[Federal Register Volume 65, Number 203 (Thursday, October 19, 2000)]
[Notices]
[Pages 62773-62776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26801]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24688; File No. 812-11834]


American Skandia Life Assurance Corporation, et al; Notice of 
Application

October 13, 2000.
AGENCY: The Securities and Exchange Commission (``Commission'' or 
``SEC'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (``1940 Act'') approving certain 
substitutions of securities, and pursuant to Sections 17(b) and 6(c) of 
the 1940 Act exempting related transactions from 17(a) of the 1940 Act.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered unit investment trusts to substitute shares of certain 
registered open-end investment companies for shares of certain 
registered investment companies currently held by those unit investment 
trusts, and to permit certain in-kind redemptions of portfolio 
securities in connection with the substitutions.
    Applicants: American Skandia Life Assurance Corporation (``ASLAC'' 
or the ``Company''), American Skandia Life Assurance Corporation 
Variable Account B (Class 1) (``Account B-1''), American Skandia Life 
Assurance Corporation Variable Account B (Class 2) (``Account B-2''), 
American Skandia Life Assurance Corporation Variable Account B (Class 
3) (``Account B-3'', together with Account B-1 and Account B-2, 
``Account B''), American Skandia Variable Account F (``Account F'' and 
together with Account B, the ``Separate Account''), and American 
Skandia Marketing, Incorporated (``ASM'') (collectively, 
``Applicants'').

[[Page 62774]]

    Filing Date: The application was filed on October 27, 1999 and 
amended and restated on September 29, 2000.
    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 on this application by writing 
to the Secretary of the Commission and serving Applicants with a copy 
of the request, in person or by mail. Hearing requests must be received 
by the Commission by 5:30 p.m. on November 3, 2000, and accompanied by 
proof of service on the Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of your interest, the reason for the request, and the issues you 
contest. Persons may request notification of the date of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, NW, Washington, DC 20549-0609. Applicants, in care of Edward P. 
MacDonald, Esquire, American Skandia Life Assurance Corporation, One 
Corporate Drive, Shelton, Connecticut 06484.

FOR FURTHER INFORMATION CONTACT: Ronald A. Holinsky, Senior Counsel or 
Lorna MacLeod, Branch Chief, 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 Commission, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. ASLAC is a stock life insurance company admitted to do business 
in all fifty states and in the District of Columbia. ASLAC offers a 
variety of fixed and variable annuity contracts to individuals and 
groups, as well as a modified single premium variable life insurance 
policy and a flexible premium variable life insurance policy to 
individuals (the ``Skandia Contracts'').
    2. ASLAC is a wholly owned subsidiary of American Skandia 
Investment Holding Corporation, which is an indirect wholly-owned 
subsidiary of Skandia Insurance Company Ltd., a corporation organized 
under the laws of the Kingdom of Sweden.
    3. Account B-1, registered with the Commission as a unit investment 
trust, is a separate account of ASLAC.
    4. Account B-2, registered with the Commission as a unit investment 
trust, is a separate account of ASLAC.
    5. Account B-3, registered with the Commission as a unit investment 
trust, is a separate account of ASLAC.
    6. Account F, registered with the Commission as a unit investment 
trust, is a separate account of ASLAC.
    7. ASM is registered with the Commission as a broker-dealer under 
the Securities Exchange Act of 1934 (``Exchange Act'' ) and is a member 
in good standing with the National Association of Securities Dealers, 
Inc. ASM is 100% owned by American Skandia Investment Holding 
Corporation, which is also the direct parent of ASLAC. ASM's primary 
business is that of principal distributor of variable annuities and 
market value adjusted fixed annuity contracts issued by ASLAC as well 
as variable life insurance policies issued by ASLAC. ASM is also the 
distributor of American Skandia Advisor Funds, Inc. a family of retail 
mutual funds.
    8. ASLAC is the depositor of the separate accounts and offers 
owners of the Skandia Contracts (``Contract Owners'') a number of 
investment options, each of which is a division of sub-account of the 
separate accounts and which correspond to an underlying registered 
open-end management investment company. The Skandia Contracts are 
designed to be sold to individuals and to groups for use with 
retirement plans that qualify for special income tax treatment under 
the Internal Revenue Code of 1986, as amended (the ``Code''), and sued 
with retirement plans that do not qualify for such special income tax 
treatment.
    9. The Alger American Fund is a diversified, open-end series 
management investment company registered under the 1940 Act. Currently 
it offers six portfolios, two of which are available through one or 
more of the Skandia Contracts offered through the separate accounts. 
The two portfolios offered as investments to the separate accounts are: 
Alger American Growth Portfolio and Alger American MidCap Growth 
Portfolio. Fred Alger Management, Inc. (``Fred Alger'') is the 
investment manager of each of the portfolios.
    10. American Skandia Trust (``AST'') is a diversified, open-end 
series management investment company registered under the Act. AST 
currently is comprised of 35 portfolios. American Skandia Investment 
Services, Inc. (``ASISI'') is the investment manager for each of the 
portfolios.
    11. Pursuant to ASLAC's manager-of-managers strategy, ASISI 
currently engages the following subadvisers to manage the accompanying 
AST portfolios: Janus Capital Corporation--AST JanCap Growth, AST Janus 
Overseas Growth, AST Janus Small-Cap Growth, and AST Janus Mid-Cap 
Growth; Lord Abbett & Co.--AST Lord Abbett Small Cap Value; Federated 
Investment Counseling--AST Federated High Yield; J.P. Morgan Investment 
Management, Inc.--AST Money Market; T. Rowe Price Associates, Inc.--AST 
T. Rowe Price Asset Allocation, AST T. Rowe Price Natural Resources and 
AST T. Rowe Price Small Company Value; Rowe Price-Fleming 
International, Inc.--AST T. Rowe Price Global Bond; Founders Asset 
Management, LLC--AST Founders Passport; INVESCO Funds Group, Inc.--AST 
INVESCO Equity Income; Pacific Investment Management Company--AST PIMCO 
Total Return Bond and AST PIMCO Limited Maturity Bond; Oppenheimer 
Funds, Inc.--AST Oppenheimer Large-Cap Growth; American Century 
Investment Management, Inc.--AST American Century Income & Growth, AST 
American Century Strategic Balanced, AST American Century International 
Growth, and AST American Century International Growth II; Cohen & 
Steers Capital Management, Inc.--AST Cohen & Steers Realty; AIM Capital 
Management, Inc.--AST AIM International Equity and AST AIM Balanced; 
Sanford C. Bernstein & Co., Inc.--AST Sanford Bernstein Managed Index 
500; Marsico Capital Management, LLC--AST Marsico Capital Growth; 
Neuberger Berman Management Inc.--AST Neuberger Berman Mid-Cap Value 
and AST Neuberger Berman Mid-Cap Growth; Massachusetts Financial 
Services Company (``MFS'')--AST MFS Growth with Income, AST MFS Growth 
and AST MFS Global Equity; Scudder Kemper Investments, Inc.--AST Kemper 
Small-Cap Growth; and Fed Alger Management, Inc.--AST Alger All--Cap 
Growth.
    12. ASLAC has expressly reserved the right on its own behalf and on 
behalf of each of the separate accounts and in the Skandia Contracts to 
eliminate sub-accounts, combine two or more sub-accounts, or substitute 
one or more new underlying funds or portfolios for others in which one 
or more sub-accounts are invested. The prospectus for each contract 
discloses this reservation.
    13. ASLAC, on its own behalf and on behalf of the separate 
accounts, proposes to exercise its contractual right to replace shares 
of the Alger American Growth Portfolio with shares of the AST Alger 
Growth Portfolio and shares of the Alger American Mid-Cap Growth

[[Page 62775]]

Portfolio with shares of the AST Alger Mid-Cap Growth Portfolio. The 
Alger American Growth and Alger Mid-Cap Growth portfolios are referred 
to as the ``Old Portfolios''. The AST Alger Growth and AST Alger Mid-
Cap Growth portfolios are referred to as the ``New Portfolios''. The 
New Portfolios will be subadvised by Fred Alger.
    14. Applicants represent that the investment objective of the AST 
Alger Growth Portfolio is identical to that of the Alger American 
Growth Portfolio. Both portfolios intend to invest for long-term growth 
of capital appreciation. Applicants assert that the proposed 
substitution will result in greater administrative efficiency and 
enhanced oversight of the AST Alger Growth Portfolio by ASLAC while 
continuing to provide Contract Owners with a ``best-in-class'' money 
manager and substantially similar investment objective and investment 
policies/restrictions as the Alger Growth Portfolio. Applicants 
represent that the management fee of the AST Alger Growth Portfolio is 
identical to that of the Alger American Growth Portfolio (0.75%) and 
that other expenses of the AST Alger Growth Portfolio will be capped at 
the same level of other expenses for the Alger American Growth 
Portfolio (0.04%) for a period of one year following the substitution. 
Total annual expenses for the AST Alger Growth Portfolio will be the 
same as that of the Alger American Growth Portfolio (0.79%).
    15. Applicants represent that the investment objective of the AST 
Alger Mid-Cap Growth Portfolio is identical to that of the Alger 
American Mid-Cap Growth Portfolio. Both portfolios seek long-term 
capital appreciation by investing in the equity securities of midsize 
companies with promising growth potential having a market 
capitalization within the range of companies in the S&P Mid-
Cap 400 Index. Applicants assert that the substitution will result in 
greater administrative efficiency and enhanced oversight of the new 
portfolio by ASLAC. Applicants assert that the old portfolio has 
experienced significant ``capitalization drift'' causing its holdings 
to diverge from its stated mid-cap investment objective and that ASLAC 
will be better able to monitor the new portfolio's direction. 
Applicants represent that the management fee of the AST Alger Mid-Cap 
Growth Portfolio is identical to that of the Alger American Mid-Cap 
Growth Portfolio (0.80%) and that other expenses of the AST Alger Mid-
Cap Growth Portfolio will be capped at the same level of other expenses 
for the Alger American Mid-Cap Growth Portfolio (0.04%) for a period of 
one year following the substitution. Total annual expenses for the AST 
Alger Mid-Cap Growth Portfolio will be the same as that of the Alger 
American Mid-Cap Growth Portfolio (0.84%).
    16. ASLAC represents that it will distribute a prospectus 
supplement (``Supplement'') to Contract Owners affected by the proposed 
Substitution notifying them of ASLAC's intention to substitute the Old 
Portfolios for the New Portfolios and describing the Substitutions 
including a brief description of the New Portfolios' investment 
objectives. The Supplement will explain that ASLAC has filed an 
application with the Commission to approve the proposed Substitutions 
and that from the date of the Supplement until the date of the 
Substitutions (``Substitution Date''), Contract Owners will be 
permitted to make one transfer of all amounts under a Skandia Contract 
invested in the Old Portfolios free of any applicable transfer charges. 
The Supplement will state that ASLAC will not exercise any rights 
reserved under any Skandia Contract to impose additional restrictions 
on transfers until at least 30 days after the Substitution.
    17. Within at least five days after the Substitution Date, ASLAC 
will mail a written notice to all Contract Owners affected by the 
Substitutions informing them that the Substitutions were completed 
(``Notice''). Notices will include transfer request forms, prepaid 
postage return envelopes, a current prospectus, and a confirmation of 
the transaction as required under rule 10b-10 under the Exchange Act. 
The Notice will repeat that ASLAC will not exercise any rights reserved 
by it under any of the Skandia Contracts affected by the Substitutions 
to impose additional restrictions on transfers until at least 30 days 
after the Substitutions.
    18. Applicants state that the proposed Substitutions between sub-
accounts will be effected to the extent practicable ``in-kind'' at the 
then current unit values of the sub-accounts in conformity with Section 
22(c) of the 1940 Act and Rule 22c-1 thereunder. Applicants assert that 
the terms under which the in-kind redemptions and purchases will be 
made are reasonable and fair and do not involve overreaching on the 
part of any person concerned and the interests of Contract Owners will 
not be diluted. Applicants assert that using partial in-kind 
redemptions will alleviate some of the expenses involved in the in-kind 
redemptions. Applicants represent that in-kind redemptions will only be 
used to the extent they are consistent with the investment objectives 
and applicable diversification requirements of the New Portfolios, and 
all redemptions and purchases will be effected in conformity with 
Section 22(c) of the 1940 Act and Rule 22c-1 thereunder, and on a basis 
consistent with the valuation procedures of the applicable Old and New 
Portfolios
    19. Applicants represent that the Substitutions will occur at 
relative unit values of the Old and New Portfolios, with no net change 
in the account value for any Contract Owner. Contract Owners will not 
incur any fees or charges including legal, accounting, brokerage-
related, and other fees and expenses directly or indirectly as a result 
of the transfer of account value from any Old Sub-account, nor will 
their rights, or ASLAC's obligations, under any Skandia Contract be 
altered in any way. All contract level fees and charges and the asset-
based fees (mortality, expense risk and administration fees) deducted 
by the separate accounts will remain the same after the proposed 
Substitutions. The proposed Substitutions will not alter in any way the 
annuity benefits, tax benefits or ASLAC's contractual obligations under 
the Skandia Contracts.
    20. Applicants represent that the significant terms of the 
Substitutions described in the application include:
    (a) The investment objectives of the New Portfolios will be the 
same as the investment objectives of the Old Portfolios providing 
Contract Owners a means to continue their current investment goals and 
risk expectations.
    (b) The investment in the New Portfolios may be temporary 
investments for Contract Owners since Contract Owners always may 
exercise their own judgment as to the most appropriate alternative 
investment option available to them. No sales charge will be made in 
connection with any transfers among the sub-accounts. After the 
Substitutions, the Skandia Contracts will continue to offer a broad 
array of variable investment options. Contract Owners who have not 
annuitized may at any time, before or after the Substitutions, transfer 
their account value to any other sub-account offered under their 
respective Skandia Contract. ASLAC notes the total number of portfolios 
available to the Contract Owners both in number and investment style 
are as extensive and diverse as nearly all other variable contract 
issuers.
    (c) The Substitutions and related transactions will be effected at 
the net asset value of the respective share, in conformity with Section 
22(c) of the 1940 Act and Rule 22c-1 thereunder.
    (d) The use of in-kind redemptions, to the extent appropriate and 
possible, will

[[Page 62776]]

reduce the brokerage expenses involved in the Substitutions.
    (e) The Contract Owners will not incur any directly or indirectly 
related fees or charges, including brokerage-related fees or charges, 
as a result of the transfer of account value from any Old Sub-account.
    (f) The Substitutions will not alter or affect the insurance 
benefits or rights of Contract Owners or the terms and obligations of 
the Skandia Contracts.
    (g) The Substitutions are designed to avoid any adverse effects 
upon the tax benefits available to Contract Owners and are designed not 
to give rise to any current Federal income tax to Contract Owners.
    (h) The Substitutions are expected to confer economic benefit to 
Contract Owners as described in the application.
    (i) Contract Owners in the new AST Alger Growth Sub-account and the 
AST Alger Mid-Cap Growth Sub-account will not be subject to any 12b-1 
fee, or be effected by any change in sub-advisor as a result of AST's 
``manager-of-managers'' exemptive order, unless: (i) Contract Owners 
have had a right as beneficial owners of the AST Portfolios after the 
Substitutions to vote to approve the adoption of a 12b-1 plan or to 
approve the ``manager-of-managers'' order received from the Commission; 
or (ii) any Contract Owner allocates his or her Skandia Contract's 
account value to an AST investment option that has in effect a 12b-1 
fee or ``manager-of-managers'' order.
    (j) Other expenses in the new AST Alger Growth Sub-account and the 
AST Alger Mid-Cap Growth Sub-account will be capped at 0.04% for one 
year following the Substitution Date.

Applicant's Legal Analysis

    1. Section 26(b) of the 1940 Act provides that it shall be unlawful 
for any depositor or trustee of a registered unit investment trust 
holding the security of a single issuer to substitute another security 
for such security unless the Commission shall have approved such 
substitution; and the Commission shall issue an order approving such 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the 1940 Act.
    2. Applicants request an order pursuant to Section 26(b) of the 
1940 Act approving the Substitutions. Applicants assert that the 
purposes, terms, and conditions of the Substitutions are consistent 
with the protection for which Section 26(b) was designed. Applicants 
assert that the Substitutions will benefit investors because they will 
result in greater administrative efficiency and enhanced oversight of 
the New Portfolios by ASLAC. Additionally, Applicants assert that over 
time, the efficiencies that come with being part of a large coordinated 
fund affiliated with ASLAC will have resulting benefits to Contract 
Owners.
    3. Additionally, Applicants assert that the proposed Substitutions 
and related transactions will be in the best interests of Contract 
Owners in that they will (a) increase ASLAC's control over the 
administrative aspects of the New Portfolios; (b) enhance an Old 
Portfolio with significant style drift; (c) provide Contract Owners 
with a more diverse number of portfolios within the AST family; (d) 
provide a means to gather significantly more assets; (e) participate in 
the value-added manager of managers platform; (f) reduce conflicts; and 
(g) promote administrative efficiencies.
    4. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or any affiliated person of an 
affiliated person, from selling any security or other property to such 
registered investment company. Section 17(a)(2) of the 1940 Act 
prohibits any such affiliated persons from purchasing any security or 
other property from such registered investment company.
    5. Section 17(b) of the 1940 Act provides that the Commission may 
grant an order exempting a transaction prohibited by Section 17(a) of 
the 1940 Act upon application if evidence establishes that: (a) The 
terms of the proposed transaction, including the consideration to be 
paid or received, are reasonable and fair and do not involve 
overreaching on the part of any person concerned; (b) the proposed 
transaction is consistent with the investment policy of each registered 
investment company concerned, as recited in its registration statement 
and reports filed under the 1940 Act; and (c) the proposed transaction 
is consistent with the general purposes of the 1940 Act.
    6. Applicants request an order pursuant to Sections 6(c) and 17(b) 
of the 1940 Act exempting the in-kind redemptions and purchases from 
the provisions of Section 17(a) of the 1940 Act.
    7. Applicants assert that the terms of the Substitutions are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned. Applicants represent that the Substitutions will be 
effected at the net asset value and the interests of Contract Owners 
will not be diluted. Applicants represent that in-kind redemptions will 
only be used to the extent they are consistent with the investment 
objectives and applicable diversification requirements of the affected 
portfolios.
    8. Applicants assert that the Substitutions and the in-kind 
redemptions are consistent with the policies of each investment company 
involved and the general purposes of the 1940 Act, and comply with the 
requirements of Section 17(b).

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the Substitutions and exempting the in-kind 
redemptions should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to the delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-26801 Filed 10-18-00; 8:45 am]
BILLING CODE 8010-01-M