[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