[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]
-----------------------------------------------------------------------
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'').
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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