[Federal Register Volume 60, Number 67 (Friday, April 7, 1995)]
[Notices]
[Pages 17833-17835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8544]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20981; File No. 812-9360]


American Skandia Life Assurance Corporation, et al.

March 31, 1995.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the 
``SEC'').

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

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APPLICANTS: American Skandia Life Assurance Corporation (``Skandia 
Life''); American Skandia Life Assurance Corporation Variable Account B 
(Class 3 Sub-Accounts) (the ``Account''); and Skandia Life Equity Sales 
Corporation (``SLESCO'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for 
exemption from Sections 26(a)(2)(C) and 27(c)(2) of the Act.

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction of a mortality and expense risk charge from the assets of the 
Account with respect to certain flexible premium deferred variable 
annuity contracts (``Contracts'') and contracts offered in the future 
that are substantially similar in all material respects to the 
Contracts (``Future Contracts'') that are issued through the Account or 
any other Accounts established in the future by Skandia Life (``Future 
Accounts''). Applicants also request that the exemptive relief granted 
to SLESCO extend to any other National Association of Securities 
Dealers member broker-dealer controlling, controlled by, or under 
common control with Skandia Life (``Skandia Life Broker-Dealers''), 
that may serve in the future as distributor and/or principal 
underwriter for the Contracts or Future Contracts.

FILING DATE: The application was filed on December 13, 1994 and amended 
on February 27, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be [[Page 17834]] issued unless the Commission orders a hearing. 
Interested persons may request a hearing on this application, or ask to 
be notified if a hearing is ordered, by writing to the Commission's 
Secretary and serving the Applicants with a copy of the request, either 
personally or by mail. Hearing requests must be received by the SEC by 
5:30 pm., on April 25, 1995 and should be accompanied by proof of 
service on the Applicants, either by affidavit, or, for lawyers, by 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549. Applicants, c/o American Skandia 
Life Assurance Corporation, One Corporate Drive, P.O. Box 883, Shelton, 
Connecticut 06484-9932, Attention: Jeffrey M. Ulness, Esq.

FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior 
Counsel, or Wendy Finck Friedlander, Deputy Chief, at (202) 942-0670, 
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. It is wholly owned by American Skandia 
Investment Holding Corporation (``AHIHC'') which in turn is ultimately 
wholly owned by Skandia Insurance Company Ltd., a Swedish Corporation.
    2. The Account was established by Skandia Life as a unitized 
separate account under the laws of Connecticut and is registered with 
the Commission under the Act as a unit investment trust.
    3. SLESCO, a wholly owned subsidiary of AHIHC, 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 Contracts are flexible premium deferred variable annuities. 
Contract owners may allocate premium payments or account value to one 
or more sub-accounts of the Account which will invest in shares of 
corresponding investment portfolios of American Skandia Trust or such 
other investment company as may be made available in the future.
    5. During the accumulation phase, a death benefit is generally 
payable upon the death of the first Contract owner to die (if the 
Contract is held by one or more natural persons) or upon the death of 
the annuitant. If death occurs prior to the 70th birthday of the 
individual upon whose death the benefit is payable, the death benefit 
is the greater of a Contract's Account Value or the minimum death 
benefit (which is the sum of all Purchase Payments less the sum of all 
withdrawals). If death occurs on or after the 70th birthday of the 
individual on whose death the benefit is payable, the death benefit is 
the Account Value.
    6. Prior to the annuity date and upon surrender, Skandia Life will 
deduct a maintenance fee of the lesser of 2% of Account Value or $35 
per annuity year from the sub-account holdings attributable to any 
particular Contract in the same proportion that each sub-account 
holding bears to the Account Value of such Contract. Skandia Life 
states that this fee for maintaining the Contracts will not be greater 
than the anticipated costs. Also, during the accumulation period, 
Skandia Life will deduct from the Account, on a daily basis, an 
administration fee at the rate of 0.15% per annum of the average daily 
total value of assets of the Account. Applicants assert\1\ that a 
relationship does not necessarily exist between the administration 
charge and maintenance fee upon a particular Contract and the expenses 
attributable to that particular Contract, however, the total 
administrative charge assessed against the Account will not be greater 
than the total anticipated cost of services to be provided over the 
life of the Contract(s) in accordance with the applicable standards in 
Rule 26a-1 under the 1940 Act. The administration and maintenance fees 
can be increased only for contracts issued subsequent to the effective 
date of any such change. In addition, Skandia Life deducts an amount 
equal to any premium taxes due either prior to allocation to the sub-
accounts or upon annuitization. A charge of $10 is assessable for each 
transfer in excess of four transfers in each annuity year. Finally, a 
$10 charge is assessed for each transfer after the fourth in each 
annuity year and for each withdrawal after the first in each annuity 
year except for transfers from the fixed account, a death benefit, 
surrender medically-related surrender or annuity payment.

    \1\An amendment will be filed during the notice period to 
confirm this representation.
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    7. No deduction or charge will be made from Purchase Payments for 
sales or distribution expenses. However, a contingent deferred sales 
charge (``CDSC'') may be assessed on surrender or withdrawal. The 
Contract offers a free withdrawal privilege that, under certain 
circumstance, permits a Contract owner to withdraw funds without any 
CDSC being imposed. For purposes of the CDSC, amounts withdrawn as a 
free withdrawal are not considered a liquidation of purchase payments. 
For withdrawals of unliquidated new premiums that exceed the free 
withdrawal amount, the CDSC under the Contracts begins at 6% and 
declines to 0% in year eight in accordance with a schedule set forth in 
the application. However, Applicants represent that in no event will 
the total CDSC for a particular Contract or Future Contract exceed 9% 
of purchase payments under the Contract or Future Contract. CDSC's will 
be used to compensate Skandia Life for sales commissions and other 
promotional or distribution expenses incurred by Skandia Life which are 
associated with the marketing of the Contracts. Skandia Life does not 
anticipate that the CDSC will be sufficient to permit it to recoup all 
its sales and distribution expenses. To the extent the CDSC is not 
sufficient, Skandia Life will pay these expenses from its general 
assets which may include proceeds (if available) from the mortality and 
expense risk charges.
    8. A mortality and expense risk charge will be deducted daily from 
the net asset value of the Account attributable to the Contracts at a 
rate of 0.85% per annum of the daily net assets in the Account. Of that 
amount, approximately 0.55% is allocable to Skandia Life's assumption 
of mortality risks and 0.30% is allocable to Skandia Life's assumption 
of administration and expense risks. The annuity rates incorporated in 
any issued Contracts cannot be changed. Skandia Life's assumption of 
mortality risks guarantees that the variable annuity payments made to 
Contract owners will not be affected by the mortality experience of 
persons receiving such payments or of the general population. Skandia 
Life assumes this risk by virtue of the annuity rates incorporated in 
the Contracts which cannot be changed. Additional mortality risks are 
assumed when the sub-accounts decline in the value resulting in losses 
to Skandia Life on paying death benefits. The expense risk undertaken 
by Skandia Life is that the administration and maintenance fees, which 
are guaranteed for current Contract owners, may be insufficient to 
cover the actual costs of maintaining the Contracts and the 
Account. [[Page 17835]] 
    9. If the charges for the mortality and expense risks prove 
insufficient to cover mortality, administration and maintenance costs, 
then the excess of the expenses over the charges made for these 
expenses will result in a loss, and such loss will be borne by Skandia 
Life. Conversely, if the charges prove more than sufficient to cover 
such costs, the excess will result in a profit to Skandia Life.

Applicants' Legal Analysis

    1. Applicants request exemptive relief, pursuant to Section 6(c) of 
the 1940 Act from the provisions of Sections 26(a)(2)(C) and 27(c)(2) 
of the Act to permit the deduction of a mortality and expense risk 
charge from the assets of the Account or Future Accounts with respect 
to the Contracts and Future Contracts that are substantially similar in 
all material respects to the Contracts. Applicants also request that 
the exemptive relief granted to SLESCO extend to any other National 
Association of Securities Dealers member broker-dealer controlling, 
controlled by, or under common control with Skandia Life that may serve 
in the future as principal underwriter for the Contracts or Future 
Contracts.
    2. Section 26(a)(2)(C) provides that no payment to the depositor 
of, or principal underwriter for a registered unit investment trust 
shall be allowed the trustee or custodian as an expense except 
compensation, not exceeding such reasonable amount as the Commission 
may prescribe, for performing bookkeeping and other administrative 
duties normally performed by the trustee or custodian. Section 27(c)(2) 
prohibits a registered investment company or a depositor or underwriter 
for such company from selling periodic payment plan certificates unless 
the proceeds of all payments, other than sales loads, on such 
certificates are deposited with a trustee or custodian having the 
qualifications prescribed in Section 26(a)(1), and are held by such 
trustee or custodian under an agreement containing substantially the 
provisions required by Sections 26(a)(2)(C) and 26(a)(3) of the 1940 
Act. Applicants request exemption from those provisions to the extent 
necessary to permit the assessment of the charge for mortality and 
expense risks under the Contracts and Future Contracts.
    3. Applicants submit that their request for an order that applies 
to Future Contracts, Future Accounts and Skandia Life Broker-Dealers is 
necessary and appropriate in the public interest. Applicants assert 
that the issuance of the requested order on a prospective basis would 
promote competitiveness in the variable annuity contract market by 
eliminating the need to file redundant exemptive applications, thereby 
reducing administrative expenses, maximizing the efficient use of 
Skandia Life's resources, and enabling Skandia Life to take advantage 
of business opportunities as they arise. Further, if Skandia Life were 
required repeatedly to seek exemptive relief with respect to the same 
issues addressed in this Application, investors would not receive any 
benefit or additional protection thereby.
    4. Applicants submit that Skandia Life is entitled to reasonable 
compensation for its assumptions of mortality and expense risks and 
that the charge provided for in the Contracts is a reasonable and 
proper insurance charge. Skandia Life further represents that the 
charge of 1.25% for mortality and expense risks assumed by Skandia Life 
is within the range of industry practice with respect to comparable 
annuity products. This representation is based 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 will maintain at its administrative 
offices, available to the Commission, a memorandum setting forth in 
detail the products analyzed in the course of, and the methodology and 
results of, its comparative survey.
    5. Similarly, prior to making available any Future Contracts 
through the Account, or through other Future Accounts, Applicants will 
represent that the mortality and expense risk charge under any such 
Future Contracts will be within the range of industry practice for 
comparable contracts. Applicants represent that Skandia Life will 
maintain at its administrative offices, available to the Commission, a 
memorandum setting forth in detail the products analyzed in the course 
of, and the methodology and results of, its comparative survey. 
Further, such mortality and expense risk charge would not exceed 1.25% 
of the daily net assets of the Account or Future Accounts.
    6. Applicants acknowledge that the CDSC may be insufficient to 
cover all costs relating to the distribution of the Contracts and 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. Nevertheless, Skandia Life has concluded that 
the proposed distribution financing arrangements will benefit the 
Account and the Contract owners. The basis for such conclusion is set 
forth in a memorandum which will be maintained by Skandia Life at its 
administrative offices and will be available to the Commission. Skandia 
Life also will maintain and make available to the Commission memoranda 
setting forth the basis for the same representation with respect to 
Future Contracts offered by the Account or Future Accounts.
    7. Skandia Life represents that the Account, and all Future 
Accounts, shall invest only in management investment companies which 
undertake to have a Board of Directors, the majority of whom are not 
``interested persons'' of such company as that term is used under 
Section 2(a)(19) of the Act, formulate and approve any plan adopted 
under Rule 12b-1 of the 1940 Act.\2\

    \2\An amendment will be filed during the notice period to 
confirm that the Board of Directors will formulate and approve any 
plan adopted under rule 12b-1.
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Conclusion

    Applicants submit that the exemptive relief requested is 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy 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. 95-8544 Filed 4-6-95; 8:45 am]
BILLING CODE 8010-01-M