[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