[Federal Register Volume 59, Number 48 (Friday, March 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5649]


[[Page Unknown]]

[Federal Register: March 11, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20114; File No. 812-8862]

 

American Skandia Life Assurance Corporation, et al.

March 4, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

APPLICANTS: American Skandia Life Assurance Corporation (``Skandia 
Life''), American Skandia Life Assurance Corporation Variable Account B 
(Class 1 Sub-Accounts) (the ``Variable Account''), and Skandia Life 
Equity Sales Corporation (``SLESCO'').

RELEVANT 1940 ACT SECTIONS: Exemption requested under Section 6(c) from 
sections 26(a)(2)(C) and 27(c)(2).

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction from the assets of the Variable Account of the mortality and 
expense risk charge assessed under certain variable annuity contracts 
(the ``Contracts'').

FILING DATE: The application was filed on March 3, 1994.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the SEC 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests must be received by the Commission by 5:30 p.m. 
on March 29, 1994, and should be accompanied by proof of service on 
Applicants in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request and the issues contested. Persons 
may request notification of a hearing by writing to the Secretary of 
the SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549. Applicants, One Corporate Drive, 
Shelton, Connecticut, 06484-9932.

FOR FURTHER INFORMATION CONTACT: Wendy Finck Friedlander, Senior 
Attorney, or Michael V. Wible, Special Counsel at (202) 272-2060, 
Office of Insurance Products (Division of Investment Management.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the SEC's Public 
Reference Branch.

Applicants' Representations

    1. Skandia Life is a stock life insurance company incorporated 
under the laws of Connecticut, all of whose issued and outstanding 
shares of capital stock are directly owned by American Skandia 
Investment Holding Corporation, which in turn is ultimately wholly-
owned by Skandia Insurance Company, Ltd, a Swedish corporation.
    2. The Variable Account is registered under the 1940 Act as a unit 
investment trust. The Contracts are individual and group flexible 
premium tax-deferred variable annuity contracts.
    3. SLESCO will serve as the distributor and principal underwriter 
of the Contracts. SLESCO is registered under the Securities Exchange 
Act of 1934 and with the National Association of Securities Dealers, 
Inc. as a broker-dealer.
    4. The Variable Account will invest in shares of one or more 
investment portfolios of American Skandia Trust, the Life and Annuity 
Trust of such other fund or funds as may be made available by Skandia 
Life and the Variable Account (the ``Funds''). Purchasers of Contracts 
may allocate purchase payments or account value to one or more sub-
accounts of the variable account, each of which will invest is a 
corresponding portfolio of the Funds.
    5. During the accumulation period, Skandia Life will deduct from 
the Variable Account, on a daily basis, an administration charge at the 
rate of 0.15% per annum. Prior to the annuity date and upon surrender, 
Skandia Life will deduct a maintenance fee of the lesser of 2% of 
account value of the sub-accounts of $30 per annuity year from the sub-
account holdings attributable to any particular Contract in the same 
proportion as each sub-account holding bears to the account value of 
such Contract. The administration and maintenance fees cannot be 
increased by Skandia Life. The administration and maintenance charges 
are assessed at amounts that Skandia Life represents are necessary to 
recover the actual costs of maintaining and administering the Contracts 
and the Variable Account.
    6. A. mortality and expense risk charge will be deducted daily from 
the net asset value of the Variable Account at the rate of 1.25% per 
annum of the net assets in the Variable Account. Of that amount, 
approximately 0.90% is allocable to Skandia Life's assumption of 
mortality risks, and 0.35% is allocable to Skandia Life's assumption of 
the expense risks. Skandia Life assumes this mortality risk by virtue 
of annuity rates incorporated in the Contracts that cannot be changed. 
Additional mortality risks are assumed when the sub-accounts decline in 
value resulting in losses to Skandia Life in paying death benefits. The 
expense risk undertaken by Skandia Life is that the administration and 
maintenance fees, which are guaranteed, may be insufficient to cover 
the actual costs of maintaining the Contracts and the Variable Account.
    7. A contingent deferred sales charge (``CDSC'') may be assessed on 
full or partial surrenders. The Contract offers free withdrawal 
privileges. This privilege permits a Contract owner to partially 
surrender without any CDSC being imposed up to the greater of the 
Contract's growth plus unliquidated old purchase payments, or 10% of 
purchase payments per annuity year, cumulatively. ``Growth'' equals the 
then-current cash value less all unliquidated purchase payments. 
``Unliquidated'' means not previously surrendered. ``Old Purchase 
Payments'' are those allocated to account value more than seven years 
prior to the partial withdrawal. Any amounts so withdrawn shall be 
deemed to come first from Growth, then from Unliquidated Old Purchase 
Payments. For purposes of the CDSC, amounts withdrawn under the free 
withdrawal privilege are not considered a liquidation of purchase 
payments. On full or partial surrenders, the CDSC on any Unliquidated 
new purchase payments surrendered in excess of the free withdrawal 
privilege is given by the following schedule:

------------------------------------------------------------------------
                                                                  CDSC  
                            Year                               (percent)
------------------------------------------------------------------------
1............................................................          7
2............................................................          7
3............................................................          6
4............................................................          5
5............................................................          4
6............................................................          3
7............................................................          2
8+...........................................................          0
------------------------------------------------------------------------

    For purposes of calculating the CDSC, partial surrenders, excluding 
amounts taken under the free withdrawal privilege, will be considered 
to come first from any amount available as a free withdrawal, then from 
new purchase payments. If there are multiple new purchase payments, the 
one received earliest is liquidated first, than the one received next, 
and so forth. In no event, however, will the total CDSC for a 
particular Contract exceed 9% of the purchase payments for a Contract 
or otherwise violate the requirements of Rule 6c-8 under the 1940 Act.
    8. Skandia Life deducts an amount equal to any premium taxes due in 
relation to a Contract. Should Skandia Life determine that the tax is 
payable in relation to purchase payments received, the charge will be 
assessed prior to the allocation of amounts to the sub-accounts. Should 
Skandia Life determine that the tax is payable in relation to the 
Variable Account value applied to purchase annuity payments at the time 
of annuitization, then the charge is assessed at that time. No charge 
is currently being made for corporate federal income taxes that may be 
attributable to the sub-accounts.

Applicants' Legal Analysis and Conditions

    1. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act prohibit a 
registered unit investment trust and any depositor or underwriter 
thereof from selling periodic payment plan certificates unless the 
proceeds of all payments are deposited with a qualified trustee or 
custodian and held under arrangements which prohibit any payment to the 
depositor or principal underwriter except a fee, not exceeding such 
reasonable amounts as the Commission may prescribe, for performing 
bookkeeping and other administrative services.
    2. Applicants request exemptions from sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent necessary to permit the 
deduction of the mortality and expense risk charge from the assets of 
the Variable Account under the Contracts.
    3. Applicants represent that the mortality and expense risk charge 
is reasonable in relation to the risks undertaken by Skandia Life and 
within the range of industry practice with respect to comparable 
annuity products. Applicants base this representation on Skandia Life's 
analysis of publicly available information about similar industry 
products, taking into consideration such factors as current charge 
levels, the existence of charge level guarantees, and guaranteed 
annuity rates. Skandia Life represents that is will maintain a 
memorandum, available to the Commission, setting forth in detail the 
products analyzed in the course of, and the methodology and the results 
of, its comparative survey.
    4. Applicants acknowledge that the contingent deferred sales charge 
may be insufficient to cover all costs relating to the distribution of 
the Contracts. Applicants also acknowledge that if a profit is realized 
from the mortality and expense risk charge, all or a portion of such 
profit may be viewed as being offset by distribution expenses not 
reimbursed by the sales charge. Skandia Life represents that there is a 
reasonable likelihood that the proposed distribution financing 
arrangements will benefit the Variable Account and Contract owners. The 
basis for such conclusion will be set forth in a memorandum which will 
be maintained by Skandia Life at its administrative offices, and will 
be available to the Commission upon request.
    5. Skandia Life represents that the Variable Account will invest 
only in management investment companies that undertake, in the event 
the company adopts a plan to finance distribution expenses under Rule 
12b-1 under the 1940 Act, to have a board of directors, a majority of 
whom are not interested persons of the company, formulate and approve 
any such plan.

Conclusion

    Applicants assert that, for the reasons and upon the facts set 
forth above, the requested exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to deduct the mortality and expense risk 
charge from the assets of the Variable Account under the Contracts meet 
the standards in section 6(c) of the 1940 Act. Applicants assert that 
the exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
policies and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5649 Filed 3-10-94; 8:45 am]
BILLING CODE 8010-01-M