[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Notices]
[Pages 42290-42292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20714]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22127; No. 812-10204]


American Skandia Life Assurance Corporation, et al.

August 8, 1996.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for an Exemption from the Investment 
Company Act of 1940 (``1940 Act'').

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APPLICANTS: American Skandia Life Assurance Corporation (``American 
Skandia''), American Skandia Assurance Corporation Variable Account B 
(Class 2 Sub-Accounts) (``Separate Account'') and American Skandia 
Marketing, Inc. (``Marketing'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act granting exemptions from the provisions of Sections 
26(a)(2)(C) and 27(c)(2) of the 1960 Act.

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction of a mortality and expense risk charge from the assets of the 
Separate Account or any other separate account (``Other Account'') 
established by American Skandia to support certain flexible premium 
variable annuity contracts (``Contracts'') as well as other variable 
annuity contracts issued by American Skandia that are substantially 
similar in all material respects to the Contracts (``Future 
Contracts''). In addition, Applicants request that the exemptions 
requested herein apply to any other broker-dealer that may in the 
future serve as distributor of and/or principal underwriter for 
Contracts or Future Contracts (``Future Broker-Dealers''). Any Future 
Broker-Dealer will be a member of the National Association of 
Securities Dealers, Inc. (``NASD''), and will be controlling, 
controlled by, or under common control with American Skandia.

FILING DATE: The application was filed on June 17, 1996.

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 should be received by the SEC by 5:30 p.m. on 
September 3, 1996, 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 requestor'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 5th 
Street, N.W., Washington, D.C. 20549. Applicants, M. Patricia Paez, 
Corporate Secretary, c/o Jeffrey M. Ulness, Esq., American Skandia Life 
Assurance Corporation, One Corporate Drive, Shelton, Connecticut 06484-
9932.

FOR FURTHER INFORMATION CONTACT: Peter R. Marcin, Law Clerk, or Patrice 
M. Pitts, Special Counsel, Office of Insurance Products (Division of 
Investment Management), at (202) 942-0670.

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

Applicants' Representations

    1. American Skandia, a stock life insurance company, is organized 
in Connecticut and licensed to do business in the District of Columbia 
and all of the

[[Page 42291]]

United States. American Skandia is a wholly owned subsidiary of 
American Skandia Investment Holding Corporation (``ASIHC''), which in 
turn is wholly owned by Skandia Insurance Company Ltd., a Swedish 
corporation.
    2. The Separate Account is a separate account established by 
American Skandia under Connecticut law. The Separate Account is 
registered with the Commission as a unit investment trust under the 
1940 Act, and interests in the Contracts are registered as securities 
under the Securities Act of 1933.
    3. American Skandia will establish for each investment option 
offered under the Contract a Separate Account Class 2 sub-account 
(``Sub-account''), which will invest solely in a specific corresponding 
portfolio of certain designated investment companies (``Funds''). The 
Funds will be registered under the 1940 Act as open-end management 
investment companies. Each Fund portfolio will have separate investment 
objectives and policies.
    4. Marketing will serve as the distributor of and principal 
underwriter for the Contracts. Marketing, a wholly owned subsidiary of 
ASIHC, is registered under the Securities Exchange Act of 1934 as a 
broker-dealer and is a member of the NASD. Future Broker-Dealers also 
may serve as distributors of and/or principal underwriters for 
Contracts and Future Contracts.
    5. The Contracts are individual and group flexible premium variable 
annuity contracts. The Contracts may be used in connection with 
retirement plans that qualify for favorable federal income tax 
treatment under Section 401, Section 403, or Section 408 of the 
Internal Revenue Code of 1986, as amended, or may be purchased on a 
non-tax qualified basis.
    6. The minimum initial payment for a Contract is $10,000 unless the 
Contract owner authorizes and American Skandia accepts the use of a 
program of periodic purchase payments and such payments received in the 
first year total American Skandia's then current minimum payments under 
such a program. Subsequent purchase payments must be at least $100 
except pursuant to a periodic purchase payment program. There is no 
maximum issue age unless where required by law or regulation. No 
subsequent purchase payments are accepted after the annuity date. 
Purchasers of Contracts will not pay any sales charge when Contracts 
are purchased or redeemed. An owner may allocate purchase payments or 
account value to one or more Sub-accounts, each of which will invest in 
a corresponding portfolio of the Funds. Purchase payments will be 
credited with the investment experience of the selected Sub-accounts. 
In most jurisdictions, an owner also may allocate purchase payments to 
a fixed investment option.
    7. In the accumulation phase, a death benefit is payable upon the 
death of the first Contract owner or group Contract participant (if the 
contract is held by one or more natural persons) or upon the death of 
the annuitant (if the contract is held by an entity and there is no 
contingent annuitant).
    8. The death benefit after the earlier of ten Contract years or the 
decedent's reaching age 85 is the Account Value.\1\ Prior to that, the 
death benefit is the greater of (a) or (b), where: (a) is the Account 
Value of the Sub-accounts and the Interim Value of Fixed Allocations, 
and (b) is a minimum death benefit.\2\ The minimum death benefit is the 
sum of all purchase payments less the sum of all withdrawals. If a 
decedent was not named an owner or annuitant as of or within 60 days of 
the issue date of the Contract, and did not become such as a result of 
the death of a prior Contract owner, group Contract participant or 
annuitant, the minimum death benefit is suspended as to that person for 
a two-year period from the date he or she first became a Contract 
owner, group Contract participant or annuitant.
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    \1\ The ``Account Value'' is the value of each allocation to a 
Sub-Account or a fixed investment option prior to the annuity date, 
plus any earnings, and/or less any losses, distributions and charges 
thereon, before assessment of any applicable maintenance fee. 
Account Value is determined separately for each Sub-account and for 
each fixed investment option and then totaled to determine Account 
Value for the Contract. Account Value in each fixed investment 
option on other than the maturity date of such investment option may 
be calculated using a market value adjustment.
    \2\ ``Fixed Allocation'' is an allocation of Account Value that 
is to be credited a fixed rate of interest for a specified guarantee 
period during the accumulation phase and is to be supported by 
assets in American Skandia Life Assurance Corporation Separate 
Account D (a non-unitized separate account). ``Interim Value'' is 
(a) the initial value of a Fixed Allocation plus all interest 
credited thereon, less (b) the sum of all previous transfers and 
withdrawals of any type from such Fixed Allocation of such Interim 
Value plus interest thereon from the date of each withdrawal or 
transfer.
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    9. Prior to the annuity date, annually and upon surrender, American 
Skandia will deduct a maintenance fee equaling the smaller of $35 or 2% 
of Account Value in the Sub-account holdings attributable to any 
particular Contract in the same proportion as each such Sub-account 
holding bears to the Account Value of the Contract. This fee may be 
waived under certain circumstances. During the accumulation period, 
American Skandia also will deduct from the Separate Account, on a daily 
basis, an administration charge at the rate of 0.15% per annum of the 
average daily total value of assets of the Separate Account. The sum of 
the maintenance fee and administrative charge assessed against the 
Separate Account will not exceed the total anticipated costs of 
services to be provided over the life of the Contracts, in accordance 
with the applicable standards of Rule 26a-1 under the 1940 Act.
    10. No deduction or charge will be made from purchase payments for 
sales or distribution expenses, nor will any sales charge be assessed 
on surrender or withdrawal from Contracts.
    11. American Skandia proposes to deduct a daily mortality and 
expense risk charge equal to an effective annual rate of 0.50% of the 
daily net asset value of the Separate Account. Of this amount, 
approximately 0.25% is for mortality risks and 0.25% is for expense 
risks. The level of this charge with respect to the Contracts is 
guaranteed and cannot change without the approval of appropriate 
regulatory authorities, including the SEC. American Skandia may issue 
Future Contracts with a mortality and expense risk charge not exceeding 
1.00%.
    12. American Skandia's assumption of mortality risk guarantees that 
the variable annuity payments made to owners will not be affected by 
the mortality experience of persons receiving such payments or of the 
general population. American Skandia assumes this mortality risk by 
virtue of annuity rates incorporated in the Contracts which cannot be 
changed. If the experience of American Skandia is less favorable than 
its estimates based on actuarial determination, then American Skandia 
must provide monies from its general funds to fulfill its contractual 
obligations. Additional mortality risks are assumed when the Sub-
accounts decline in value resulting in losses to American Skandia on 
paying death benefits. If the actual experience is more favorable than 
American Skandia's assumptions, however, then American Skandia will 
benefit from the gain.
    13. The expense risk undertaken by American Skandia is that the 
actual cost of maintaining the contracts prior to the annuity date may 
exceed the administration charge and maintenance fees assessed. Because 
the administration charge and maintenance fees cannot be increased by 
American Skandia with regard to Contracts issued, American Skandia 
assumes the risk that these charges will be insufficient to cover 
actual administration and maintenance costs.

[[Page 42292]]

    14. If the charges for the mortality and expense risks prove 
insufficient to cover mortality and administration and maintenance 
costs, then the excess of the actual expenses over the charges assessed 
will result in a loss; such loss will be borne by American Skandia. If 
the charges prove more than sufficient to cover the actual costs, 
however, the excess will result in a profit to American Skandia. 
American Skandia may use any profit derived from this mortality and 
expense risk charge for any lawful purpose, including payment or 
recoupment of sales and distribution expenses.
    15. Should the Contract owner or group Contract participant live in 
a jurisdiction that levies a premium tax, American Skandia will pay the 
taxes when due. State premium taxes may range up to 3.5% of purchase 
payments, and are subject to change.
    16. A charge of $10 per transfer is assessable for each transfer 
after the twelfth such transfer in an annuity year. Renewals of 
transfers of Account Value from a Fixed Allocation at the end of its 
guarantee period are not subject to the transfer charge and are not 
counted in determining whether other transfers may be subject to the 
transfer charge.\3\ The fee is charged only if there is Account Value 
in at least one Sub-account immediately subsequent to such transfer.
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    \3\ A ``renewal'' is a transaction that occurs automatically as 
of the last day of the guarantee period of a Fixed Allocation, 
unless American Skandia receives alternative instructions.
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Applicants' Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission to grant 
an exemption from any provision, rule, or regulation of the 1940 Act to 
the extent that the exemption is necessary or 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.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant 
part, prohibit a registered unit investment trust, its depositor or 
principal underwriter, from selling periodic payment plan certificates 
unless the proceeds of all payments, other than sales loads, are 
deposited with a qualified bank and held under arrangements which 
prohibit any payment to the depositor or principal underwriter except a 
reasonable fee, as the Commission may prescribe, for performing 
bookkeeping and other administrative duties normally performed by the 
bank itself.
    3. 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 an annual mortality and expense risk charge of .50% from 
the net assets of the Separate Account and the Other Accounts, in 
connection with the Contracts, and, with respect to Future Contracts, a 
maximum mortality and expense risk charge of 1.00% per annum. 
Applicants also seek exemptive relief to permit Future Broker-Dealers 
to serve as distributors of and/or principal underwriters for Contracts 
and Future Contracts.
    4. Applicants submit that American Skandia is entitled to 
reasonable compensation for its assumption of morality and expense 
risks. Applicants represent that the mortality and expense risk charge 
as set forth herein, is consistent with the protection of investors 
because such charge is a reasonable and proper insurance charge.
    5. American Skandia represents that the .50% mortality and expense 
risk charge is within the range of industry practice for comparable 
annuity contracts. This representation is based upon an analysis of 
publicly available information about similar products, taking into 
consideration such factors as, among others, the current charge levels, 
the existence of charge level guarantees, and guaranteed annuity rates. 
American Skandia will maintain at its principal offices, and make 
available to the Commission, a memorandum setting forth in detail the 
products analyzed in the course of, and the methodology and results of, 
Applicants' comparative review.
    6. Similarly, prior to making any Future Contracts available 
through the Separate Account or Other Accounts, Applicants will 
represent that the mortality and expense risk charge under any such 
Future Contracts is within the range of industry practice for 
comparable contracts. In addition, Applicants will keep, and make 
available to the Commission, a memorandum setting forth the basis for 
this representation.
    7. Applicants 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. American Skandia 
has concluded that there is a reasonable likelihood that the proposed 
distribution financing arrangements will benefit the Separate Accounts 
and Other Accounts, Contracts owners, and group Contract participants. 
American Skandia represents that it will maintain, and make available 
to the Commission upon request, a memorandum setting forth the basis of 
such conclusion. In addition, Applicants will keep, and make available 
to the Commission, a memorandum setting forth the basis for the same 
representation with respect to Future Contracts offered by the Separate 
Account or Other Accounts.
    8. Applicants submit that their request for exemptive relief for 
deduction of the mortality and expense risk charge from the assets of 
the Separate Account, or any Other Accounts in connection with 
Contracts and Future Contracts underwritten and/or distributed by 
Marketing or Future Broker-Dealers, would promote competitiveness in 
the variable annuity contract market by eliminating the need to file 
redundant exemptive applications, thereby reducing administrative 
expenses and maximizing the efficient use of American Skandia's 
resources. Applicants further submit that Contract owners and group 
Contract participants would not receive any benefit or additional 
protection by requiring American Skandia repeatedly to seek exemptive 
relief and that such requests for exemptive relief would present no 
issue under the 1940 Act that has not already been addressed in this 
application. Moreover, Applicants submit that requiring American 
Skandia to file additional applications would impair American Skandia's 
ability effectively to take advantage of business opportunities as they 
arise.
    9. The Separate Account and Other Accounts will be invested only in 
a management investment company that undertakes, in the event it adopts 
a plan for financing distribution expenses pursuant to Rule 12b-1 under 
the 1940 Act, to have such plan formulated and approved by its board of 
directors or trustees, the majority of whom are not ``interested 
persons'' of the company within the meaning of Section 2(a)(19) of the 
1940 Act.

Conclusion

    For the reasons submitted above, Applicants submit that the 
exemptive relief requested is necessary or 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. 96-20714 Filed 8-13-96; 8:45 am]
BILLING CODE 8010-01-M