of $606, ($8) and $233 for 2002, 2001 and 2000, respectively. Foreign currency translation is shown net of tax
benefit of $339, $36 and $36 for 2002, 2001 and 2000, respectively.
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
2002 2001 2000
---- ---- ----
Cash flow from operating activities:
Net (loss) income $ (165,257) $ 33,099 $ 64,817
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Amortization and depreciation 21,649 13,374 5,758
Deferral of acquisition costs (244,322) (209,136) (495,103)
Amortization of deferred acquisition costs 510,059 224,047 184,616
Deferred tax (benefit) expense (99,071) 46,215 60,023
Change in unrealized (gains) losses on derivatives (5,149) 2,902 (2,936)
Increase (decrease) in policy reserves 3,293 (38,742) 50,892
(Decrease) increase in net receivable/payable to affiliates (99,490) 103,496 (72,063)
Change in net income tax receivable/payable 37,084 4,083 (58,888)
Increase in other assets (9,546) (12,105) (65,119)
Decrease (increase) in accrued investment income 541 472 (1,155)
Decrease (increase) in reinsurance receivable 2,286 (1,849) 420
(Decrease) increase in accounts payable and accrued
expenses (59,409) 55,912 (21,550)
Net realized capital (gains) losses on derivatives (26,654) (14,929) 5,554
Net realized capital losses (gains) on investments 9,616 (928) 688
---------- ---------- ----------
Net cash (used in) provided by operating activities (124,370) 205,911 (344,046)
---------- ---------- ----------
Cash flow from investing activities:
Purchase of fixed maturity investments (388,053) (462,820) (380,737)
Proceeds from sale and maturity of fixed
maturity investments 367,263 390,816 303,736
Purchase of derivatives (61,998) (103,533) (14,781)
Proceeds from exercise or sale of derivative instruments 88,956 113,051 5,936
Purchase of shares in equity securities and dividend
reinvestments (49,713) (55,430) (18,136)
Proceeds from sale of shares in equity securities 34,220 25,228 8,345
Purchase of fixed assets (2,423) (10,773) (7,348)
Increase in policy loans (1,000) (2,813) (2,476)
---------- ---------- ----------
Net cash used in investing activities (12,748) (106,274) (105,461)
---------- ---------- ----------
Cash flow from financing activities:
Capital contribution 259,720 48,000 71,450
Pay down of surplus notes (34,000) (15,000) (20,000)
(Decrease) increase in future fees payable to ASI, net (91,223) (137,355) 358,376
Deposits to contract owner accounts 808,209 59,681 172,441
Withdrawals from contract owner accounts (164,964) (130,476) (102,603)
Change in contract owner accounts, net of investment earnings (588,315) 62,875 (55,468)
---------- ---------- ----------
Net cash provided by (used in) financing activities 189,427 (112,275) 424,196
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 52,309 (12,638) (25,311)
Change in foreign currency translation (970) (103) (101)
Cash and cash equivalents at beginning of period - 12,741 38,153
Cash and cash equivalents at end of period $ 51,339 $ - $ 12,741
========== ========== ==========
Income taxes (received) paid $ (40,823) $ (43,130) $ 29,644
========== ========== ==========
Interest paid $ 23,967 $ 56,831 $ 114,394
========== ========== =========
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 2002
(dollars in thousands)
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation ("ASLAC" or the "Company"), with its principal offices in Shelton, Connecticut,
is a wholly-owned subsidiary of American Skandia, Inc. ("ASI"). On December 19, 2002, Skandia Insurance Company Ltd. (publ)
("SICL"), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the
Company, entered into a definitive purchase agreement with Prudential Financial, Inc., a New Jersey corporation ("Prudential
Financial"), whereby Prudential Financial will acquire the Company and certain of its affiliates (the "Acquisition").
Consummation of the transaction is subject to various closing conditions, including regulatory approvals and approval of
certain matters by the board of directors and shareholders of the mutual funds advised by American Skandia Investment
Services, Inc. ("ASISI"), a subsidiary of ASI. The transaction is expected to close during the second quarter of 2003.
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 term and variable universal life
insurance and variable deferred and immediate annuities for individuals and groups in the United States of America and its
territories.
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 $5,023 and $4,179 as of December 31, 2002, and 2001,
respectively. Skandia Vida has generated net losses of $2,706, $2,619 and $2,540 in 2002, 2001 and 2000, respectively. As
part of the Acquisition, it is expected that the Company will sell its ownership interest in Skandia Vida to SICL. The
Company has filed for required regulatory approvals from the State of Connecticut and Mexico related to the sale of Skandia
Vida.
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 ("U.S. GAAP"). Skandia Vida has been consolidated in these financial
statements. Intercompany transactions and balances between the Company and Skandia Vida 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
-----------------------
Effective January 1, 2001, the Company adopted 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").
Derivative instruments held by the Company consist of equity put option contracts utilized to
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
manage the economic risks associated with guaranteed minimum death benefits ("GMDB"). These derivative instruments
are carried at fair value. Realized and unrealized gains and losses are reported in the Consolidated Statements of
Income, together with GMDB claims expense, as a component of Guaranteed Minimum Death Benefit Claims, Net of Hedge.
The adoption of SFAS No. 133 did not have a material effect on the Company's financial statements.
Effective April 1, 2001, the Company adopted the Emerging Issues Task Force ("EITF") Issue 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets."
Under the consensus, investors in certain asset-backed securities are required to record changes in their estimated
yield on a prospective basis and to evaluate these securities for an other than temporary decline in value. If the
fair value of the asset-backed security has declined below its carrying amount and the decline is determined to be
other than temporary, the security is written down to fair value. The adoption of EITF Issue 99-20 did not have a
significant effect on the Company's financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards.
No. 142 "Accounting for Goodwill and Intangible Assets" ("SFAS 142"). Under the new standard, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the new standard. Other intangible assets will continue to be amortized over
their useful lives.
The Company applied the new rules on the accounting for goodwill and other intangible assets in the first quarter of
2002. The adoption of SFAS 142 did not have a significant impact on the Company's financial statements.
C. Investments
-----------
The Company has classified its fixed maturity investments as available-for-sale and, as such, they are carried at
fair value with changes in unrealized gains and losses reported as a component of other comprehensive income.
The Company has classified its equity securities held in support of a deferred compensation plan (see Note 12) as
available-for-sale. Such investments are carried at fair value with changes in unrealized gains and losses reported
as a component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized capital gains and losses on disposal of investments are determined by the specific identification method.
Other than temporary impairment charges are determined based on an analysis that is performed on a security by
security basis and includes quantitative and qualitative factors.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
D. Derivative Instruments
----------------------
The Company uses derivative instruments, which consist of equity put option contracts, for risk management purposes,
and not for trading or speculation. The Company hedges the economic GMDB exposure associated with equity market
fluctuations. As the equity markets decline, the Company's exposure to future GMDB claims increases. Conversely,
as the equity markets increase the Company's exposure to future GMDB claims decreases. The claims exposure is
reduced by the market value effect of the option contracts purchased.
Based on criteria described in SFAS 133, the Company's fair value hedges do not qualify as "effective" hedges and,
therefore, hedge accounting may not be applied. Accordingly, the derivative investments are carried at fair value
with changes in unrealized gains and losses being recorded in income as those changes occur. As such, both realized
and unrealized gains and losses are reported in the Consolidated Statements of Income, together with GMDB claims
expense, as a component of Guaranteed Minimum Death Benefit Claims, Net of Hedge.
As of December 31, 2002 and 2001, the accumulated difference between cost and market value on the Company's
derivatives was an unrealized gain of $1,434 and an unrealized loss of $3,715, respectively. The amount of realized
and unrealized gains (losses) on the Company's derivatives recorded during the years ended December 31, 2002, 2001
and 2000 was $31,803, $12,027 and ($2,619), respectively.
E. Cash Equivalents
----------------
The Company considers all highly liquid time deposits, commercial paper and money market mutual funds purchased with
a maturity date, at acquisition, of three months or less to be cash equivalents.
As of December 31, 2002, $50 of cash reflected on the Company's financial statements was restricted in compliance
with regulatory requirements.
F. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized and reflected at the purchase price of $6,000 less
accumulated amortization of $2,038 at December 31, 2002. Due to the adoption of SFAS 142, the cost of the licenses
is no longer being amortized but is subjected to an annual impairment test. As of December 31, 2002, the Company
estimated the fair value of the state insurance licenses to be in excess of book value and, therefore, no impairment
charge was required.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
G. Income Taxes
------------
The Company is included in the consolidated federal income tax return filed by Skandia U.S. Inc. and its U.S.
subsidiaries. In accordance with the tax sharing agreement, the federal income tax provision is computed on a
separate return basis as adjusted for consolidated items. Pursuant to the terms of this agreement, the Company has
the right to recover the value of losses utilized by the consolidated group in the year of utilization. To the
extent the Company generates income in future years, the Company is entitled to offset future taxes on that income
through the application of its loss carry forward generated in the current year.
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.
H. Recognition of Revenue and Contract Benefits
--------------------------------------------
Revenues for variable deferred annuity contracts consist of charges against contract owner account values or
separate accounts for mortality and expense risks, administration fees, surrender charges and an annual maintenance
fee per contract. Revenues for mortality and expense risk charges and administration fees are recognized as
assessed against the contract holder. Surrender charge revenue is recognized when the surrender charge is assessed
against the contract holder at the time of surrender. Annual maintenance fees are earned ratably throughout the
year.
Benefit reserves for the variable investment options on annuity contracts represent the account value of the
contracts and are included in the separate account liabilities.
Fee income from mutual fund organizations is recognized when assessed against assets under management.
Revenues for variable immediate annuity and supplementary contracts with life contingencies consist of certain
charges against contract owner account values including mortality and expense risks and administration fees. These
charges and fees are recognized as revenue as assessed against the contract holder. Benefit reserves for variable
immediate annuity contracts represent the account value of the contracts and are included in the separate account
liabilities.
Revenues for the market value adjusted fixed investment option on annuity contracts consist of separate account
investment income reduced by amounts credited to the contract holder for interest. This net spread is included in
return credited to contract owners on the consolidated statements of income. Benefit reserves for these contracts
represent the account value of the contracts plus a
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
market value adjustment, and are included in the general account reserve for future policy and contract benefits to
the extent in excess of the separate account assets, typically for the market value adjustment at the reporting date.
Revenues for fixed immediate annuity and fixed supplementary contracts without life contingencies consist of net
investment income, reported as a component of return credited to contract owners. Revenues for fixed 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 applicable actuarial standards with assumed
interest rates that vary by issue year and are included in the general account reserve for future policy and
contract benefits. Assumed interest rates ranged from 6.25% to 8.25% at December 31, 2002 and 2001.
Revenues for variable life insurance contracts consist of charges against contract owner account values or separate
accounts for mortality and expense risk fees, administration fees, cost of insurance fees, taxes and surrender
charges. Certain contracts also include charges against premium to pay state premium taxes. All of these charges
are recognized as revenue when assessed against the contract holder. Benefit reserves for variable life insurance
contracts represent the account value of the contracts and are included in the separate account liabilities.
I. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are primarily related to new business generated, are being
deferred, net of reinsurance. These costs include commissions, purchase credits, costs of contract issuance, and
certain selling expenses that vary with production.
The Company uses the retrospective deposit method for amortizing deferred acquisition costs. This method results in
deferred acquisition costs being amortized in proportion to expected gross profits, from surrender charges and
policy and asset based fees, net of operating and claim costs. The deferred acquisition cost asset is adjusted
retrospectively and prospectively when estimates of current and future gross profits to be realized from a group of
products are revised. Critical assumptions in estimating gross profits include those for surrenders, long-term fund
growth rate, expenses and death benefits. The long-term fund growth rate, in large part, determines the estimated
future asset levels on which the most significant revenues are based. The Company's long-term fund growth rate
assumption is 8% (net of charges assessed against the underlying mutual fund, but before charges assessed at the
separate account and contract level). When current period actual asset growth is greater or less than the Company's
long-term expectation, the Company adjusts the short-term asset growth rate to a level that will allow the Company,
in the short-term, to resume the long-term asset growth rate expectation. The short-term asset growth rate is
subject to constraints surrounding actual market conditions.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Details of deferred acquisition costs and related amortization for the years ended December 31, are as follows:
2002 2001 2000
---- ---- ----
Balance at beginning of year $ 1,383,281 $ 1,398,192 $ 1,087,705
Acquisition costs deferred during the
year 244,322 209,136 495,103
Acquisition costs amortized during the
year (510,059) (224,047) (184,616)
------------- ------------- -------------
Balance at end of year $ 1,117,544 $ 1,383,281 $ 1,398,192
============= ============= =============
As asset growth rates, during 2002 and 2001, have been far below the Company's long-term assumption, the adjustment
to the short-term asset growth rate had risen to a level, before being capped, that in management's opinion was
excessive in the current market environment. Based on an analysis of those short-term rates, the related estimates
of future gross profits and an impairment study, management of the Company determined that the short-term asset
growth rate should be reset to the level of the long-term growth rate expectation as of September 30, 2002. This
resulted in an acceleration of amortization of approximately $206,000.
Throughout the year, the Company also updated its future estimated gross profits with respect to certain mortality
assumptions reflecting actual experience and the decline in the equity markets resulting in additional increased
amortization of approximately $72,000.
J. 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.
At December 31, 2002 and 2001, in accordance with the provisions of the modified coinsurance agreements, the Company
accrued approximately $5,447 and $7,733, respectively, for amounts receivable from favorable reinsurance experience
on certain blocks of variable annuity business.
K. 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 changes in 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.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
L. 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 ASISI, utilizing various fund managers as sub-advisors. The remaining investments are
managed by independent investment firms. The contract holder has the option of directing funds to a wide variety of
investment options, most of which invest in mutual funds. The investment risk on the variable portion of a contract
is borne by the contract holder. Fixed options with minimum guaranteed interest rates are also available. The
Company bears the credit risk associated with the investments that support these fixed options.
Included in Separate Account liabilities are reserves of $1,828,048 and $1,092,944 at December 31, 2002 and 2001,
respectively, relating to deferred annuity investment options for which the contract holder is guaranteed a fixed
rate of return. These reserves are calculated using the Commissioners Annuity Reserve Valuation Method. Separate
Account assets of $1,828,048 and $1,092,944 at December 31, 2002 and 2001, respectively, consisting of fixed
maturities, equity securities, short-term securities, cash and cash equivalents, accrued investment income, accrued
liabilities and amounts due to/from the General Account are held in support of these annuity obligations, pursuant
to state regulation.
Included in the general account, within Reserves for Future Policy and Contract Benefits, is the market value
adjustment associated with the guaranteed, fixed rate investment options, assuming the market value adjustment at
the reporting date.
Net investment income (including net realized capital gains and losses) and interest credited to contract holders on
separate account assets are not separately reflected in the Consolidated Statements of Income.
M. Unearned Performance Credits
----------------------------
The Company defers certain bonus credits applied to contract holder deposits. The credit is reported as a contract
holder liability within separate account liabilities and the deferred expense is reported as a component of other
assets. As the contract holder must keep the contract in-force for 10 years to earn the bonus credit, the Company
amortizes the deferred expense on a straight-line basis over 10 years. If the contract holder surrenders the
contract or the contract holder dies prior to the end of 10 years, the bonus credit is returned to the Company.
This component of the bonus credit is amortized in proportion to expected surrenders and mortality. As of December
31, 2002 and 2001, the unearned performance credit asset was $83,288 and $89,234, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
N. Estimates
---------
The preparation of financial statements in conformity with U.S. GAAP 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 estimates of future policy lapses, investment
returns and maintenance expenses. Actual results could differ from those estimates.
3. INVESTMENTS
The amortized cost, gross unrealized gains and losses and fair value of fixed maturities and investments in equity
securities as of December 31, 2002 and 2001 are shown below. All securities held at December 31, 2002 and 2001 were
publicly traded.
Investments in fixed maturities as of December 31, 2002 consisted of the following:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
U.S. Government obligations $ 270,969 $ 15,658 $ (78) $ 286,549
Obligations of state and political
subdivisions 253 9 (1) 261
Corporate securities 108,200 3,631 (40) 111,791
------------ ----------- -------- ------------
Totals $ 379,422 $ 19,298 $ (119) $ 398,601
============ =========== ======== ============
The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 2002 are shown below.
Actual maturities may differ from contractual maturities due to call or prepayment provisions.
Amortized
Cost Fair Value
---- ----------
Due in one year or less $ 12,793 $ 12,884
Due after one through five years 165,574 171,830
Due after five through ten years 186,609 198,913
Due after ten years 14,446 14,974
----------- -----------
Total $ 379,422 $ 398,601
=========== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 2001 consisted of the following:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
U.S. Government obligations $198,136 $2,869 $(413) $200,592
Obligations of state and political
subdivisions 252 8 - 260
Corporate securities 158,494 4,051 (566) 161,979
---------- ------- ------ ----------
Totals $356,882 $6,928 $(979) $362,831
======== ====== ===== ========
Proceeds from sales of fixed maturities during 2002, 2001 and 2000 were $367,213, $386,816 and $302,632, respectively.
Proceeds from maturities during 2002, 2001 and 2000 were $50, $4,000 and $1,104, respectively.
The cost, gross unrealized gains/losses and fair value of investments in equity securities at December 31 are shown below:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2002 $ 52,017 $ 136 $ (384) $ 51,769
2001 $ 49,886 $ 122 $ (4,925) $ 45,083
Net realized investment gains (losses), determined on a specific identification basis, were as follows for the years ended
December 31:
2002 2001 2000
---- ---- ----
Fixed maturities:
Gross gains $ 8,213 $ 8,849 $ 1,002
Gross losses (4,468) (4,387) (3,450)
Investment in equity securities:
Gross gains 90 658 1,913
Gross losses (13,451) (4,192) (153)
---------- -------- --------
Totals $ (9,616) $ 928 $ (688)
========== ======== ========
During 2002, the Company determined that certain amounts of its investment in equity securities were other than temporarily
impaired and, accordingly, recorded a loss of $3,769.
As of December 31, 2002, the Company did not own any investments in fixed maturity securities whose carrying value exceeded
10% of the Company's equity.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (continued)
As of December 31, 2002, the following fixed maturities were restricted in compliance with regulatory requirements:
Security Fair Value
-------- ----------
U.S. Treasury Note, 6.25%, February 2003 $4,345
U.S. Treasury Note, 3.00%, November 2003 183
Puerto Rico Commonwealth, 4.60%, July 2004 210
Puerto Rico Commonwealth, 4.875%, July 2023 52
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
The methods and assumptions used to determine the fair value of financial instruments are as follows:
Fair values of fixed maturities with active markets are based on quoted market prices. For fixed maturities that trade in
less active markets, fair values are obtained from an independent pricing service.
Fair values of equity securities are based on quoted market prices.
The fair value of derivative instruments 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 policy loans approximates fair value.
Fair value of future fees payable to ASI are determined on a discounted cash flow basis, using best estimate assumptions of
lapses, mortality, free withdrawals and a long-term fund growth rate of 8% on the Company's assets under management.
The carrying value of short-term borrowings (cost) approximates fair value due to the short-term nature of these liabilities.
Fair value of surplus notes are determined based on a discounted cash flow basis with a projected payment of principal and
all accrued interest at the maturity date (see Note 14 for payment restrictions).
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
The fair values and carrying values of financial instruments at December 31, 2002 and 2001 are as follows:
December 31, 2002 December 31, 2001
----------------- -----------------
Fair Value Carrying Value Fair Value Carrying Value
-------------- ------------------ ------------- ------------------
-------------- ------------------ ------------- ------------------
Assets
------
Fixed Maturities $398,601 $398,601 $362,831 $362,831
Equity Securities 51,769 51,769 45,083 45,083
Derivative Instruments 10,370 10,370 5,525 5,525
Policy Loans 7,559 7,559 6,559 6,559
Liabilities
-----------
Future Fees Payable to ASI 429,773 708,249 546,357 799,472
Short-term Borrowing 10,000 10,000 10,000 10,000
Surplus Notes and accrued
interest of $29,230 and
$25,829 in 2002 and 2001,
respectively 140,777 139,230 174,454 169,829
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31 were as follows:
2002 2001 2000
---- ---- ----
Fixed maturities $ 18,015 $ 18,788 $ 13,502
Cash and cash equivalents 1,116 909 5,209
Equity securities 809 622 99
Policy loans 403 244 97
---------- ---------- ----------
Total investment income 20,343 20,563 18,907
Investment expenses (711) (437) (312)
---------- ---------- ----------
Net investment income $19,632 $ 20,126 $ 18,595
======== ========= == =========
6. INCOME TAXES
The significant components of income tax expense for the years ended December 31 were as follows:
2002 2001 2000
---- ---- ----
Current tax benefit $ (3,739) $ (39,047) $ (29,244)
Deferred tax expense, excluding operating
loss carryforwards 35,915 60,587 60,023
Deferred tax benefit for operating and
capital loss carryforwards (134,986) (14,372) -
----------- ---------- -----------
Total income tax (benefit) expense $ (102,810) $ 7,168 $ 30,779
=========== ========== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
Deferred tax assets (liabilities) include the following at December 31:
2002 2001
---- ----
Deferred tax assets:
GAAP to tax reserve differences $ 165,348 $ 241,503
Future fees payable to ASI 21,475 63,240
Deferred compensation 20,603 20,520
Net operating loss carry forward 147,360 14,372
Other 6,530 17,276
----------- -----------
Total deferred tax assets 361,316 356,911
----------- -----------
Deferred tax liabilities:
Deferred acquisition costs, net (312,933) (404,758)
Net unrealized gains on fixed
maturity securities (6,713) (2,082)
Other (3,464) (5,051)
----------- -----------
Total deferred tax liabilities (323,110) (411,891)
----------- -----------
Net deferred tax asset (liability) $ 38,206 $ (54,980)
=========== ===========
In accordance with SFAS 109, the Company has performed an analysis of its deferred tax assets to assess recoverability.
Looking at a variety of items, most notably, the timing of the reversal of temporary items and future taxable income
projections, the Company determined that no valuation allowance is needed.
The income tax (benefit) 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:
2002 2001 2000
---- ---- ----
(Loss) income before taxes
Domestic $ (265,361) $ 42,886 $ 98,136
Foreign (2,706) (2,619) (2,540)
------------ ---------- ----------
Total (268,067) 40,267 95,596
Income tax rate 35% 35% 35%
------------- ----------- -----------
Tax (benefit) expense at federal statutory income
tax rate (93,823) 14,093 33,459
Tax effect of:
Dividend received deduction (12,250) (8,400) (7,350)
Losses of foreign subsidiary 947 917 889
Meals and entertainment 603 603 841
State income taxes - (62) (524)
Federal provision to return differences 709 (177) 3,235
Other 1,004 194 229
------------ ---------- ----------
Income tax (benefit) expense $ (102,810) $ 7,168 $ 30,779
============ ========== ==========
The Company's net operating loss carry forwards, totaling approximately $421,029 (pre-tax) at December 31, 2002, will expire
in 2016 and 2017.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. COST ALLOCATION AGREEMENTS WITH AFFILIATES
Certain operating costs (including 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. ASLAC signed a written
service agreement with ASIST for these services executed and approved by the Connecticut Insurance Department in 1995. This
agreement automatically continues in effect from year to year and may be terminated by either party upon 30 days written
notice. The Company has also paid and charged operating costs to several of its affiliates. The total cost to the Company
for these items was $8,177, $6,179 and $13,974 in 2002, 2001 and 2000, respectively. Income received for these items was
approximately $13,052, $13,166 and $11,186 in 2002, 2001 and 2000, respectively.
Allocated depreciation expense was $7,440, $8,764 and $9,073 in 2002, 2001 and 2000, respectively. Allocated lease expense
was $5,808, $6,517 and $5,606 in 2002, 2001 and 2000, respectively. Allocated sub-lease rental income, recorded as a
reduction to lease expense, was $738, $30 and $0 in 2002, 2001 and 2000, respectively. Assuming that the written service
agreement between ASLAC and ASIST continues indefinitely, ASLAC's allocated future minimum lease payments and sub-lease
receipts per year and in aggregate as of December 31, 2002 are as follows:
Lease Sub-Lease
----- ---------
2003 $ 4,847 $ 1,616
2004 5,275 1,773
2005 5,351 1,864
2006 5,328 1,940
2007 5,215 1,788
2008 and thereafter 19,629 7,380
----------- -----------
Total $ 45,645 $ 16,361
=========== ===========
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 $8,255, $6,610 and $6,064 in 2002, 2001 and 2000, respectively. As of December 31, 2002 and 2001, amounts
receivable under this agreement were approximately $458 and $639, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO ASI
In a series of transactions with ASI, the Company transferred certain rights to receive a portion of future fees and contract
charges expected to be realized on 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, through special purpose trusts, 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 securitization 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 (generally 6 to 8 years). The liability for future fees payable to ASI at the balance sheet date is
based on the consideration received less principal repayments according to amortization schedules that were developed at the
inception of the transactions. If actual mortality and expense charges and contingent deferred sales charges are less than
those projected in the original amortization schedules, calculated on a transaction by transaction basis, ASI has no recourse
against the Company. As account values associated with the designated contracts have declined, consistent with the overall
decline in the equity markets, current mortality and expense charges have been lower than expected on certain transactions
and it is likely that future mortality and expense charges, on those same transactions, will be lower than originally
projected. As a result, the ultimate cash flows associated with these transactions that will transfer to ASI may be lower
than the current carrying amount of the liability (see Note 4).
On April 12, 2002, the Company entered into a new securitization purchase agreement with ASI. This transaction covers
designated blocks of business issued from November 1, 2000 through December 31, 2001. The estimated present value of the
transaction at April 12, 2002, using a discount rate of 6.00%, was $101,713.
Payments, representing fees and charges in the aggregate amount, of $186,810, $207,731 and $219,523 were made by the Company
to ASI in 2002, 2001 and 2000, respectively. Related interest expense of $828, $59,873 and $70,667 has been included in the
consolidated statements of income for 2002, 2001 and 2000, 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 restrict the
payments due to ASI, into a restricted account, under the Purchase Agreement subject to certain terms and conditions.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO ASI (continued)
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 12/17/96 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
2002-1 4/12/02 3/1/02 11/1/00 - 12/31/01 6.00% 101,713
Payments of future fees payable to ASI, according to original amortization schedules, as of December 31, 2002 are as follows:
Year Amount
---- ------
2003 $ 186,854
2004 171,093
2005 147,902
2006 117,761
2007 66,270
2008 18,369
-----------
Total $ 708,249
===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
9. LEASES
The Company entered into an eleven year lease agreement for office space in Westminster, Colorado, effective January 1,
2001. Lease expense for 2002 and 2001 was $2,583 and $1,602, respectively. Sub-lease rental income was $227 in 2002 and $0
in 2001. Future minimum lease payments and sub-lease receipts per year and in aggregate as of December 31, 2002 are as
follows:
Lease Sub-Lease
----- ---------
2003 $ 1,913 $ 426
2004 1,982 455
2005 2,050 500
2006 2,050 533
2007 2,050 222
2008 and thereafter 8,789 0
---------- ----------
Total $ 18,834 $ 2,136
========== ==========
10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $279,957 and $226,780 at December 31, 2002 and 2001, respectively.
The Company incurred statutory basis net losses in 2002 of $192,474 due primarily to significant declines in the equity
markets, increasing GMDB reserves calculated on a statutory basis. Statutory basis net losses for 2001 were $121,957, as
compared to income of $11,550 in 2000.
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.
For 2003, no amounts may be distributed without prior approval.
11. STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory basis financial statements in accordance with accounting practices prescribed by the
State of Connecticut Insurance Department. Prescribed statutory accounting practices include publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules.
The NAIC adopted the Codification of Statutory Accounting Principles (Codification) in March 1998. The effective date for
codification was January 1, 2001. The Company's state of domicile, Connecticut, has adopted codification and the Company
has made the necessary changes in its statutory accounting and reporting required for implementation. The overall impact of
adopting codification in 2001 was a one-time, cumulative change in accounting benefit recorded directly in statutory surplus
of $12,047.
In addition, during 2001, based on a recommendation from the State of Connecticut Insurance Department, the Company changed
its statutory method of accounting for its
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. STATUTORY ACCOUNTING PRACTICES (continued)
liability associated with securitized variable annuity fees. Under the new method of accounting, the liability for
securitized fees is established consistent with the method of accounting for the liability associated with variable annuity
fees ceded under reinsurance contracts. This equates to the statutory liability at any valuation date being equal to the
Commissioners Annuity Reserve Valuation Method (CARVM) offset related to the securitized contracts. The impact of this
change in accounting, representing the difference in the liability calculated under the old method versus the new method as
of January 1, 2001, was reported as a cumulative effect of change in accounting benefit recorded directly in statutory
surplus of approximately $20,215.
In 2001, the Company, in agreement with the Connecticut Insurance Department, changed its reserving methodology to recognize
free partial withdrawals and to reserve on a "continuous" rather than "curtate" basis. The impact of these changes,
representing the difference in reserves calculated under the new methods versus the old methods, was recorded directly to
surplus as changes in reserves on account of valuation basis. This resulted in an increase to the unassigned deficit of
approximately $40,511.
Effective January 1, 2002, the Company adopted Statement of Statutory Accounting Principles No. 82, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use and Web Site Development Costs" ("SSAP 82"). SSAP 82
requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software.
Prior to the adoption of SSAP 82, the Company expensed all internal use software related costs as incurred. The Company has
identified and capitalized $5,935 of costs associated with internal use software as of January 1, 2002 and is amortizing the
applicable costs on a straight-line basis over a three year period. The costs capitalized as of January 1, 2002 resulted in
a direct increase to surplus. Amortization expense for the year ended December 31, 2002 was $757.
12. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company provides a
50% match on employees' contributions up to 6% of an employee's salary (for an aggregate match of up to 3% of the employee's
salary). Additionally, the Company may contribute additional amounts based on profitability of the Company and certain of
its affiliates. Expenses related to this program in 2002, 2001 and 2000 were $719, $2,738 and $3,734, respectively.
Company contributions to this plan on behalf of the participants were $921, $2,549 and $4,255 in 2002, 2001 and 2000,
respectively.
The Company has a deferred compensation plan, which is available to the field marketing staff and certain other employees.
Expenses related to this program in 2002, 2001 and 2000 were $3,522, $1,615 and $1,030, respectively. Company contributions
to this plan on behalf of the participants were $5,271, $1,678 and $2,134 in 2002, 2001 and 2000, 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
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFITS (continued)
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 $7,083 and $13,645 as of
December 31, 2002 and 2001, respectively. Expenses (income) related to these programs in 2002, 2001 and 2000, were $1,471,
($9,842) and $2,692, respectively. Payments under these programs were $8,033, $8,377 and $13,697 in 2002, 2001 and 2000,
respectively.
13. FINANCIAL REINSURANCE
The Company cedes insurance to other insurers in order to fund the cash strain generated from commission costs on current sales and to limit
its risk exposure. The Company uses modified coinsurance reinsurance arrangements whereby the reinsurer shares in the
experience of a specified book of business. These reinsurance transactions result in the Company receiving from the
reinsurer an upfront ceding commission on the book of business ceded in exchange for the reinsurer receiving in the future,
the future fees generated from that book of business. Such transfer does not relieve the Company of its primary liability
and, as such, failure of reinsurers to honor their obligation could result in losses to the Company. The Company reduces
this risk by evaluating the financial condition and credit worthiness of reinsurers.
The effect of reinsurance for the 2002, 2001 and 2000 was as follows:
2002 Gross Ceded Net
---- ----- ----- ---
Annuity and life insurance charges and fees $ 406,272 $ (36,268) $ 370,004
Return credited to contract owners $ 5,221 $ (25) $ 5,196
Underwriting, acquisition and other insurance
expenses (deferal of acquisition costs) $ 154,588 $ 34,140 $ 188,728
Amortization of deferred acquisition costs $ 542,945 $ (32,886) $ 510,059
2001
----
Annuity and life insurance charges and fees $ 430,914 $ (42,218) $ 388,696
Return credited to contract owners $ 5,704 $ 92 $ 5,796
Underwriting, acquisition and other insurance
expenses (deferral of acquisition costs) $ 163,677 $ 33,078 $ 196,755
Amortization of deferred acquisition costs $ 231,290 $ (7,243) $ 224,047
2000
----
Annuity and life insurance charges and fees $ 473,318 $ (48,740) $ 424,578
Return credited to contract owners $ 8,540 $ (77) $ 8,463
Underwriting, acquisition and other insurance
expenses (deferral of acquisition costs) $ 108,399 $ 42,198 $ 150,597
Amortization of deferred acquisition costs $ 205,174 $ (20,558) $ 184,616
In December 2000, the Company entered into a modified coinsurance agreement with SICL covering certain contracts issued
since January 1996. The impact of this treaty to the
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. FINANCIAL REINSURANCE (continued)
Company was pre-tax (loss) income of ($4,137), $8,394 and $23,341 in 2002, 2001 and 2000, respectively. At December 31,
2002 and 2001, $675 and $1,137, respectively, was receivable from SICL under this agreement.
14. SURPLUS NOTES
The Company has issued surplus notes to ASI in exchange for cash. Surplus notes outstanding as of December 31, 2002 and
2001, and interest expense for 2002, 2001 and 2000 were as follows:
Liability as of
December 31, Interest Expense
Interest For the Years
Note Issue Date Rate 2002 2001 2002 2001 2000
---------------------- --------- ---------- ---------- --------- --------- ---------
---------------------- --------- ----------
February 18, 1994 7.28% - - - - 732
March 28, 1994 7.90% - - - - 794
September 30, 1994 9.13% - - - 1,282 1,392
December 19, 1995 7.52% - 10,000 520 763 765
December 20, 1995 7.49% - 15,000 777 1,139 1,142
December 22, 1995 7.47% - 9,000 465 682 684
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,420
December 30, 1996 8.03% 70,000 70,000 5,699 5,699 5,715
---------- ---------- --------- --------- ---------
---------- ---------- --------- --------- ---------
Total $110,000 $144,000 $10,872 $12,976 $14,644
========== ========== ========= ========= =========
On September 6, 2002, surplus notes for $10,000, dated December 19, 1995, $15,000, dated December 20, 1995, and $9,000,
dated December 22, 1995, were repaid. On December 3, 2001, a surplus note, dated September 30, 1994, for $15,000 was
repaid. On December 27, 2000, surplus notes for $10,000, dated February 18, 1994, and $10,000, dated March 28, 1994, were
repaid. 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, 2002 and 2001, $29,230 and $25,829, respectively, of
accrued interest on surplus notes was not permitted for payment under these criteria.
15. SHORT-TERM BORROWING
The Company had a $10,000 short-term loan payable to ASI at December 31, 2002 and 2001 as part of a revolving loan agreement. The loan
had an interest rate of 1.97% and matured on January 13, 2003. The loan was subsequently rolled over with a new interest
rate of 1.82% and a new maturity date of March 13, 2003. The loan was further extended to April 30, 2003 and a new interest
rate of 1.71%. The total related interest expense to the Company was $271, $522 and $687 in 2002, 2001 and 2000,
respectively. Accrued interest payable was $10 and $113 as of December 31, 2002 and 2001, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. SHORT-TERM BORROWING (continued)
On January 3, 2002, the Company entered into a $150,000 credit facility with ASI. This credit facility terminates on
December 31, 2005 and bears interest at the offered rate in the London interbank market (LIBOR) plus 0.35 percent per annum
for the relevant interest period. Interest expense related to these borrowings was $2,243 for the year ended December 31,
2002. As of December 31, 2002, no amount was outstanding under this credit facility.
16. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by contract owners 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.
17. RESTRUCTURING CHARGES
On March 22, 2001 and December 3, 2001, the Company announced separate plans to reduce expenses to better align its
operating infrastructure with the current investment market environment. As part of the two plans, the Company's workforce
was reduced by approximately 140 positions and 115 positions, respectively, affecting substantially all areas of the
Company. Estimated pre-tax severance benefits of $8,500 have been charged against 2001 operations related to these
reductions. These charges have been reported in the Consolidated Statements of Income as a component of Underwriting,
Acquisition and Other Insurance Expenses. As of December 31, 2002 and 2001, the remaining restructuring liability, relating
primarily to the December 3, 2001 plan, was $12 and $4,104, respectively.
18. COMMITMENTS AND CONTINGENT LIABILITIES
In recent years, a number of annuity companies have been named as defendants in class action lawsuits relating to the use of
variable annuities as funding vehicles for tax- qualified retirement accounts. The Company is currently a defendant in one
such lawsuit. A purported class action complaint was filed in the United States District Court for the Southern District of
New York on December 12, 2002, by Diane C. Donovan against the Company and certain of its affiliates (the "Donovan
Complaint"). The Donovan Complaint seeks unspecified compensatory damages and injunctive relief from the Company and
certain of its affiliates. The Donovan Complaint claims that the Company and certain of its affiliates violated federal
securities laws in marketing variable annuities. This litigation is in the preliminary stages. The Company believes this
action is without merit, and intends to vigorously defend against this action.
The Company is also involved in other lawsuits arising, for the most part, in the ordinary course of its business
operations. While the outcome of these other lawsuits cannot be determined at this time, after consideration of the
defenses available to the Company, applicable insurance coverage and any related reserves established, these other lawsuits
are not expected to result in liability for amounts material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
As discussed previously, on December 19, 2002, SICL entered into a definitive purchase agreement (the "Purchase Agreement")
to sell its ownership interest in the Company and certain affiliates to Prudential Financial for approximately $1.265
billion. The closing of this transaction, which is conditioned upon certain customary regulatory and other approvals and
conditions, is expected in the second quarter of 2003.
The purchase price that was agreed to between SICL and Prudential Financial was based on a September 30, 2002 valuation of
the Company and certain affiliates. As a result, assuming the transaction closes, the economics of the Company's business
from September 30, 2002 forward will inure to the benefit or detriment of Prudential Financial. Included in the Purchase
Agreement, SICL has agreed to indemnify Prudential Financial for certain liabilities that may arise relating to periods
prior to September 30, 2002. These liabilities generally include market conduct activities, as well as contract and
regulatory compliance (referred to as "Covered Liabilities").
Related to the indemnification provisions contained in the Purchase Agreement, SICL has signed, for the benefit of the
Company, an indemnity letter, effective December 19, 2002, to make the Company whole for certain Covered Liabilities that
come to fruition during the period beginning December 19, 2002 and ending with the close of the transaction. This
indemnification effectively transfers the risk associated with those Covered Liabilities from the Company to SICL concurrent
with the signing of the definitive purchase agreement rather than waiting until the transaction closes.
19. SEGMENT REPORTING
Assets under management and sales for 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," and
the Company does not anticipate that they will be so in the future due to changes in the Company's strategy to focus on its
core variable annuity business.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the operations of the Company on a quarterly basis:
Three Months Ended
----------------------------------------------------------
2002 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Premiums and other insurance revenues* $ 118,797 $ 126,614 $ 115,931 $ 108,488
Net investment income 4,965 4,714 5,128 4,825
Net realized capital losses (1,840) (1,584) (2,327) (3,863)
----------- ------------ ------------ ------------
Total revenues 121,922 129,744 118,732 109,450
Benefits and expenses* 112,759 160,721 323,529 150,906
----------- ------------ ------------ ------------
Pre-tax net income (loss) 9,163 (30,977) (204,797) (41,456)
Income tax expense (benefit) 1,703 (11,746) (72,754) (20,013)
----------- ------------ ------------ ------------
Net income (loss) $ 7,460 $ (19,231) $ (132,043) $ (21,443)
=========== ============ ============ ============
* For the quarters ended March 31, 2002 and June 30, 2002, the Company had overstated premiums ceded in revenues. The
above presentation reflects an equal and offsetting reclassification of these amounts to benefits and expenses with no
net income impact.
Three Months Ended
----------------------------------------------------------
2001 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Premiums and other insurance revenues*** $ 130,885 $ 128,465 $ 122,708 $ 119,604
Net investment income** 5,381 4,997 5,006 4,742
Net realized capital gains (losses) 1,902 373 376 (1,723)
----------- ------------ ------------ ------------
Total revenues 138,168 133,835 128,090 122,623
Benefits and expenses** *** 122,729 110,444 123,307 125,969
----------- ------------ ------------ ------------
Pre-tax net income (loss) 15,439 23,391 4,783 (3,346)
Income tax expense (benefit) 4,034 7,451 (480) (3,837)
----------- ------------ ------------- ------------
Net income $ 11,405 $ 15,940 $ 5,263 $ 491
=========== ============ ============ ============
** For the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001, the Company had reported investment
performance associated with its derivatives as net investment income. The above presentation reflects a
reclassification of these amounts to benefits and expenses.
*** For the quarters ended September 30, 2001 and December 31, 2001, the Company had overstated premiums ceded in revenues.
The above presentation reflects an equal and offsetting reclassification of these amounts to benefits and expenses with
no net income impact.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
20. QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)
Three Months Ended
----------------------------------------------------------
2000 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Premiums and other insurance revenues $ 137,040 $ 139,346 $ 147,819 $ 135,866
Net investment income**** 4,343 4,625 4,619 5,008
Net realized capital gains (losses) 729 (1,436) (858) 877
Total revenues 142,112 142,535 151,580 141,751
Benefits and expenses**** 107,893 122,382 137,843 114,264
Pre-tax net income 34,219 20,153 13,737 27,487
Income tax expense 10,038 5,225 3,167 12,349
Net income $ 24,181 $ 14,928 $ 10,570 $ 15,138
============ ============ =========== ============
**** For the quarters ended March 31, 2000, June 30, 2000, September 30, 2000 and December 31, 2000, the Company had reported
investment performance associated with its derivatives as net investment income. The above presentation reflects a
reclassification of these amounts to benefits and expenses.
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
Separate Account B consists of multiple Sub-accounts. Each Sub-account invests only in a single mutual fund or mutual fund
portfolio. All or some of these Sub-accounts are available as investment options for other variable annuities we offer pursuant to
different prospectuses.
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
Sub-accounts of Separate Account B that are being offered pursuant to this Prospectus; and (b) the number of Units outstanding for
each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in
parentheses. To the extent a Sub-account commenced operations during a particular calendar year, the Unit Price as of the end of the
period reflects only the partial year results from the commencement of operations until December 31st of the applicable year. 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. Unit Prices and Units are provided for
Sub-accounts that commenced operations prior to January 1, 2003.
Beginning November 18, 2002, multiple Unit Prices will be calculated for each Sub-account of Separate Account B to reflect the daily
charge deducted for each combination of the applicable Insurance Charge, and the charge for any optional benefit that may be
available under this Annuity.
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Strong
International Equity 1
(1989)
Unit Price $19.53 24.28 31.88 43.99 27.18 22.95 19.70 18.23 16.80 16.60
Number of Units 14,140,023 17,388,860 19,112,622 16,903,883 17,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST William Blair
International
Growth 2
(1997)
Unit Price $9.92 13.54 17.96 24.16 13.41 11.70 - - - -
Number of Units 29,062,215 40,507,419 57,327,711 61,117,418 43,711,763 21,405,891 - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST American
Century International
Growth 3
(1997)
Unit Price $10.20 12.85 17.92 21.66 13.30 11.35 - - - -
Number of Units 31,813,722 37,487,425 17,007,352 6,855,601 5,670,336 2,857,188 - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM
International Equity 4
(1994)
Unit Price $8.81 10.77 16.12 23.45 12.54 11.46 11.39 10.23 - -
Number of Units 10,185,535 13,627,264 16,245,805 8,818,599 9,207,623 9,988,104 9,922,698 2,601,283 - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST MFS Global
Equity
(1999)
Unit Price $7.74 8.94 10.08 11.01 - - - - - -
Number of Units 5,878,055 5,806,567 2,803,013 116,756 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST PBHG Small-
Cap Growth 5
(1994)
Unit Price $12.83 19.84 21.51 42.08 17.64 17.28 16.54 13.97 10.69 -
Number of Units 17,093,250 23,048,821 25,535,093 32,134,969 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM Small-
Cap Growth 6
(1999)
Unit Price $6.13 8.46 11.98 15.37 - - - - - -
Number of Units 44,042,514 60,703,791 63,621,279 53,349,003 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Federated
Aggressive Growth
(2000)
Unit Price $4.96 7.10 9.08 - - - - - - -
Number of Units 5,188,521 6,499,066 196,575 - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Goldman Sachs
Small-Cap Value 7
(1998)
Unit Price $13.72 15.12 13.95 10.57 9.85 - - - - -
Number of Units 20,004,839 26,220,860 15,193,053 6,597,544 4,081,870 - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Gabelli Small-
Cap Value 8
(1997)
Unit Price $12.58 14.08 13.35 11.11 11.20 12.70 - - - -
Number of Units 32,549,396 35,483,530 23,298,524 21,340,168 24,700,211 14,612,510 - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM Small-
Cap Value 9
(2002)
Unit Price $7.68 - - - - - - - - -
Number of Units 581,833 - - - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Goldman Sachs
Mid-Cap Growth 10
(2000)
Unit Price $2.78 3.88 6.58 - - - - - - -
Number of Units 16,748,577 17,045,776 9,426,102 - - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger
Berman
Mid-Cap Growth 11
(1994)
Unit Price $12.86 18.95 25.90 28.58 19.15 16.10 13.99 12.20 9.94 -
Number of Units 19,674,777 25,717,164 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 12
(1993)
Unit Price $17.78 20.16 21.09 16.78 16.10 16.72 13.41 12.20 9.81 10.69
Number of Units 37,524,187 47,298,313 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 $3.51 5.54 6.74 - - - - - - -
Number of Units 85,441,507 125,442,916 28,229,631 - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Gabelli All-Cap
Value
(2000)
Unit Price $7.59 9.71 10.06 - - - - - - -
Number of Units 11,924,124 14,934,570 1,273,094 - - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Natural Resources
(1995)
Unit Price $18.36 19.71 19.86 15.88 12.57 14.46 14.19 11.01 - -
Number of Units 5,891,582 6,565,088 6,520,983 6,201,327 5,697,453 7,550,076 6,061,852 808,605 - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Alliance
Growth 13
(1996)
Unit Price $9.94 14.61 17.38 20.44 15.48 12.33 10.89 - - -
Number of Units 21,295,907 29,478,257 25,796,792 17,059,819 19,009,242 18,736,994 4,324,161 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST MFS Growth
(1999)
Unit Price $5.68 8.02 10.38 11.27 - - - - - -
Number of Units 85,193,279 117,716,242 7,515,486 409,467 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
AST Marsico Capital
Growth
(1997)
Unit Price $11.44 13.74 17.81 21.06 14.00 10.03 - - - -
Number of Units 81,046,482 85,895,802 94,627,691 78,684,943 40,757,449 714,309 - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Goldman Sachs
Concentrated
Growth 14
(1992)
Unit Price $19.17 27.71 41.14 60.44 39.54 23.83 18.79 14.85 10.91 11.59
Number of Units 56,016,467 84,116,221 99,250,773 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM Large-
Cap Growth 9
(2002)
Unit Price $7.67 - - - - - - - - -
Number of Units 986,566 - - - - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM Large-
Cap Value 15
(2000)
Unit Price $7.64 9.15 9.82 - - - - - - -
Number of Units 4,621,831 4,575,558 586,058 - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Alliance/
BernsteinGrowth +
Value
(2001)
Unit Price $7.12 9.63 - - - - - - - -
Number of Units 3,031,899 3,351,836 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Sanford
Bernstein Core
Value
(2001)
Unit Price $8.59 10.04 - - - - - - - -
Number of Units 15,239,844 4,207,869 - - - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Cohen & Steers
Realty
(1998)
Unit Price $10.67 10.54 10.39 8.35 8.28 - - - - -
Number of Units 14,017,528 12,268,426 11,891,188 6,224,365 3,771,461 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Sanford
Bernstein
Managed Index 500 16
(1998)
Unit Price $9.41 12.03 13.55 15.08 12.61 - - - - -
Number of Units 39,938,791 48,018,721 48,835,089 39,825,951 22,421,754 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST American
Century Income &
Growth 17
(1997)
Unit Price $10.16 12.86 14.24 16.19 13.35 12.06 - - - -
Number of Units 22,410,834 27,386,278 32,388,202 21,361,995 13,845,190 9,523,815 - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Alliance Growth
and Income 18
(1992)
Unit Price $21.31 28.18 28.72 27.60 24.11 21.74 17.79 15.22 11.98 11.88
Number of Units 49,030,576 63,123,316 53,536,296 52,766,579 47,979,349 42,197,002 28,937,085 18,411,759 7,479,449 4,058,228
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
AST MFS Growth
with Income
(1999)
Unit Price $6.68 8.64 10.36 10.49 - - - - - -
Number of Units 11,173,177 11,896,688 6,937,627 741,323 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
AST INVESCO
Capital Income 19
(1994)
Unit Price $16.14 19.84 22.01 21.31 19.34 17.31 14.23 12.33 9.61 -
Number of Units 37,055,825 48,595,962 50,171,495 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM Global
Allocation 20
(1993)
Unit Price $14.50 17.39 19.98 21.19 17.78 15.98 13.70 12.49 10.34 10.47
Number of Units 18,212,529 26,641,422 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 $12.01 13.50 14.23 14.90 13.37 11.18 - - - -
Number of Units 12,683,097 14,369,895 14,498,180 13,944,535 6,714,065 2,560,866 - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Asset Allocation
(1994)
Unit Price $16.13 18.15 19.33 19.70 18.12 15.53 13.30 11.92 9.80 -
Number of Units 15,466,227 17,579,107 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 21
(1994)
Unit Price $12.04 10.62 10.49 10.69 11.82 10.45 10.98 10.51 9.59 -
Number of Units 14,576,376 9,668,062 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 $12.47 12.64 12.80 14.38 14.30 14.13 12.62 11.27 9.56 -
Number of Units 38,477,793 39,130,467 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
(2000)
Unit Price $10.18 10.28 10.12 - - - - - - -
Number of Units 10,468,962 5,506,982 650,253 - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST DeAM Bond 9
(2002)
Unit Price $10.67 - - - - - - - - -
Number of Units 1,487,730 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Total
Return Bond
(1994)
Unit Price $16.65 15.46 14.40 13.09 13.43 12.44 11.48 11.26 9.61 -
Number of Units 113,007,310 99,028,465 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 $14.26 13.61 12.79 11.96 11.73 11.26 10.62 10.37 - -
Number of Units 61,707,894 42,410,807 31,046,956 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - -
- ----------------------------------------------------------------------------------------------------------------------------------------
AST Money Market
(1992)
Unit Price $13.23 13.24 12.94 12.38 12.00 11.57 11.16 10.77 10.35 10.12
Number of Units 163,759,511 184,612,059 172,493,206 187,609,708 75,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783
The Montgomery
Variable Series -
MV
Emerging Markets
(1996)
Unit Price $5.79 6.50 7.09 10.06 6.19 10.05 10.25 - - -
Number of Units 10,957,884 14,095,135 12,899,472 12,060,036 10,534,383 10,371,104 2,360,940 - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Equity Value
(1998)
Unit Price $6.61 8.83 9.56 9.17 9.53 - - - - -
Number of Units 2,835,243 3,705,869 4,442,888 2,826,839 1,148,849 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Variable
Trust - Equity Income
(1999)
Unit Price $7.46 9.37 10.05 9.96 - - - - - -
Number of Units 1,361,988 1,019,937 502,986 136,006 - - - - - -
Rydex Variable Trust
- -
Nova
(1999)
Unit Price $4.06 6.41 8.50 10.82 - - - - - -
Number of Units 2,629,551 3,990,618 14,799,352 5,474,129 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Rydex Variable Trust
- -
Ursa
(1999)
Unit Price $14.45 12.05 10.62 9.28 - - - - - -
Number of Units 234,642 351,487 2,269,599 1,803,669 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Rydex Variable Trust
- -
OTC
(1999)
Unit Price $4.01 6.65 10.40 17.07 - - - - - -
Number of Units 10,686,757 15,866,046 32,179,793 18,520,440 - - - - - -
INVESCO VIF -
Dynamics
(1999)
Unit Price $6.03 8.98 13.23 13.91 - - - - - -
Number of Units 9,117,894 13,391,660 11,409,827 2,022,585 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Technology
(1999)
Unit Price 3.49 6.66 12.48 16.52 - - - - - -
Number of Units 18,830,138 26,652,622 29,491,113 4,622,242 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
INVESCO VIF -
Health Sciences
(1999)
Unit Price $9.37 12.58 14.59 11.34 - - - - - -
Number of Units 11,475,199 17,419,141 19,381,405 786,518 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Financial Services
(1999)
Unit Price $10.47 12.48 14.04 11.41 - - - - - -
Number of Units 7,556,596 11,612,048 14,091,636 759,104 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF -
Telecommunications
(1999)
Unit Price $2.43 5.01 11.05 15.17 - - - - - -
Number of Units 9,354,303 13,553,158 17,856,118 4,184,526 - - - - - -
Evergreen VA - Global
Leaders
(1999)
Unit Price $7.08 9.00 10.55 11.72 - - - - - -
Number of Units 1,442,329 1,520,376 887,758 23,101 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Special Equity
(1999)
Unit Price $7.16 9.98 11.01 12.19 - - - - - -
Number of Units 2,205,267 2,540,062 1,731,145 152,342 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Evergreen VA -
Omega
(2000)
Unit Price $4.93 6.71 7.98 - - - - - - -
Number of Units 2,594,817 2,585,848 1,637,475 - - - - - - -
ProFund VP -
Europe 30
(1999)
Unit Price $5.76 7.87 10.52 12.24 - - - - - -
Number of Units 2,550,567 5,711,763 2,327,562 273,963 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Asia 30
9
(2002)
Unit Price $7.76 - - - - - - - - -
Number of Units 2,060,741 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Japan 9
(2002)
Unit Price $7.25 - - - - - - - - -
Number of Units 338,472 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Banks 9
(2002)
Unit Price $8.58 - - - - - - - - -
Number of Units 555,999 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Basic
Materials 9
(2002)
Unit Price $8.47 - - - - - - - - -
Number of Units 361,568 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Biotechnology
(2001)
Unit Price $5.16 8.37 - - - - - - - -
Number of Units 2,412,670 5,093,235 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Consumer Cyclical 9
(2002)
Unit Price $7.26 - - - - - - - - -
Number of Units 319,201 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
----------
ProFund VP -
Consumer Non-
Cyclical 9
(2002)
Unit Price $8.29 - - - - - - - - -
Number of Units 406,966 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Energy
(2001)
Unit Price $7.51 9.19 - - - - - - - -
Number of Units 1,985,954 2,299,149 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Financial
(2001)
Unit Price $7.74 9.22 - - - - - - - -
Number of Units 1,086,464 2,154,106 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Healthcare
(2001)
Unit Price $7.13 9.35 - - - - - - - -
Number of Units 1,313,814 3,489,097 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Industrial 9
(2002)
Unit Price $7.94 - - - - - - - - -
Number of Units 126,611 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Internet 9
(2002)
Unit Price $8.58 - - - - - - - - -
Number of Units 2,982,656 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Pharmaceuticals 9
(2002)
Unit Price $8.57 - - - - - - - - -
Number of Units 241,916 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Precious Metals 9
(2002)
Unit Price $9.72 - - - - - - - - -
Number of Units 3,992,389 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Real Estate
(2001)
Unit Price $10.61 10.76 - - - - - - - -
Number of Units 1,489,153 3,592,834 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Semiconductor 9
(2002)
Unit Price $5.14 - - - - - - - - -
Number of Units 608,142 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Technology
(2001)
Unit Price $3.46 5.91 - - - - - - - -
Number of Units 3,290,202 2,524,295 - - - - - - - -
----------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Telecommunications
(2001)
Unit Price $4.35 7.10 - - - - - - - -
Number of Units 3,082,428 583,065 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Utilities
(2001) $6.09 8.12 - - - - - - - -
Unit Price 3,391,766 1,589,344 - - - - - - - -
Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Bull 9
(2002)
Unit Price $7.98 - - - - - - - - -
Number of Units 6,296,621 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Bear
(2001)
Unit Price $13.74 11.54 - - - - - - - -
Number of Units 4,011,499 3,059,897 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraBull 22
(2001)
Unit Price $4.71 7.47 - - - - - - - -
Number of Units 6,435,217 7,628,819 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -OTC
(2001)
Unit Price $3.49 5.77 - - - - - - - -
Number of Units 18,242,013 11,681,189 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Short OTC 9
(2002)
Unit Price $11.02 - - - - - - - - -
Number of Units 682,058 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraOTC
(1999)
Unit Price $0.58 1.91 6.19 23.58 - - - - - -
Number of Units 70,200,723 50,124,696 17,597,528 2,906,024 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Mid-Cap Value 9
(2002)
Unit Price $7.68 - - - - - - - - -
Number of Units 1,089,843 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Mid-Cap Growth 9
(2002)
Unit Price $7.71 - - - - - - - - -
Number of Units 1,444,783 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraMid-Cap 9
(2002)
Unit Price $5.72 - - - - - - - - -
Number of Units 2,276,660 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Small-Cap Value 9
(2002)
Unit Price $7.10 - - - - - - - - -
Number of Units 2,908,617 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
Small-Cap Growth 9
(2002)
Unit Price $7.71 - - - - - - - - -
Number of Units 2,138,861 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP -
UltraSmall-Cap 23
(1999)
Unit Price $4.73 8.37 9.18 11.96 - - - - - -
Number of Units 5,664,617 10,010,482 3,258,574 813,904 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - U.S.
Government Plus 9
(2002)
Unit Price $11.58 - - - - - - - - -
Number of Units 7,945,270 - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------------
ProFund VP - Rising
Rates Opportunity 9
(2002)
Unit Price $8.03 - - - - - - - - -
Number of Units 583,657 - - - - - - - - -
First Trust(R)10
Uncommon Values
(2000)
Unit Price $2.94 4.72 7.43 - - - - - - -
Number of Units 1,716,102 2,255,266 2,690,435 - - - - - - -
Prudential - SP
Jennison
International
Growth 21
(2001)
Unit Price $5.62 7.39 - - - - - - - -
Number of Units 550,334 273,843 - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------------
1. Effective December 10, 2001, Strong Capital Management, Inc. became Sub-advisor of the Portfolio. Prior to December 10,
2001, A I M Capital Management, Inc. served as Sub-advisor of the Portfolio, then named "AST AIM International Equity." 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."
2. Effective November 11, 2002, William Blair & Company, L.L. C. became Sub-advisor of the Portfolio. Prior to November 11,
2002, Janus Capital Corporation served as Sub-advisor of the Portfolio, then named "AST Janus Overseas Growth."
3. This Portfolio reflects the addition of the net assets of the AST American Century International Growth Portfolio II
("Portfolio II") as a result of the merger between the Portfolio and Portfolio II.
4. Effective May 1, 2002, Deutsche Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2002, Founders
Asset Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Founders Passport." Prior to October 15, 1996,
Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Small Cap Portfolio."
5. Effective September 17, 2001, Pilgrim Baxter & Associates, Ltd. became Sub-advisor of the Portfolio. Prior to September 17,
2001, Janus Capital Corporation served as Sub-advisor of the Portfolio, then named "AST Janus Small-Cap Growth." Prior to
December 31, 1998, Founders Asset Management, LLC served as Sub-advisor of the Portfolio, then named "Founders Capital
Appreciation Portfolio."
6. Effective December 10, 2001, Deutsche Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to December 10,
2001, Zurich Scudder Investments, Inc. served as Sub-advisor of the Portfolio, then named "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. These portfolios were first offered as Sub-accounts on May 1, 2002.
10. Effective November 11, 202, Goldman Sachs Asset management became Sub-advisor of the Portfolio. Prior to November 11, 2002,
Janus Capital Corporation served as Sub-advisor of the Portfolio, then named "AST Janus Mid-Cap Growth."
11. 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."
12. 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."
13. 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."
14. Effective November 11, 2002, Goldman Sachs Asset Management became Sub-advisor of the Portfolio. Prior to November 11,
2002, Janus Capital Corporation served as Sub-advisor of the Portfolio, then named "AST JanCap Growth."
15. Effective May 1, 2002, Deutsche Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2002, Janus
Capital Corporation served as Sub-advisor of the Portfolio, then named "AST Janus Strategic Value."
16. 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."
17. 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."
18. 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."
19. Effective July 1, 2002, the AST INVESCO Equity Income portfolio changed its name to AST INVESCO Capital Income.
20. Effective May 1, 2002, Deutsche Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2002, A I M
Capital Management, Inc. served as Sub-advisor of the Portfolio, then named "AST AIM Balanced." 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."
21. 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."
22. Effective May 1, 2003, the ProFund VP Bull Plus portfolio changed its name to ProFund VP UltraBull.
23. 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.
APPENDIX C-1: PSA PRIOR CONTRACT
- ---------------------------------------------------------------------------------------------------------------------------------------
Between September, 1988 and May, 1994, American Skandia issued a variable annuity under the marketing name "LifeVest Personal
Security Annuity" or "PSA". The contract is no longer being issued. However, we continue to accept additional Purchase Payments.
Assets supporting the PSA contracts are maintained in Sub-accounts of Separate Account B.
- ---------------------------------------------------------------------------------------------------------------------------------------
The principle differences between the American Skandia Advisors Plan or "ASAP" contract offered by this Prospectus and the PSA
contract are described below. In addition, while ASAP may be offered as either an individual contract or as coverage under a group
annuity, PSA was only offered as an individual contract.
GLOSSARY OF TERMS
Some of the definitions used in the PSA contract are slightly different from the definitions used in ASAP contract.
The definition of "Account Value" in this Prospectus is the same as the definition of "Cash Value" in the former PSA Prospectus,
except for the inclusion of information relating to fixed investment options that are not available in the PSA contracts and the
reference to additional amounts applied to Purchase Payments.
The definition of "Issue Date" in this Prospectus is the same as the definition of "Contract Date" in the former PSA Prospectus.
The definition of "Purchase Payment" in this Prospectus is not defined in the former PSA prospectus, but the term is the same as the
term "premium" or "premium payment" that was used in the former PSA Prospectus.
The following defined terms in this Prospectus relating to the Fixed Allocation are not applicable: "Fixed Allocation, " "Guarantee
Period," "Interim Value," "MVA," and "Maturity Date."
The defined term "Owner" in this Prospectus clarifies the meaning of that term in relation to group annuity sales. This was not
applicable to PSA.
INVESTMENT OPTIONS
The PSA contracts do not offer Fixed Allocations. Therefore, any discussion of Fixed Allocations, Market Value Adjustments, Separate
Account D or any programs, definitions or features that relate to or refer to Fixed Allocations do not apply to PSA Owners.
FEES AND CHARGES
The contingent deferred sales load for PSA originally was 6.0% for 6 years. It subsequently was changed for PSA contracts issued
from May, 1991 (or later, if required by law) to:
------------------ ------- ----- ------ ------ ------ ----- ------ ------
YEARS 1 2 3 4 5 6 7 8+
------------------ ------- ----- ------ ------ ------ ----- ------ ------
------------------ ------- ----- ------ ------ ------ ----- ------ ------
CHARGE (%) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0
------------------ ------- ----- ------ ------ ------ ----- ------ ------
The Annual Maintenance Fee for PSA is $30, which is deducted annually to cover the cost of maintaining and administering the
contracts. Before annuity payments commence, this fee is deducted at the end of each contract year or on surrender, if earlier.
During the annuitization period, if a variable annuitization option is elected, this fee is deducted from each Annuity payment on a
pro-rata basis.
The administrative and maintenance fees for PSA are fixed and cannot be changed.
There is currently no "Transfer Fee" applicable to the PSA contract, however, we reserve the right to charge up to the lesser of our
actual costs in effecting such transfers or the maximum allowed under state law for transfers in excess of 20 in any contract year.
Currently, that maximum is $10.00 per transfer.
PURCHASING YOUR ANNUITY
The minimum initial purchase payment for PSA is $5,000 and minimum subsequent payments are $1,000, or less where required by law or
regulation, and may be paid at any time before the earlier of (1) the Annuity Date, and (2) the contract anniversary following the
earlier of your or the Annuitant's 85th birthday.
Both the Owner and the Annuitant, if different from the Owner, must be less than 85 years of age on the Issue Date under the PSA
contract.
EXPENSE EXAMPLES
If you surrender your contract at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
1171 1916 2664 4748
----------------------------- --------------------------- --------------------------- --------------------------
If you annuitize at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
471 1416 2364 4748
----------------------------- --------------------------- --------------------------- --------------------------
If you do not surrender your contract:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
471 1416 2364 4748
----------------------------- --------------------------- --------------------------- --------------------------
MANAGING YOUR ACCOUNT VALUE
THE FOLLOWING SECTION IS ADDED:
Additional Amounts on Qualifying Purchase Payments (formerly referred to as "Breakpoints")
Under certain circumstances we may credit Additional Amounts to your Annuity if you submit a large initial or subsequent Purchase
Payment. Each Purchase Payment must qualify separately to receive any Additional Amounts. As of the date of this Prospectus, such
Additional Amounts are currently being offered. However, we may modify, suspend or terminate this program at any time at our sole
discretion. Any Additional Amounts are provided from our general account.
Additional Amounts are payable as a percentage of the qualifying Purchase Payment made to your Annuity according to the breakpoints
shown below:
----------------------------------------------- ---------------------------
Purchase Payment Additional Amount*
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
At least $500,000 but less than $1,000,000 1.25%
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
Between $1,000,000 and $4,999,999 3.00%
----------------------------------------------- ---------------------------
----------------------------------------------- ---------------------------
$5,000,000 or greater 3.75%
----------------------------------------------- ---------------------------
* as a percentage of the Purchase Payment.
Additional Amounts are not offered on Purchase Payments of less than $500,000.
How are Additional Amounts applied to my Account Value?
Any Additional Amounts are allocated to your Account Value at the time the qualifying Purchase Payment is applied to your Account
Value. Additional Amounts are allocated to the investment options in the same ratio as the applicable Purchase Payment is applied.
Special Treatment of Additional Amounts
|X| Any Additional Amounts applied to your Annuity can be recovered by American Skandia. If you elect to "free-look" your
Annuity, the amount returned to you will not include any Additional Amounts.
|X| We do not consider Additional Amounts to be "investment in the contract" for income tax purposes.
|X| You may not withdraw any Additional Amounts under the Free Withdrawal provision without assessment of the contingent
deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
Additional Amounts applied to estimated Purchase Payments
Under certain circumstances, we may consider two or more separate Purchase Payments as if they had been submitted at the same time
when determining the percentage to apply based on the breakpoints described above. 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 large Purchase Payments within a 13-month period may result in your
Annuity being credited no Additional Amounts or fewer Additional Amounts than would otherwise be credited to your Annuity.
If you submit a letter of intent and receive Additional Amounts that otherwise would not 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 any Additional Amounts pro-rata
from the investment options based on your Account Values as of the date we act to recover the Additional Amounts. If the amount of
the recovery exceeds your then current Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
Balanced Investment Program
The section entitled "Do you offer programs designed to guarantee a "Return of Premium" at a future date?" (formerly referred to as
Balanced Investment Program") is not available under PSA.
ACCESS TO ACCOUNT VALUE
Partial Surrenders
The minimum amount of any partial surrender (partial withdrawal) under a PSA contract is $500.
THE FOLLOWING SECTION IS ADDED:
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". We may apply a Market Value Adjustment to any Fixed Allocations. The amount
payable will be your Account Value.
This waiver of any applicable CDSC is subject to our rules, including but not limited to the following:
|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; and
|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.
For contracts issued before May 1, 1996 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.
For contracts issued on or after May 1, 1996, and where allowed by law, the Annuitant must have been named or any change of Annuitant
must have been accepted by us, prior to the "Contingency Event" described above in order to qualify for a medically-related surrender.
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.
ANNUITY OPTIONS/ANNUITY PAYMENTS
The section referred to as "Annuity Payments" in the ASAP Prospectus is similar to the section entitled "Annuity Options" in the
prior PSA prospectus except as follows: 1) the term "key life" in the ASAP Prospectus is the same as the term "payee" in the prior
PSA Prospectus; 2) the amount of the first monthly payment per $1,000 of value obtained from the annuity tables which are derived
from the 1983a Individual Annuity Mortality Table with ages set back one year for males and two years for females and with an assumed
interest rate of 4% per annum; and 3) a variable annuity option is available, and if it is selected, the amount of the first monthly
annuity payment, as described above, is divided by the Unit Price(s) for the appropriate Sub-account(s) as of the close of business
on the fifth business day preceding the Annuity Date in order to determine the number of Annuity Units for each Sub-account
represented by the first payment.
DEATH BENEFITS
The death benefit for PSA is the greater of the Account Value or 100% of the premium payments less all amounts surrendered. It is
payable in the event of the Owner's death or the Annuitant's death (if there is no Contingent Annuitant) if occurring both (a) prior
to the Annuity Date, and (b) before the contract anniversary following the earlier of the Owner's or the Annuitant's 85th birthday.
The death benefit at any later date prior to the Annuity date is the Account Value.
GENERAL INFORMATION
PERFORMANCE INFORMATION
Performance information in relation to PSA contracts is set forth in the Statement of Additional Information.
Appendix C-2: Alliance Capital Navigator Prior Contract
- ---------------------------------------------------------------------------------------------------------------------------------------
Between 1992 and 1996 American Skandia issued a variable annuity under the marketing name "Alliance Capital Navigator" or "ACN". The
contract is no longer being issued. However, we continue to accept additional Purchase Payments. Assets supporting the ACN
contracts are maintained in Sub-accounts of Separate Account B.
- ---------------------------------------------------------------------------------------------------------------------------------------
The principle differences between the American Skandia Advisors Plan or "ASAP" contract offered by this Prospectus and the ACN
contract are described below:
The "Underlying Mutual Fund Portfolio Annual Expenses" for the portfolios of American Skandia Trust contained in this Prospectus
apply to all ACN Annuity Owners.
The "Expense Examples" that relate to the portfolios of American Skandia Trust contained in this Prospectus apply to all ACN Annuity
Owners.
Only those Portfolios of American Skandia Trust shown in the section entitled "What are the Investment Objectives and Policies of the
Portfolios" in this Prospectus are offered to ACN Annuity Owners.
SUMMARY OF CONTRACT FEES AND CHARGES
The following chart is added to this section:
The following table provides a summary of the fees and charges you will incur if you elect any of the following optional benefits.
These fees and charges are described in more detail within this Prospectus.
- ----------------------------------------------------------------------------------------------------------------------------------------
YOUR OPTIONAL BENEFIT FEES AND CHARGES
- ----------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
Optional Benefit Optional Benefit Total Annual Charge*
Fee/
Charge
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
GUARANTEED RETURN OPTION 1.65%
We offer a program that guarantees a "return of premium" at a future date, while 0.25% of average
allowing you to allocate all or a portion of your Account Value to the Sub-accounts of daily net assets of
your choice. the Sub-accounts
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
* The Total Annual Charge includes the Insurance Charge and Distribution Charge assessed against the Annuity. If you elect more
than one optional benefit, the Total Annual Charge includes the charge for each optional benefit.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various expenses you may incur with the Annuity over certain periods
of time based on specific assumptions. The examples reflect the Contingent Deferred Sales Charges (when applicable), Annual
Maintenance Fee (when applicable), Insurance Charge and the maximum total annual portfolio operating expenses for the underlying
Portfolio (shown in the "Summary of Contract Fees and Charges" section of this Prospectus), as well as the charge for the optional
benefit that is offered under the Annuity. The Securities and Exchange Commission ("SEC") requires these examples.
Below are examples showing what you would pay in expenses at the end of the stated time periods for each Sub-account had you invested
$10,000 in the Annuity and received a 5% annual return on assets, and elected the optional benefit available.
The examples shown assume that: (a) you only allocate Account Value to the Sub-account with the maximum total annual portfolio
operating expenses for the underlying Portfolio, not to a Fixed Allocation; (b) the Insurance Charge is assessed as 1.40% per year;
(c) the Annual Maintenance Fee (when applicable) is reflected as an asset-based charge 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 for which we charge a fee during the period shown; (f) no tax charge applies; and (g) the maximum total annual portfolio
operating expenses for the underlying Portfolio are reflected. Amounts shown in the examples are rounded to the nearest dollar.
Expense Examples are provided as follows: 1.) if you surrender the Annuity at the end of the stated time period; 2.) if you annuitize
at the end of the stated time period; and 3.) if you do not surrender your Annuity.
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 WILL BE LESS THAN THOSE SHOWN IF YOU DO NOT ELECT THE OPTIONAL BENEFIT AVAILABLE
OR IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
If you surrender your contract at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
1246 2036 2825 4941
----------------------------- --------------------------- --------------------------- --------------------------
If you annuitize at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
496 1486 2475 4941
----------------------------- --------------------------- --------------------------- --------------------------
If you do not surrender your contract:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
496 1486 2475 4941
----------------------------- --------------------------- --------------------------- --------------------------
FEES AND CHARGES
Exceptions to the Contingent Deferred Sales Charge
The following underlined sentence is added to this section:
We do not apply the CDSC provision on Annuities owned by a member of the designated class, including: (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. We will not provide any Additional Amounts for any such
------------------------------------------------------------
contracts (see "Additional Amounts on Qualifying Purchase Payments").
- ---------------------------------------------------------------------
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. If you fail to inform us that you qualify as a
member of the designated class, your Annuity will not be eligible for this exception to the CDSC.
Optional Benefits: If you elect to purchase the Guaranteed Return Option, we will deduct an additional charge on a daily basis from
your Account Value allocated to the Sub-accounts. The additional charge is included in the daily calculation of the Unit Price for
each Sub-account. 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.
MANAGING YOUR ANNUITY
THE FOLLOWING SECTION IS ADDED:
Additional Amounts on Qualifying Purchase Payments (formerly referred to as "Breakpoints")
Under certain circumstances we may credit Additional Amounts to your Annuity if you submit a large initial or subsequent Purchase
Payment. Each Purchase Payment must qualify separately to receive any Additional Amounts. As of the date of this Prospectus, such
Additional Amounts are currently being offered. However, we may modify, suspend or terminate this program at any time at our sole
discretion. Any Additional Amounts are provided from our general account.
Additional Amounts are payable as a percentage of the qualifying Purchase Payment made to your Annuity according to the breakpoints
shown below:
--------------------------------------------- -------------------------
Purchase Payment Additional Amount*
--------------------------------------------- -------------------------
--------------------------------------------- -------------------------
Between $1,000,000 and $4,999,999 3.00%
--------------------------------------------- -------------------------
--------------------------------------------- -------------------------
$5,000,000 or greater 3.75%
--------------------------------------------- -------------------------
* as a percentage of the Purchase Payment.
Additional Amounts are not offered on Purchase Payments of less than $1 million.
How are Additional Amounts applied to my Account Value?
Any Additional Amounts are allocated to your Account Value at the time the qualifying Purchase Payment is applied to your Account
Value. Additional Amounts are allocated to the investment options in the same ratio as the applicable Purchase Payment is applied.
Special Treatment of Additional Amounts
|X| Any Additional Amounts applied to your Annuity can be recovered by American Skandia. If you elect to "free-look" your
Annuity, the amount returned to you will not include any Additional Amounts.
|X| We do not consider Additional Amounts to be "investment in the contract" for income tax purposes.
|X| You may not withdraw any Additional Amounts under the Free Withdrawal provision without assessment of the contingent
deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
Additional Amounts applied to estimated Purchase Payments
Under certain circumstances, we may consider two or more separate Purchase Payments as if they had been submitted at the same time
when determining the percentage to apply based on the breakpoints described above. 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 large Purchase Payments within a 13-month period may result in your
Annuity being credited no Additional Amounts or fewer Additional Amounts than would otherwise be credited to your Annuity.
If you submit a letter of intent and receive Additional Amounts that otherwise would not 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 any Additional Amounts pro-rata
from the investment options based on your Account Values as of the date we act to recover the Additional Amounts. If the amount of
the recovery exceeds your then current Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
MANAGING YOUR ANNUITY
The following section is added under the section entitled "Do you Offer Programs Designed to Guarantee a 'Return of Premium' at a
Future Date?"
Guaranteed Return Option (GRO)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 (or any program restart date), you will receive no less than your Account Value on the date you
elected to participate in the program ("commencement value"). On the program maturity date, if your Account Value is below the
commencement value, American Skandia will apply additional amounts to your Annuity so that it is equal to commencement value or your
Account Value on the date you elect to restart the program duration. Any amounts added to your Annuity 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
Annuity under the program. We do not consider amounts added to your Annuity to be "investment in the contract" for income tax
purposes.
Account Value is only transferred to and maintained in Fixed Allocations to the extent we, in our sole discretion, deem it 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. NOTE: If a significant amount of your Account Value is systematically transferred
to Fixed Allocations during prolonged market declines, less of your Account Value may be immediately available to participate in the
upside potential of the Sub-accounts if there is a subsequent market recovery.
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: Your Account Value in the 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, subject to regulatory approval where required. Any change to the allocation mechanism and/or the reallocation
trigger will only apply to programs that begin after the change is effective.
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. Upon termination, 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.
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 your 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 commencement value. You can only elect the program once
per Annuity Year.
Charges under the Program
We deduct a charge equal to 0.25% per year to participate in the Guaranteed Return Option. The annual charge is deducted daily
against your Account Value allocated to the Sub-accounts. Account Value allocated to Fixed Allocations under the program is not
subject to the charge. 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.
- -----------------------------------------------------------------------------------------------------------------------------------
Effective November 18, 2002, American Skandia changed the manner in which the annual charge for the Guaranteed Return Option
is deducted to the method described above. The annual charge for the Guaranteed Return Option for Owners who elected the
benefit between May 1, 2001 and November 15, 2002 and subsequent to November 19, 2002 in those states where the daily
deduction of the charge has not been approved, is deducted annually, in arrears, according to the prospectus in effect as of
the date the program was elected. Owners who terminate and then re-elect the Guaranteed Return Option or elect to restart
the Guaranteed Return Option at any time after November 18, 2002 will be subject to the charge method described above.
- -----------------------------------------------------------------------------------------------------------------------------------
DEATH BENEFITS
The Death Benefit depends on the decedent's age on the date of death:
If death occurs before the decedent's age 85: The Death Benefit is the greatest of:
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations;
|X| The sum of all Purchase Payments each increasing daily at an interest rate of 5% per year minus the sum of all withdrawals
each increasing daily, from the date of each withdrawal, at an interest rate of 5% per year to the Owner's date of
death, but not to exceed 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.
If death occurs when the decedent is age 85 or older: The Death Benefit is the Surrender Value, where allowed by law.
The amount of the Death Benefit may be reduced by the amount of any remaining Contingent Deferred Sales Charge if the decedent was
age 75 or older at the time of death.
VALUING YOUR INVESTMENT
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 fluctuates with the market fluctuations of the Portfolios. The value
of the Units also reflects the daily accrual for the Insurance Charge and if you elected the optional benefit whose annual charge is
deducted daily, the additional charge made for such benefit. There may be different Unit Prices for each Sub-account to reflect the
Insurance Charge and the charge for any optional benefit. The Unit Price for the Units you purchase will be based on the total
charges for the benefits that apply to your Annuity. See the section entitled "What Happens to My Units When There is a Change in
Daily Asset-Based Charges?" for a detailed discussion of how Units are purchased and redeemed to reflect changes in the daily charges
that apply to your Annuity.
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.
WHAT HAPPENS TO MY UNITS WHEN THERE IS A CHANGE IN DAILY ASSET-BASED CHARGES?
Termination of Optional Benefit: If you terminate the Guaranteed Return Option program, we will no longer deduct the charge we apply
to purchase the optional benefit. On the date the charge no longer applies, your Annuity will become subject to a different daily
asset-based charge. We will process a transaction where your Account Value allocated to the Sub-accounts will be used to purchase
new Units of the Sub-accounts that reflect the Insurance Charge, but not the charge for the optional program that you terminated.
The number of Units attributed to your Annuity will be decreased and the Unit Price of each unit of the Sub-accounts in which you
invested will be increased. The adjustment in the number of Units and Unit Price will not affect your Account Value. Beginning on
that date, your Account Value will be determined based on the change in the value of Units that reflect the Insurance Charge.
GENERAL INFORMATION
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
The following paragraph replaces the second paragraph under the "Advertising" section:
Advertising:
Standard and Non-standard Total Returns will not reflect charges that apply to the Guaranteed Return Option. The additional cost
associated with the optional benefit you elected will reduce your performance.
PERFORMANCE INFORMATION
Performance information in the Sub-accounts that are currently available is set forth in the Statement of Additional Information.
Appendix D - Sale of Contracts Outside of the State of New York
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American Skandia previously offered the Annuity to residents outside of the State of New York. The Annuity is no longer being
offered outside of New York. However, we continue to accept additional Purchase Payments. Owners who purchased the Annuity outside
of New York are subject to its terms as described in the Prospectus and as modified below.
- ---------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF CONTRACT FEES AND CHARGES
The following chart is added to this section:
The following table provides a summary of the fees and charges you will incur if you elect any of the following optional benefits.
These fees and charges are described in more detail within this Prospectus.
- ----------------------------------------------------------------------------------------------------------------------------------------
YOUR OPTIONAL BENEFIT FEES AND CHARGES
- ----------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
Optional Benefit Optional Benefit Total Annual Charge*
Fee/
Charge
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
GUARANTEED RETURN OPTION 1.65%
We offer a program that guarantees a "return of premium" at a future date, while 0.25% of average
allowing you to allocate all or a portion of your Account Value to the Sub-accounts of daily net assets of
your choice. the Sub-accounts
- ------------------------------------------------------------------------------------------- --------------------- ----------------------
* The Total Annual Charge includes the Insurance Charge and Distribution Charge assessed against the Annuity. If you elect more
than one optional benefit, the Total Annual Charge includes the charge for each optional benefit.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various expenses you may incur with the Annuity over certain periods
of time based on specific assumptions. The examples reflect the Contingent Deferred Sales Charges (when applicable), Annual
Maintenance Fee (when applicable), Insurance Charge and the maximum total annual portfolio operating expenses for the underlying
Portfolio (shown in the "Summary of Contract Fees and Charges" section of this Prospectus), as well as the charge for the optional
benefit that is offered under the Annuity. The Securities and Exchange Commission ("SEC") requires these examples.
Below are examples showing what you would pay in expenses at the end of the stated time periods for each Sub-account had you invested
$10,000 in the Annuity and received a 5% annual return on assets, and elected the optional benefit available.
The examples shown assume that: (a) you only allocate Account Value to the Sub-account with the maximum total annual portfolio
operating expenses for the underlying Portfolio, not to a Fixed Allocation; (b) the Insurance Charge is assessed as 1.40% per year;
(c) the Annual Maintenance Fee (when applicable) is reflected as an asset-based charge 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 for which we charge a fee during the period shown; (f) no tax charge applies; and (g) the maximum total annual portfolio
operating expenses for the underlying Portfolio are reflected. Amounts shown in the examples are rounded to the nearest dollar.
Expense Examples are provided as follows: 1.) if you surrender the Annuity at the end of the stated time period; 2.) if you annuitize
at the end of the stated time period; and 3.) if you do not surrender your Annuity.
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 WILL BE LESS THAN THOSE SHOWN IF YOU DO NOT ELECT THE OPTIONAL BENEFIT AVAILABLE
OR IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
If you surrender your contract at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
1247 2089 2880 4949
----------------------------- --------------------------- --------------------------- --------------------------
If you annuitize at the end of the applicable time period:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
497 1489 2480 4949
----------------------------- --------------------------- --------------------------- --------------------------
If you do not surrender your contract:
----------------------------- --------------------------- --------------------------- --------------------------
1 year 3 years 5 years 10 years
----------------------------- --------------------------- --------------------------- --------------------------
----------------------------- --------------------------- --------------------------- --------------------------
497 1489 2480 4949
----------------------------- --------------------------- --------------------------- --------------------------
FEES AND CHARGES
Contingent Deferred Sales Charge:
------------------ ------- ----- ------ ------ ------ ----- ------ ------
YEARS 1 2 3 4 5 6 7 8+
------------------ ------- ----- ------ ------ ------ ----- ------ ------
------------------ ------- ----- ------ ------ ------ ----- ------ ------
CHARGE (%) 7.5 7.0 6.0 5.0 4.0 3.0 2.0 0
------------------ ------- ----- ------ ------ ------ ----- ------ ------
Exceptions to the Contingent Deferred Sales Charge
The following underlined sentence is added to this section:
We do not apply the CDSC provision on Annuities owned by: (a) any parent company, affiliate or subsidiary of ours; (b) an officer,
director, employee, retiree, sales representative, or in the case of an affiliated broker-dealer, registered representative of such
company; (c) a director, officer or trustee of any underlying mutual fund; (d) a director, officer or employee of any investment
manager, sub-advisor, transfer agent, custodian, auditing, legal or administrative services provider that is providing investment
management, advisory, transfer agency, custodianship, auditing, legal and/or administrative services to an underlying mutual fund or
any affiliate of such firm; (e) a director, officer, employee or registered representative of a broker-dealer or insurance agency
that has a then current selling agreement with us and/or with American Skandia Marketing, Incorporated; (f) a director, officer,
employee or authorized representative of any firm providing us or our affiliates with regular legal, actuarial, auditing,
underwriting, claims, administrative, computer support, marketing, office or other services; (g) the then current spouse of any such
person noted in (b) through (f), above; (h) the parents of any such person noted in (b) through (g), above; (i) 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.
Optional Benefits: If you elect to purchase the Guaranteed Return Option, we will deduct an additional charge on a daily basis from
your Account Value allocated to the Sub-accounts. The additional charge is included in the daily calculation of the Unit Price for
each Sub-account. 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.
MANAGING YOUR ANNUITY
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
1. Depending on the state in which you purchased your Annuity, the free-look period may be ten (10) days, twenty-one (21) days
or longer, measured from the time that you received your Annuity.
2. The section of the provision regarding when notice of free-look is effective is deleted.
3. The section regarding the amount to be refunded is as follows:
If you free-look your Annuity, we will refund your current Account Value minus any Additional Amounts we applied to your Annuity
based on your Purchase Payments plus any tax charge deducted. (see "Additional Amounts on Qualifying Purchase Payments
(Breakpoints)"). This amount may be higher or lower than your original Purchase Payment. Certain states require that we return
your current Account Value or the amount of your initial Purchase Payment, whichever is greater. The same rule applies to an
Annuity that is purchased as an IRA. In those states where we are required to return the greater of your Purchase Payment or
Account Value, we will allocate your Account Value to the AST Money Market Sub-account during the free-look period and for a
reasonable additional amount of time to allow for delivery of your Annuity.
THE FOLLOWING SECTION IS ADDED:
Additional Amounts on Qualifying Purchase Payments (formerly referred to as "Breakpoints")
Under certain circumstances we may credit Additional Amounts to your Annuity if you submit a large initial or subsequent Purchase
Payment. Each Purchase Payment must qualify separately to receive any Additional Amounts. As of the date of this Prospectus, such
Additional Amounts are currently being offered. However, we may modify, suspend or terminate this program at any time at our sole
discretion. Any Additional Amounts are provided from our general account.
Additional Amounts are payable as a percentage of the qualifying Purchase Payment made to your Annuity according to the breakpoints
shown below:
--------------------------------------------- -------------------------
Purchase Payment Additional Amount*
--------------------------------------------- -------------------------
--------------------------------------------- -------------------------
Between $1,000,000 and $4,999,999 3.00%
--------------------------------------------- -------------------------
--------------------------------------------- -------------------------
$5,000,000 or greater 3.75%
--------------------------------------------- -------------------------
* as a percentage of the Purchase Payment.
Additional Amounts are not offered on Purchase Payments of less than $1 million.
How are Additional Amounts applied to my Account Value?
Any Additional Amounts are allocated to your Account Value at the time the qualifying Purchase Payment is applied to your Account
Value. Additional Amounts are allocated to the investment options in the same ratio as the applicable Purchase Payment is applied.
Special Treatment of Additional Amounts
|X| Any Additional Amounts applied to your Annuity can be recovered by American Skandia. If you elect to "free-look" your
Annuity, the amount returned to you will not include any Additional Amounts.
|X| We do not consider Additional Amounts to be "investment in the contract" for income tax purposes.
|X| You may not withdraw any Additional Amounts under the Free Withdrawal provision without assessment of the contingent
deferred sales charge (see "Can I make withdrawal from my Annuity without a CDSC?").
Additional Amounts applied to estimated Purchase Payments
Under certain circumstances, we may consider two or more separate Purchase Payments as if they had been submitted at the same time
when determining the percentage to apply based on the breakpoints described above. 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 large Purchase Payments within a 13-month period may result in your
Annuity being credited no Additional Amounts or fewer Additional Amounts than would otherwise be credited to your Annuity.
If you submit a letter of intent and receive Additional Amounts that otherwise would not 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 any Additional Amounts pro-rata
from the investment options based on your Account Values as of the date we act to recover the Additional Amounts. If the amount of
the recovery exceeds your then current Surrender Value, we will recover all remaining Account Value and terminate your Annuity.
MANAGING YOUR ACCOUNT VALUE
The Guaranteed Return Option described in Appendix C-1 is available to Annuity Owners. Please refer to pages C-10 through C-11 for a
description of the Guaranteed Return Option program.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
The following paragraph is added to this section:
To the extent permitted by law, we may increase interest rates offered to a class of Owners who choose to participate in various
services we make available. Any such program is at our sole discretion. This may include, but is not limited to, Owners who elect
to use dollar cost averaging from Fixed Allocations (see "Do You Offer Dollar Cost Averaging?") or the balanced investment program
(see "Do you offer programs designed to guarantee a "Return of Premium" at a future date?").
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The language regarding the 30 days prior to the Maturity Date is deleted for the language regarding renewals and for the rates being
credited to Fixed Allocations.
ACCESS TO ACCOUNT VALUE
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
The following provision is added to this section:
4. If the amount requested exceeds Purchase Payments still subject to a CDSC we withdraw the remaining amount from other surrender
value due to Additional Amounts on Qualifying Purchase Payments.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The following paragraph replaces the paragraph under this section beginning " `Growth' equals":
"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 "Breakpoints").
THE FOLLOWING SECTION IS ADDED:
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity for its Account Value prior to the Annuity Date without application
of any CDSC upon occurrence of a medically-related "Contingency Event". We may apply a Market Value Adjustment to any Fixed
Allocations.
This waiver of any applicable CDSC is subject to our rules, including but not limited to the following:
|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.
For contracts issued before May 1, 1996, 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.
For contracts issued on or after May 1, 1996, and where allowed by law, the Annuitant must have been named or any changes of the
Annuitant must have been accepted by us, prior to the "Contingency Event" described above, in order to qualify for a
medically-related surrender.
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 PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?
The following section is amended as follows:
You may choose an Annuity Date, an annuity option and the frequency of annuity payments when you purchase an Annuity, or at a later
date. You may change your choices before the Annuity Date under the terms of your contract. The Annuity Date must be the first or
the fifteenth day of a calendar month. A maximum Annuity Date may be required by law. For Annuities issued in Pennsylvania, the
Annuity Date may not exceed the first day of the calendar month following the Annuitant's 90th birthday. Additionally for Annuities
issued in Pennsylvania, if we do not receive an election In Writing the Annuity Date is the first day of the calendar month following
the Annuitant's 90th birthday and the Annuity payments will commence under Option 2 below and will be fixed monthly payments with 10
years certain.
You may choose an Annuity Date, an annuity option and the frequency of annuity payments when you purchase an Annuity, or at a later
date. You may change your choices up to 30 days before the Annuity Date. Any change to these options must be in writing. The
Annuity Date must be the first or the fifteenth day of a calendar month. The Annuity Date may not exceed the first day of the
calendar month following the Annuitant's 90th birthday.
HOW ARE ANNUITY PAYMENTS CALCULATED?
The following sentence is deleted from the paragraph:
This 3% interest rate is 4% for Annuities issued prior to the date we implemented the change.
DEATH BENEFITS
The Death Benefit depends on the decedent's age on the date of death:
If death occurs before the decedent's age 85: The Death Benefit is the greatest of:
|X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations;
|X| The sum of all Purchase Payments each increasing daily at an interest rate of 5% per year minus the sum of all withdrawals
each increasing daily, from the date of each withdrawal, at an interest rate of 5% per year to the Owner's date of
death, but not to exceed 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.
If death occurs when the decedent is age 85 or older: The Death Benefit is the Surrender Value, where allowed by law.
The amount of the Death Benefit may be reduced by the amount of any remaining Contingent Deferred Sales Charge if the decedent was
age 75 or older at the time of death.
VALUING YOUR INVESTMENT
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 fluctuates with the market fluctuations of the Portfolios. The value
of the Units also reflects the daily accrual for the Insurance Charge and if you elected the optional benefit whose annual charge is
deducted daily, the additional charge made for such benefit. There may be different Unit Prices for each Sub-account to reflect the
Insurance Charge and the charge for any optional benefit. The Unit Price for the Units you purchase will be based on the total
charges for the benefits that apply to your Annuity. See the section entitled "What Happens to My Units When There is a Change in
Daily Asset-Based Charges?" for a detailed discussion of how Units are purchased and redeemed to reflect changes in the daily charges
that apply to your Annuity.
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.
WHEN DO YOUR PROCESS AND VALUE TRANSACTIONS?
The following paragraph replaces the paragraph titled "Death Benefits" under this section:
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.
WHAT HAPPENS TO MY UNITS WHEN THERE IS A CHANGE IN DAILY ASSET-BASED CHARGES?
Termination of Optional Benefit: If you terminate the Guaranteed Return Option program, we will no longer deduct the charge we apply
to purchase the optional benefit. On the date the charge no longer applies, your Annuity will become subject to a different daily
asset-based charge. We will process a transaction where your Account Value allocated to the Sub-accounts will be used to purchase
new Units of the Sub-accounts that reflect the Insurance Charge, but not the charge for the optional program that you terminated.
The number of Units attributed to your Annuity will be decreased and the Unit Price of each unit of the Sub-accounts in which you
invested will be increased. The adjustment in the number of Units and Unit Price will not affect your Account Value. Beginning on
that date, your Account Value will be determined based on the change in the value of Units that reflect the Insurance Charge.
GENERAL INFORMATION
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
The following paragraph replaces the second paragraph under the "Advertising" section:
Advertising:
Standard and Non-standard Total Returns will not reflect charges that apply to the Guaranteed Return Option. The additional cost
associated with the optional benefit you elected will reduce your performance.
PERFORMANCE INFORMATION
Performance information in the Sub-accounts that are currently available is set forth in the Statement of Additional Information.
- ----------------------------------------------------------------------------------------------------------------------
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE
AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS ASAP-PROS (05/2003).
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------
(print your name)
-------------------------------------------------------
(address)
-------------------------------------------------------
(city/state/zip code)
Variable Annuity Issued by: Variable Annuity Distributed by:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA
ASSURANCE CORPORATION MARKETING, INCORPORATED
One Corporate Drive One Corporate Drive
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-766-4530 Telephone: 203-926-1888
http://www.americanskandia.com http://www.americanskandia.com
MAILING ADDRESSES:
AMERICAN SKANDIA - VARIABLE ANNUITIES
P.O. Box 7040
Bridgeport, CT 06601-7040
EXPRESS MAIL:
AMERICAN SKANDIA - VARIABLE ANNUITIES
One Corporate Drive
Shelton, CT 06484
NOTES
NOTES
Supplement to Prospectus Dated May 1, 2003
Supplement dated June 20, 2003
This Supplement should be retained with the current Prospectus for your annuity contract issued by American Skandia Life Assurance
Corporation ("American Skandia"). If you do not have a current Prospectus, please contact American Skandia at 1-800-766-4530.
Montgomery Variable Series - Emerging Markets Portfolio reorganization into the Gartmore GVIT Developing Markets Portfolio
American Skandia anticipates that shareholders will approve the Plan of Reorganization of the Montgomery Variable Series - Emerging
Markets Portfolio and the Gartmore GVIT Developing Markets Portfolio and that the reorganization will take place on June 20, 2003.
Upon completion of the reorganization, the Montgomery Variable Series - Emerging Markets Portfolio will cease to exist and Annuity
Owners will have an equivalent Account Value in the Gartmore GVIT Developing Markets Portfolio. The principal investment objective
and policies of the Portfolio will be unchanged as a result of this reorganization.
- ----------------------------------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES
(as a percentage of the average net assets of the underlying Portfolios)
- ----------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------- --------------- --------------- --------------- ---------------- --------------- ---------------
Management Other 12b-1 Fees Total Annual Fee Waivers Net Annual
UNDERLYING PORTFOLIO Fees Expenses Portfolio and Expense Portfolio
Operating Reimburse-ment Operating
Expenses Expenses
- --------------------------------------- --------------- --------------- --------------- ---------------- --------------- ---------------
- --------------------------------------- --------------- --------------- --------------- ---------------- --------------- ---------------
Gartmore Variable Investment Trust:
GVIT Developing Markets 1.15% 0.24% 0.25% 1.64% N/A 1.64%
- --------------------------------------- --------------- --------------- --------------- ---------------- --------------- ---------------
ASAP/ ASAP2/ FUSI AS2/ ASAP III/ APEX/ ASXT/ FUSI XT/Wells XTVA/ VIA-SUPP (06/20/2003)
ASXT-FOUR/ FUSI XT-FOUR/ ASL/ FUSI ASL/ Wells ASL/ ASPro/92001E0603
Wells VA+/ Wells APEX/ CH2/ ASImpact/ APEX II/ ASL II/ FUSI ASL II/
ASXT-SIX/ VIAS/ VIAT/ VIAG -SUPP (06/20/2003)
Supplement to Prospectus Dated May 1, 2003
Supplement dated October 13, 2003
This Supplement should be retained with the current Prospectus for your annuity contract issued by American Skandia Life Assurance
Corporation ("American Skandia"). If you do not have a current Prospectus, please contact American Skandia at 1-800-766-4530.
WHO IS AMERICAN SKANDIA?
The following paragraph is added to this section of the prospectus:
Effective May 1, 2003, Skandia U.S. Inc., the sole shareholder of ASI, which is the parent of American Skandia, was purchased by
Prudential Financial, Inc. Prudential Financial is a New Jersey insurance holding company whose subsidiary companies serve
individual and institutional customers worldwide and include The Prudential Insurance Company of America, one of the largest life
insurance companies in the U.S. These companies offer a variety of products and services, including life insurance, property and
casualty insurance, mutual funds, annuities, pension and retirement related services and administration, asset management, securities
brokerage, banking and trust services, real estate brokerage franchises, and relocation services.
=======================================================================================================================================
The Guaranteed Return Option PlusSM program, as further described below, is not applicable to purchasers/owners who are residents of
the State of New York or to purchasers/owners of the PSA Prior Contract as described in the Prospectus.
=======================================================================================================================================
GUARANTEED RETURN OPTION PlusSM (GRO PlusSM)
- ---------------------------------------------------------------------------------------------------------------------------------------
The Guaranteed Return Option Plus described below is being offered as of October 13, 2003 in those jurisdictions where we have
received regulatory approval, and will be offered subsequently in other jurisdictions when we receive regulatory approval in those
jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. The program can be elected by new
purchasers on the Issue Date of their Annuity, and can be elected by existing Annuity Owners on either the anniversary of the Issue
Date of their Annuity or on a date other than that anniversary, as described below under "Election of the Program". The Guaranteed
Return Option Plus is not available if you elect the Guaranteed Return Option program, the Guaranteed Minimum Withdrawal Benefit
rider or the Guaranteed Minimum Income Benefit rider.
- ---------------------------------------------------------------------------------------------------------------------------------------
We offer a program that, after a seven-year period following commencement of the program (we refer to the end of that seven-year
period as the "maturity date") and on each anniversary of the maturity date thereafter, guarantees your Account Value will not be
less than your Account Value on the effective date of your program (called the "Protected Principal Value"). The program also offers
you the opportunity to elect a second, enhanced guaranteed amount at a later date if your Account Value has increased, while
preserving the guaranteed amount established on the effective date of your program. The enhanced guaranteed amount (called the
"Enhanced Protected Principal Value") guarantees that, after a separate seven-year period following election of the enhanced guarantee
and on each anniversary thereafter, your Account Value will not be less than your Account Value on the effective date of your
election of the enhanced guarantee.
The program monitors your Account Value daily and, if necessary, systematically transfers amounts between variable investment options
you choose and Fixed Allocations used to support the Protected Principal Value(s). The program may be appropriate if you wish to
protect a principal amount against market downturns as of a specific date in the future, but also wish to invest in the variable
investment options to participate in market increases. There is an additional charge if you elect the Guaranteed Return Option Plus
program.
The guarantees provided by the program exist only on the applicable maturity date(s) and on each anniversary of the maturity date(s)
thereafter. However, due to the ongoing monitoring of your Account Value and the transfer of Account Value between variable
investment options and Fixed Allocations to support our future guarantees, the program may provide some protection from significant
market losses if you choose to surrender the Annuity or begin receiving annuity payments prior to a maturity date.
KEY FEATURE - Protected Principal Value/Enhanced Protected Principal Value
The Guaranteed Return Option Plus offers a base guarantee as well as the option of electing an enhanced guarantee at a later date.
|X| Base Guarantee: Under the base guarantee, American Skandia guarantees that on the maturity date and on each anniversary of
the maturity date thereafter, your Account Value will be no less than the Protected Principal Value.
On the maturity date and on each anniversary after the maturity date, if your Account Value is below the Protected Principal
Value, American Skandia will apply additional amounts to your Annuity from its general account to increase your Account Value to
be equal to the Protected Principal Value.
|X| Enhanced Guarantee: On any anniversary following commencement of the program, you can establish an enhanced guaranteed
amount based on your current Account Value. Under the enhanced guarantee, American Skandia guarantees that at the end of the
seven year period following the election of the enhanced guarantee (also referred to as its "maturity date"), and on each
anniversary of the maturity date thereafter, your Account Value will be no less than the Enhanced Protected Principal Value. You
can elect an enhanced guarantee more than once; however, a subsequent election supersedes the prior election of an enhanced
guarantee. Election of an enhanced guarantee does not impact the base guarantee. In addition, you may elect an "auto step-up"
feature that will automatically increase your base guarantee (or enhanced guarantee, if previously elected) on each anniversary
of the program (and create a new, seven year maturity period for the new enhanced guarantee) if the Account Value as of that
anniversary exceeds the existing base guarantee (or enhanced guarantee, if previously elected) by 7% or more. You may also elect
to terminate an enhanced guarantee. If you elect to terminate the enhanced guarantee, the base guarantee will remain in effect.
If you have elected the enhanced guarantee, on the guarantee's maturity date and on each anniversary of the maturity date
thereafter, if your Account Value is below the Enhanced Protected Principal Value, American Skandia will apply additional amounts
to your Annuity from its general account to increase your Account Value to be equal to the Enhanced Protected Principal Value.
Any amounts added to your Annuity will be applied, if necessary, to any Fixed Allocations needed to support the applicable guarantee
amount as of the maturity date or any anniversary of the maturity date. Any remaining amounts will be allocated pro-rata to your
Account Value based on your current Sub-account allocations. We will notify you of any amounts added to your Annuity under the
program. The Protected Principal Value is referred to as the "Base Guarantee" and the Enhanced Protected Principal Value is referred
to as the "Step-up Guarantee" in the rider we issue for this benefit.
Withdrawals under your Annuity
Withdrawals from your Annuity, while the program is in effect, will reduce the base guarantee under the program as well as any
enhanced guarantee. Cumulative annual withdrawals up to 5% of the Protected Principal Value as of the effective date of the program
(adjusted for any subsequent Purchase Payments and any Credits applied to such Purchase Payments) will reduce the applicable
guaranteed amount by the actual amount of the withdrawal (referred to as the "dollar-for-dollar limit"). If the amount withdrawn is
greater than the dollar-for-dollar limit, the portion of the withdrawal equal to the dollar-for-dollar limit will be treated as
described above, and the portion of the withdrawal in excess of the dollar-for-dollar limit will reduce the base guarantee and the
enhanced guarantee proportionally, according to the formula as described in the rider for this benefit (see the examples of this
calculation below). Withdrawals will be taken pro-rata from the variable investment options and any Fixed Allocations. Withdrawals
will be subject to all other provisions of the Annuity, including any Contingent Deferred Sales Charge or Market Value Adjustment
that would apply.
Charges for other optional benefits under the Annuity that are deducted as an annual charge in arrears will not reduce the applicable
guaranteed amount under the Guaranteed Return Option Plus program, however, any partial withdrawals in payment of charges for the
Plus40(TM)Optional Life Insurance Rider will be treated as withdrawals and will reduce the applicable guaranteed amount.
The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the
GRO PlusSM program are October 13, 2003; 2.) an initial Purchase Payment of $250,000; 3.) a base guarantee amount of $250,000; and
4.) a dollar-for-dollar limit of $12,500 (5% of $250,000):
Example 1. Dollar-for-dollar reduction
A $10,000 withdrawal is taken on November 29, 2003 (in the first Annuity Year). No prior withdrawals have been taken. As the amount
withdrawn is less than the Dollar-for-dollar Limit:
o The base guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000).
o The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the
amount withdrawn (from $12,500 to $2,500).
Example 2. Dollar-for-dollar and proportional reductions
A second $10,000 withdrawal is taken on December 18, 2003 (still within the first Annuity Year). The Account Value immediately
before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1:
o the base guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500);
o The result is then further reduced by the ratio of A to B, where:
o A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500).
o B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500).
The resulting base guarantee amount is: $237,500 x ( 1 - $7,500 / $177,500), or $227,464.79.
o The Remaining Limit is set to zero (0) for the balance of the first Annuity Year.
Example 3. Reset of the Dollar-for-dollar Limit
A $10,000 withdrawal is made on December 19, 2004 (second Annuity Year). The Remaining Limit has been reset to the dollar-for-dollar
limit of $12,500. As the amount withdrawn is less than the dollar-for-dollar limit:
o The base guarantee amount is reduced by the amount withdrawn (i.e., reduced by $10,000, from $227,464.79 to $217,464.79).
o The Remaining Limit for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $12,500 to
$2,500).
KEY FEATURE - Allocation of Account Value
In general, you have discretion over the allocation of your Account Value that remains allocated in the variable investment options.
However, we reserve the right to prohibit investment in certain Portfolios if you participate in the program. Account Value is only
----
transferred to and maintained in Fixed Allocations to the extent we, in our sole discretion, deem it is necessary to support our
guarantee(s) under the program. This permits your Annuity to participate in the upside potential of the Sub-accounts while only
transferring amounts to Fixed Allocations to protect against significant market downturns. We monitor fluctuations in your Account
Value each business day, as well as the prevailing interest rates on Fixed Allocations, the remaining duration(s) until the
applicable maturity date(s) and the amount of Account Value allocated to Fixed Allocation(s) relative to a "reallocation trigger",
which determines whether Account Value must be transferred to or from Fixed Allocation(s). While you are not notified when your
Account Value reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your
Account Value either to or from Fixed Allocation(s).
|X| If your Account Value is greater than or equal to the reallocation trigger, your Account Value in the variable investment
options will remain allocated according to your most recent instructions. If a portion of Account Value was previously allocated
to a Fixed Allocation to support the applicable guaranteed amount, all or a portion of those amounts may be transferred from the
Fixed Allocation and re-allocated to the variable investment options pro-rata according to your current allocations (including
the model allocations under any asset allocation program you may have elected). A Market Value Adjustment will apply when we
reallocate Account Value from a Fixed Allocation to the variable investment options, which may result in a decrease or increase
in your Account Value.
|X| If your Account Value is less than the reallocation trigger, a portion of your Account Value in the variable investment
options will be transferred to a new Fixed Allocation(s) to support the applicable guaranteed amount. These amounts are
transferred on a pro-rata basis from the variable investment options. The new Fixed Allocation(s) will have a Guarantee Period
equal to the time remaining until the applicable maturity date(s). The Account Value allocated to the new Fixed Allocation(s)
will be credited with the fixed interest rate(s) then being credited to a new Fixed Allocation(s) maturing on the applicable
maturity date(s) (rounded to the next highest yearly duration). The Account Value will remain invested in each applicable Fixed
Allocation until the applicable maturity date unless, at an earlier date, your Account Value is greater than or equal to the
reallocation trigger and, therefore, amounts can be transferred to the variable investment options while maintaining the
guaranteed protection under the program (as described above).
=======================================================================================================================================
If a significant amount of your Account Value is systematically transferred to Fixed Allocations to support the Protected Principal
Value and/or the Enhanced Protected Principal Value during prolonged market declines, less of your Account Value may be immediately
available to participate in the upside potential of the variable investment options if there is a subsequent market recovery. During
the period prior to the maturity date of the base guarantee or any enhanced guarantee, or any anniversary of such maturity date(s), a
significant portion of your Account Value may be allocated to Fixed Allocations to support any applicable guaranteed amount(s). If
your Account Value is less than the reallocation trigger and new Fixed Allocations must be established during periods where the
interest rate(s) being credited to such Fixed Allocations is extremely low, a larger portion of your Account Value may need to be
transferred to Fixed Allocations to support the applicable guaranteed amount(s).
=======================================================================================================================================
Separate Fixed Allocations may be established in support of the Protected Principal Value and the Enhanced Protected Principal Value
(if elected). There may also be circumstances when a Fixed Allocation will be established only in support of the Protected Principal
Value or the Enhanced Protected Principal Value. If you elect an enhanced guarantee, it is more likely that a portion of your
Account Value may be allocated to Fixed Allocations and will remain allocated for a longer period of time to support the Enhanced
Protected Principal Value, even during a period of positive market performance and/or under circumstances where Fixed Allocations
would not be necessary to support the Protected Principal Value. Further, there may be circumstances where Fixed Allocations in
support of the Protected Principal Value are transferred to the variable investment options while Fixed Allocations in support of an
Enhanced Protected Principal Value are not transferred because they must remain invested in the Fixed Allocation in support of the
higher enhanced guarantee.
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, subject to regulatory approval where required. Changes to the allocation mechanism and/or the reallocation trigger
may be applied to existing programs where allowed by law.
Election of the Program
The Guaranteed Return Option Plus program can be elected at the time that you purchase your Annuity, or on any business day
thereafter (prior to annuitization). If you elect the program after the Issue Date of your Annuity, the program will be effective as
of the business day that we receive the required documentation in good order at our home office, and the guaranteed amount will be
based on your Account Value as of that date. If you previously elected the Guaranteed Return Option program and wish to elect the
Guaranteed Return Option Plus program, your prior Guaranteed Return Option program will be terminated (including the guaranteed
amount(s)) and the Guaranteed Return Option Plus program will be added to your Annuity based on the current Account Value. This
election of GRO PlusSM may result in a market value adjustment, which could increase or decrease your Account Value.
Termination of the Program
The Annuity Owner can elect to terminate the enhanced guarantee but maintain the protection provided by the base guarantee. The
Annuity Owner also can terminate the Guaranteed Return Option Plus program entirely. An Annuity Owner who terminates the program
entirely can subsequently elect to participate in the program again (based on the Account Value on that date) by furnishing the
documentation we require. In a rising market, an Annuity Owner could, for example, terminate the program on a given business day and
two weeks later reinstate the program with a higher base guarantee (and a new maturity date). However, your ability to reinstate the
program is limited by the following: (A) in any Annuity Year, we do not permit more than two program elections and (B) a program
reinstatement cannot be effected on the same business day on which a program termination was effected.
The program will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract); (b) as of
the date Account Value is applied to begin annuity payments; or (c) upon full surrender of the Annuity. If you elect to terminate
the program prior to the applicable maturity date, the Guaranteed Return Option Plus will no longer provide a guarantee of your
Account Value. The surviving spouse may elect the benefit at any time after the death of the Annuity Owner. The surviving spouse's
election will be effective on the business day that we receive the required documentation in good order at our home office, and the
Account Value on that business day will be the Protected Principal Value.
The charge for the Guaranteed Return Option Plus program will no longer be deducted from your Account Value upon termination of the
program.
Special Considerations under the Guaranteed Return Option Plus
This program is subject to certain rules and restrictions, including, but not limited to the following:
|X| Upon inception of the program, 100% of your Account Value must be allocated to the variable investment options. No Fixed
Allocations may be in effect as of the date that you elect to participate in the program. However, the reallocation trigger may
transfer Account Value to Fixed Allocations as of the effective date of the program under some circumstances.
|X| Annuity Owners cannot allocate any portion of Purchase Payments or 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| Additional Purchase Payments (including any credits associated with such Purchase Payments) applied to the Annuity while the
program is in effect will increase the applicable guarantee amount by the actual amount of the Purchase Payment; however, all or
a portion of any additional Purchase Payments (including any credits associated with such Purchase Payments) may be allocated by
us to Fixed Allocations to support the additional amount guaranteed.
|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| Any amounts applied to your Account Value by American Skandia on the maturity date or any anniversary of the maturity date
will not be treated as "investment in the contract" for income tax purposes.
Charges under the Program
We deduct a charge equal to 0.25% of Account Value per year to participate in the Guaranteed Return Option Plus program. The annual
charge is deducted daily against your Account Value allocated to the Sub-accounts. Account Value allocated to Fixed Allocations
under the program is not subject to the charge. The charge is deducted to compensate American Skandia for: (a) the risk that your
Account Value on the maturity date is less than the amount guaranteed; and (b) administration of the program.
ASAP - SUPP. - (10/13/2003) 92001a0903
Supplement to Prospectus Dated May 1, 2003
Supplement dated December 5, 2003
This Supplement should be retained with the current Prospectus for your annuity contract issued by American Skandia Life Assurance
Corporation ("American Skandia"). If you do not have a current Prospectus, please contact American Skandia at 1-800-766-4530.
As described in more detail below, one of the Evergreen portfolios formerly offered as an investment option for your annuity was
merged into another Evergreen portfolio.
MERGER
Evergreen VA Global Leaders
Effective December 5, 2003, pursuant to shareholder approval, the Evergreen VA Global Leaders portfolio merged into the Evergreen
VA International Equity portfolio. As a result of the merger, the Evergreen VA Global Leaders portfolio ceased operations and
will no longer be offered as an investment option. Evergreen Investment Management Company LLC is the Sub-advisor of the
Evergreen VA International Equity portfolio, the successor portfolio.
The following annual expenses for the successor portfolio are estimates of what the expenses of the portfolio will be as a result
of the merger:
- ----------------------------------------------------------------------------------------------------------------------------------------
UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES
(as a percentage of the average net assets of the underlying Portfolios)
- ----------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ --------------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers Annual
UNDERLYING PORTFOLIO Operating and Portfolio
Expenses Expense Operating
Reimburse-ment Expenses
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ --------------
Evergreen Variable Annuity Trust:
International Equity 1 0.66% 0.39% 0.00% 1.05% 0.00% 1.05%
- ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ --------------
1 The annual expenses of the Evergreen VA International Equity portfolio prior to the Merger were as follows: Management Fee:
0.66%; 12b-1 Fee: 0.00%; Other Expenses: 0.73%; Total Annual Portfolio Operating Expenses: 1.39%; Fee Waiver and Expense
Reimbursement: 0.39%; Net Annual Portfolio Operating Expenses: 1.00%.
The following descriptions of the investment objectives are effective as of December 5, 2003.
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
- ------------------- ---------------------------------------------------------------------------------------------- ---------------------
STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO
TYPE ADVISOR/
SUB-ADVISOR
---------------------------------------------------------------------------------------------- ---------------------
- ------------------- ---------------------------------------------------------------------------------------------- ---------------------
INTER-NATIONAL Evergreen VA International Equity (acquired Evergreen VA Global Leaders) (f/k/a Evergreen VA Evergreen
International Growth): seeks long-term capital growth and, secondarily, modest income. The
Portfolio invests primarily in equity securities issued by established, quality, non-U.S.
companies located in countries with developed markets, but may purchase across all market
EQUITY capitalizations. The Portfolio normally invests at least 65% of its assets in securities of Investment
companies in at least three different countries (other than the U.S.), but may invest more Management Company,
than 25% of its assets in one country. The Portfolio also invests in emerging markets. LLC
- ------------------- ---------------------------------------------------------------------------------------------- ---------------------
ASAP / ASAP 2 / ASAP III / APEX / ACII/APEX2/ASAPII/ASAP 3/ASL2/ASXT4/ASXT6
ASXT / ASXT-Four / ASL / AS Pro / EVERSUPP1203
Choice 2 / AS Impact / APEX II /ASL II /
ASXT-Six / VIA-S / VIA-T /VIA-G - SUPP. (12/05/2003)
Supplement to Prospectus Dated May 1, 2003
Supplement dated January 29, 2004
This Supplement should be retained with the current Prospectus for your annuity contract issued by American Skandia Life Assurance
Corporation ("American Skandia"). If you do not have a current Prospectus, please contact American Skandia at 1-800-766-4530.
AST Strong International Equity portfolio
Pursuant to the exemptive authority granted to American Skandia Trust, its investment advisers, American Skandia Investment Services,
Incorporated ("ASISI") and Prudential Investments LLC have changed sub-advisors for the AST Strong International Equity Portfolio
("International Equity Portfolio"). Effective February 23, 2004, J.P. Morgan Investment Management Inc. will become the sub-advisor
for the International Equity Portfolio. Accordingly, effective February 23, 2004, all references in the Prospectus and the SAI to
the AST Strong International Equity Portfolio are replaced by references to the AST JPMorgan International Equity Portfolio and
references to Strong Capital Management, Inc. are replaced by references to J.P. Morgan Investment Management Inc. The investment
objective of the International Equity Portfolio is unchanged.
ASAP/ ASAP2/ EVA/ FUSI AS2/ ASAP III/ Wells ASAP III/ APEX/VA/ VIA-SUPP (01/2004)
ASXT/ EVAXT/ FUSI XT/Wells XT/ASXT-FOUR/ FUSI XT-FOUR/ ASL/92001a0304
FUSI ASL/ Wells ASL/ ASPro/ Wells VA+/ Wells APEX/ CH2/ ASImpact/
APEX II/Wells APEX II/ ASL II/ FUSI ASL II/ASXT-SIX/ Wells XT-SIX/
VIAS/ VIAT/ VIAG -SUPP (01/2004)
ASAP
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, Inc. ("ASM") 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 are covered under a directors and officers liability insurance policy. Such policy
will reimburse ASLAC or ASM, 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, 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. 13 to Registration Statement No. 33-44436, 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 Alliance Capital Management L.P. incorporated by reference to Post-Effective
No. 3 to Registration Statement No. 33-53507, filed via EDGAR April 26, 2002.
(b) Agreement with Blackrock Financial Management, Inc. incorporated by reference to
Post-Effective No. 3 to Registration Statement No. 33-53507, filed via EDGAR April 26, 2002.
11 - 22 Not applicable
23a
(i) Consent of PricewaterhouseCoopers LLP FILED HEREWITH
(ii) Consent of Ernst & Young LLP FILED HEREWITH
23b Opinion & Consent of Counsel incorporated by reference to Post-Effective No. 8 to Registration
Statement No. 333-00995, filed via EDGAR October 7, 2003.
24
(a) Powers of Attorney for Zafar Rashid, Executive Vice President and Chief Financial Officer filed via EDGAR with
Post-Effective Amendment No. 4 to Registration Statement No. 333-96577, filed February 17, 2004.
(b) Powers of Attorney for James J. Avery, Director, Vivian L. Banta, Director, Richard J. Carbone, Director, Helen M.
Galt, Director, Ronald P. Joelson, Director, Andrew J. Mako, Director and David R. Odenath, Chief Executive
Officer, President and Director filed with Post-Effective Amendment No. 5 to Registration Statement No. 333-96577.
25 - 32 Not applicable
- ---------------------------------------------------------------------------------------------------------------------------------
An index to the financial statement schedules is omitted because it is not required or is not applicable.
Item 17. Undertakings: (a) 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; and
(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.
(b) 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.
(c) 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 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
(i) Consent of Pricewaterhouse Coopers LLP FILED HEREWITH
(ii) Consent of Ernst & Young LLP FILED HEREWITH
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Shelton, State of Connecticut, on the 20th day of April , 2004.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Registrant
By: /s/Robin Wagner Attest: /s/Kathleen A. Chapman
Robin Wagner, Vice President, Corporate Counsel Kathleen A. Chapman
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)
David R. Odenath** Chief Executive Officer and President April 20, 2004
David R. Odenath
(Principal Financial Officer and Principal Accounting Officer)
Zafar Rashid* Executive Vice President and April 20, 2004
Zafar Rashid Chief Financial Officer
(Board of Directors)
James Avery** Vivian Banta** Richard Carbone**
James AveryVivian Banta Richard Carbone
Helen Galt**Ronald Joelson** David R. Odenath**
Helen Galt Ronald Joelson David R. Odenath
Andrew J. Mako**
Andrew J. Mako
*By: /s/Robin Wagner
Robin Wagner
*Pursuant to Powers of Attorney filed with Post-Effective Amendment No. 4 to Registration Statement No. 333-96577.
**Pursuant to Powers of Attorney filed with Post-Effective Amendment No. 5 to Registration Statement No.
333-96577
Prudential Annuities Life Assurance
Filed: 20 Apr 04, 12:00am