[Federal Register Volume 64, Number 31 (Wednesday, February 17, 1999)]
[Notices]
[Pages 7917-7923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3773]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23689; File No. 812-11132]
American Skandia Life Assurance Corporation, et al.; Notice of
Application
February 10, 1999.
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(b) of
the Investment Company Act of 1940 (the ``1940 Act'') approving certain
substitutions of securities, and pursuant to Sections 6(c) and 17(b) of
the 1940 Act exempting related transactions from Section 17(a) of the
1940 Act.
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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''), 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'') and American Skandia Marketing, Incorporated (``ASM'').
Filing Date: The application was filed on May 4, 1998, and amended
and restated on November 6, 1998 and January 14, 1999.
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 Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on March 5, 1999, 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 writer'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 Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549. Applicants, c/o American Skandia
Life Assurance Corporation, One Corporate Drive, Shelton, Connecticut
06484, Attention: Scott K. Richardson, Esq.
FOR FURTHER INFORMATION CONTACT: Ethan D. Corey, Senior Counsel, at
(202) 942-0675, or Kevin M. Kirchoff, Branch Chief, at (202) 942-0672,
Office of Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application; the complete application may be obtained for a fee from
the Public Reference Branch of the Commission, 450 5th Street, NW.,
Washington, DC 20549 (tel. (202) 942-8090).
Applicants' Representations
1. ASLAC is a stock life insurance company admitted to do business
as an insurer in the fifty states and the District of Columbia. ASLAC
offers fixed and variable annuities sold to individuals and groups (the
``Annuities'') as well as variable life insurance 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, a separate account established by ASLAC, is
registered with the Commission as a unit investment trust. ASLAC
currently offers seven flexible premium deferred variable annuity
contracts that are funded by Account B-1: (a) American Skandia Advisors
Plan (``ASAP'') including the LifeVest Personal Security Annuity
(``PSA''); (b) American Skandia Advisors Plan II (``ASAPII''); (c)
American Skandia XTra Credit (``ASXT'') and Stagecoach Extra Credit
Variable Annuity (``Stagecoach XT''); (d) American Skandia LifeVest
(``ASL'') and Stagecoach Variable Annuity Flex (``Stagecoach ASL'');
(e) American Skandia Protector (``ASPro''); (f) Alliance Capital
Navigator Annuity (``Alliance''); and (g) Wells Fargo Stagecoach
Variable Annuity Plus (``Stagecoach VA Plus'') including Wells Fargo
Stagecoach (``Stagecoach'').
4. Account B-2, a separate account established by ASLAC, is
registered with the Commission as a unit investment trust. Account B-2
funds one flexible premium deferred variable annuity contract currently
offered by ASLAC (American Skandia Advisors Choice (``Advisors
Choice'')) and one contract that is no longer offered but continues to
accept subsequent
[[Page 7918]]
premium payments (American Skandia Advisors Choice2000 (``Advisors
Choice2'')).
5. Account B-3, a separate account established by ASLAC, is
registered with the Commission as a unit investment trust. Account B-3
funds two flexible premium deferred variable annuity contracts
currently offered by ASLAC: American Skandia Impact (``ASImpact''); and
American Skandia Galaxy III variable annuity (``Galaxy3'')
(collectively the ``Account B-3 Annuities'').
6. ASM is registered with the Commission as a broker-dealer under
the Securities Exchange Act of 1934 and is a member of 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 being principal
underwriter-distributor of variable annuities and market value adjusted
fixed annuity contracts issued by ASLAC as well as variable life
insurance policies issued by ASLAC.
7. The Annuities are offered in all 50 states and the District of
Columbia. The Annuities may be issued under retirement plans which
qualify for federal tax benefits under Sections 401 and 408 of the
Internal Revenue Code of 1986, as amended (the ``Code'') as individual
retirement accounts and under other retirement plans which do not
qualify under the Code.
8. Neuberger Berman Advisers Management Trust (``AMT'') is an open-
end management investment company of the series type registered under
the 1940 Act. It currently offers the Neuberger Berman AMT Partners
portfolio (``Partners portfolio'') to Account B-1, Account B-2 and
Account B-3. Neuberger Berman Management, Inc. is the investment
manager for the Partners portfolio.
9. The Alliance Variable Products Series Fund, Inc. (``Alliance'')
is an open-end management investment company of the series type
registered under the 1940 Act. It currently offers the following
fifteen series portfolios to Sub-accounts of Account B-1: U.S.
Government/High Grade Securities Portfolio, Total Return Portfolio,
International Portfolio, Short-Term Multi-Market Portfolio, Growth and
Income Portfolio, Premier Growth Portfolio, Money Market Portfolio,
North American Government Income Portfolio, Global Dollar Portfolio,
Utility Income Portfolio, Global Bond Portfolio, Growth Investors
Portfolio, Conservative Portfolio, Growth, and Worldwide Privatization
Portfolio. Alliance Capital Management L.P. is the investment manager
for each of the portfolios. Dempsey & Company International Limited is
the sub-advisor to the Global Bond Portfolio.
10. The Alger American Fund is a diversified, open-end management
investment company of the series type registered under the 1940 Act. It
currently offers the following three portfolios through one or more of
the Account B-1, Account B-2 and Account B-3 Annuities: Alger American
Small Capitalization Portfolio, Alger American Growth Portfolio and
Alger American MidCap Growth Portfolio. Fred Alger Management, Inc. is
the investment manager of each of the portfolios.
11. American Skandia Trust (``AST'') is an open-end diversified
management investment company of the series type registered under the
1940 Act. AST currently is comprised of 29 series portfolios. American
Skandia Investment Services, Inc. (``ASISI'') is the investment manager
for each of the portfolios.
12. ASISI currently engages the following subadvisers to subadvise
the accompanying AST portfolios: Janus Capital Corporation--AST JanCap
Growth, AST Janus Overseas Growth and AST Janus Small Cap Growth; Lord
Abbett and Co.--AST Lord Abbett Growth & Income and 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 International Equity, AST T. Rowe Price Natural Resources,
AST T. Rowe Price International Bond and AST T. Rowe Price Small
Company Value; Founders Asset Management, Inc.--AST Founders Passport;
INVESCO Trust Company--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; Putnam Investment Management, Inc.--AST Putnam Value Growth and
Income and AST Putnam International Equity; American Century Investment
Management, Inc.--AST Twentieth Century Strategic Balanced and AST
Twentieth Century International Growth; Cohen & Steers Capital
Management, Inc.--AST Cohen & Steers Realty; Stein Roe & Farnham
Incorporated--AST Stein Roe Venture; Bankers Trust Company--AST Bankers
Trust Enhanced 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; Scudder Kemper
Investments, Inc.--AST Kemper Small Cap Growth.
13. ASLAC has expressly reserved the right, on its own behalf and
on behalf of Account B, to eliminate Sub-accounts, combine two or more
Sub-accounts, or substitute one or more new underlying mutual funds or
portfolios for others in which one or more Sub-accounts are invested.
14. ASLAC, on its own behalf and on behalf of Account B, proposes
to exercise its contractual right to eliminate the Partners portfolio
as an investment option under the following contracts: Account B-1
Contracts (PSA, ASAP, ASAPII, ASXT, ASL, and ASPro); Account B-2
Contracts (Advisors Choice and Advisors Choice2000); and Account B-3
Contracts (ASImpact). ASLAC proposes to substitute shares of AST
Neuberger Berman Mid-Cap Value portfolio (``MicCap portfolio''), a
portfolio of AST that is sub-advised by Neuberger Berman Management
Inc., for shares of the Partners portfolio (``Substitution No. 1'').
The Mid-Cap portfolio of American Skandia Trust is modeled after the
Partners portfolio. The two portfolios have identical managers and the
Mid-Cap portfolio is managed in a manner substantially similar to the
Partners portfolio. The management fee of the MidCap portfolio is
slightly higher than the management fee of the Partners portfolio
(0.90% compared to 0.80%). However, the management fee schedule for the
MicCap portfolio declines from 0.90% to 0.85% when total portfolio
assets exceed $1 billion. Other expenses of the MidCap portfolio are
higher than those of the Partners portfolio (0.25% compared to 0.06%).
15. ASLAC also proposes, on its behalf and on behalf of Account B-
1, to replace certain portfolios of Alliance with certain portfolios of
AST as investment options under the Alliance Capital Navigator contract
(``Substitution No. 2'').
16. ASLAC proposes to substitute shares of the following AST
portfolios for shares of the following Alliance portfolios. (a) AST
PIMCO Total Return Bond portfolio (``Total Return Bond portfolio'') for
the U.S. Government/High Grade Securities portfolio; (b) AST T. Rowe
Price Asset Allocation portfolio (``Asset Allocation portfolio'') for
the Total Return, Growth Investors and Conservative Investors
portfolios; (c) AST T. Rowe Price International Equity portfolio (``T.
Rowe Price International Equity portfolio'') for the International
portfolio; (d) AST Putnam International Equity portfolio (``Putnam
International Equity portfolio'') for the Worldwide
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Privatization portfolio; (e) AST PIMCO Limited Maturity Bond portfolio
(``Limited Maturity portfolio'') for the Short Term Multi-Market
portfolio; (f) AST Money Market portfolio for the Money Market
portfolio; (g) AST T. Rowe Price International Bond portfolio
(``International Bond portfolio'') for the North American Government
Income, Global Dollar Government and Global Bond portfolios; (h) AST
JanCap Growth portfolio (``JanCap Growth portfolio'') for the Growth
and Premier Growth portfolios; and (i) AST Lord Abbett Growth & Income
portfolio (``Lord Abbett Growth & Income portfolio'') for the Growth
and Income and Utility Income portfolios.
17. The investment objective of the Total Return Bond portfolio is
to maximize total return, consistent with preservation of capital by
investing at least 65% of its assets in securities which may be issued
by domestic or foreign entities and demoninated in U.S. dollars or
foreign currencies, including securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, corporate debt
securities and corporate commercial paper. The investment objective of
the U.S. Government/High Grade Securities portfolio is high current
income consistent with preservation of capital by investing principally
in a portfolio of U.S. Government-issued or guaranteed obligations and
other investment grade debt securities. The year to date total return
of the Total Return Bond portfolio has been 3.42% compared to 2.96% for
the U.S. Government/High Grade Securities portfolio. The total return
of the Total Return Bond portfolio over the past 12 months has been
6.63% compared to 5.36% for U.S. Government/High Grade Securities
portfolio. The total return of the Total Return Bond portfolio over the
past three years has been 6.88% compared to 6.02% for the U.S.
Government/High Grade Securities portfolio. The total annual expenses
for the Total Return Bond portfolio are 0.86% (0.65% management fee and
0.21% other expenses) compared to 0.92% (0.54% management fee and 0.38%
other expenses) for the U.S. Government/High Grade Securities
portfolio. The U.S. Government/High Grade Securities portfolio has a
0.06% management fee waiver in place that, if eliminated, would
increase total annual expenses to 0.98%.
18. The investment objective of the Asset Allocation portfolio is a
high level of total return by investing primarily in a diversified
group of fixed income and equity securities. The investment objective
of the Total Return portfolio is a high return through a combination of
current income and capital appreciation by investing in U.S. Government
and agency obligations, corporate fixed-income obligations and
preferred and common stocks. The investment objective of the Growth
Investors portfolio is to achieve the highest total return consistent
with the advisor's determination of reasonable risk by allocating
varying portions of its assets among equity securities and fixed income
obligations. The investment objective of the Conservative Investors
portfolio is to achieve a high total return without, in the view of the
advisor, undue risk of principal by allocating varying portions of its
assets among investment grade, publicly traded fixed-income securities,
money market instruments and publicly traded common stocks and other
equity securities. In 1995, total return of the Asset Allocation
portfolio was 21.94% compared to 21.64% for the Total Return portfolio,
18.79% for the Growth Investors portfolio, and 15.36% for the
Conservative Investors portfolio. In 1996, total return of the Asset
Allocation portfolio was 11.54% compared to 13.55% for the Total Return
portfolio, 6.65% for the Growth Investors portfolio and 2.32% for the
Conservative Investors portfolio. In 1997, total return of the Asset
Allocation portfolio was 16.74, compared to 19.41% for the Total Return
portfolio, 14.71% for the Growth Investors portfolio and 9.66% for the
Conservative Investors portfolio. The total annual expenses for the
Asset Allocation portfolio are 1.13% (0.85% management fee and 0.28%
other expenses). The total annual expenses for the Total Return
portfolio are 0.95% (0.46% management fee and 0.495% other expenses).
However, the Total Return portfolio has a .16% management fee waiver.
The total annual expenses for the Growth Investors portfolio are 0.95%
(0.00% management fee and 0.95% other expenses). However, the entire
0.75% management fee of the Growth Investors portfolio currently is
being waived. Furthermore, the Portfolio currently has 0.15% of other
expenses being reimbursed. Without the management fee waiver and
expense reimbursement, total portfolio expenses would be 1.85%. The
total annual expenses for the Conservative Investors portfolio are
0.95% (0.30% management fee and 0.65% other expenses). However, the
Conservative Investors portfolio currently has a waiver of the
management fee equal to 0.45%. If the management fee waiver were to be
discontinued or partially waived, total annual expenses would increase
to as much as 1.40%.
19. The investment objective of both the International portfolio
and the T. Rowe Price International Equity Portfolio is to seek total
return on assets from long-term growth of capital with income as a
secondary objective. Both portfolios invest primarily in equity
securities of non-U.S. companies and tend to concentrate geographically
in similar regions, including the Far East, Western Europe, Australia
and Canada. Total return has been 9.54% (1995), 12.55% (1996) and -
0.06% (1997) for the T. Rowe Price International Equity portfolio
compared to 8.32% (1995), 5.73% (1996) and 1.88% (1997) for the
International portfolio. The total annual expenses for the T. Rowe
Price International Equity portfolio is 1.26% (1.00% management fee and
.26% other expenses); total annual expenses for the International
portfolio are 0.95% (0.04% management fee and 0.91% other expenses).
However, the International portfolio has a voluntary waiver of the
management fee equal to 0.96%.
20. The Worldwide Privatization portfolio seeks long term capital
appreciation by investing at least 65% of its assets in equity
securities that are issued by enterprises that are undergoing
privatization in both established and developing economies. The Putnam
International Equity portfolio also seeks capital appreciation by
investing primarily in equity securities of non-U.S. companies. Total
return for the Putnam International Equity portfolio was 16.50% in
1997, 8.10% in 1996 and 8.46% in 1995. For the first quarter of 1998,
total return was 17.52%. Total return for the Worldwide Privatization
portfolio was 9.20% in 1997, 16.84% in 1996 and 9.32% in 1995. For the
first quarter of 1998, total return was 15.38%. The total annual
expenses for the Putnam International Equity portfolio are 1.15% (0.88%
management fee and 0.27% other expenses); the total annual expenses for
the Worldwide Privatization portfolio are 0.95% (0.10% management fee
and 0.85% other expenses). However, the adviser to the Worldwide
Privatization portfolio currently is waiving 0.90% of its management
fee, and reimbursing 0.10% of the portfolio's other expenses.
21. The investment objective of both the Short-Term Multi-Market
portfolio and the Limited Maturity portfolio is to seek high current
income with preservation of capital. Both invest in a diversified
portfolio of high quality debt securities of varying maturates with
remaining maturates of not more than three years. Both portfolios
invest in
[[Page 7920]]
debt securities denominated in U.S. dollars as well as foreign
currencies, meaning both U.S. and foreign debt securities can be held.
Since May 1995 (the inception of the Limited Maturity portfolio), the
total return of the two portfolios has been similar in the aggregate.
Total return for the Limited Maturity portfolio was 5.95% in 1997 and
6.70% over the last 12 months; total return for the Short-Term Multi-
Market portfolio was 3.13% in 1997 and 4.11% over the last 12 months.
The total annual expenses for the Limited Maturity portfolio are 0.88%
(0.65% management fee and 0.24% other expenses) while those for the
Short-Term Multi-Market portfolio are 0.95% (0.00% management fee and
0.95% other expenses). Furthermore, the investment manager is waiving
all of its management fee of the Short-Term Multi-Market Portfolio.
Without this management fee waiver, the management fee would be 0.55%.
In addition, other expenses are being partially reimbursed. Other
expenses without reimbursement would be 1.54%.
22. The investment objectives and policies of both the Alliance
Money Market portfolio and the AST Money Market portfolio are to seek
high current income and maximum liquidity. The AST Money Market
portfolio will only invest in obligations of financial institutions
with more than $2 billion of assets, while the Alliance Money market
portfolio can invest in institutions with only $1 billion of assets.
The total return of the AST Money Market portfolio has been 2.18% year
to date and 3.79%, 3.72%, and 3.26% for the last one, three and five
year periods. The total return of the Alliance Money Market portfolio
has been 2.11% year to date, and 3.68%, 3.48% and 2.94% for the last
one, three and five year periods. The total annual expenses for the AST
Money Market portfolio 0.60% (0.45% management fee and 0.15% other
expenses). The total annual expenses for the Alliance Money Market
portfolio are 0.69% (0.50% management fee and 0.19% other expenses).
The adviser currently is waiving a portion of the management fee equal
to 0.05% and is reimbursing a portion equal to 0.04% of the other
expenses of the AST Money Market Fund.
23. The International Bond portfolio seeks to provide high current
income and capital appreciation by investing in high-quality, non
dollar-denominated government and corporate bonds outside the United
States. The North American Government Income portfolio seeks the
highest level of current income, consistent with what the adviser
considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the governments of
the United States, Canada, Mexico and Argentina, their political
subdivisions (including Canadian Provinces but excluding States of the
United States), agencies, instrumentalities or authorities, The Global
Dollar Government portfolio seeks a high level of current income. Its
secondary investment objective is capital appreciation. In seeking to
achieve these objectives, the portfolio will invest at least 65% of its
total assets in fixed income securities issued or guaranteed by foreign
governments. The Global Bond portfolio seeks a high level of return
from a combination of current income and capital appreciation by
investing in a globally diversified portfolio of high quality debt
securities denominated in U.S. dollars and a range of foreign
currencies. In 1995, total return of the International Bond portfolio
was 9.95% compared to 20.9% for the North American Government Income
portfolio, 21.17% for the Global Dollar Government portfolio and 22.28%
for the Global Bond portfolio. In 1996, total return of the
International Bond portfolio was 4.49% compared to 17.03% for the North
American Government Income portfolio, 23.14% for the Global Dollar
Government portfolio and 4.71% for the Global Bond portfolio. In 1997,
total return of the International Bond portfolio was -4.77%, compared
to 8.09% for the North American Government Income portfolio, 11.65% for
the Global Dollar Government portfolio and -0.74 for the Global Bond
portfolio. The total annual expenses for the International Bond
portfolio are 1.11% (0.80% management fee and 0.31% other expenses).
The total annual expenses for the North American Government Income
portfolio are 0.95% (0.19% management fee and 0.76% other expenses).
However, the North American Government Income portfolio has a 0.46%
management fee waiver. The total annual expenses for the Global Dollar
Government portfolio are 0.95% (0.00% management fee and 0.95% other
expenses). However, the adviser to the Global Dollar Government
portfolio currently is waiving its management fee of 0.75% and
reimbursing 0.27% of the portfolio's other expenses. If the management
fee waiver and expense reimbursement arrangement were to be
discontinued or partially waived, total annual expenses would increase
to as much as 1.97%. The total annual expenses for the Global Bond
portfolio are 0.94% (0.44% management fee and 0.50% other expenses).
However, the investment adviser is waiving a portion of the management
fee equal to 0.21%. Without the management fee waiver and expense
reimbursement, total portfolio expenses would be 1.15%.
24. The JanCap Growth portfolio seeks growth of capital in a manner
consistent with the preservation of capital, by investing in the common
stock of industries and companies that the Portfolio's sub-advisor
believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive and regulatory
environment. The Premier Growth portfolio seeks growth of capital by
pursuing aggressive investment policies in the equity securities of a
limited number of large, carefully selected, American companies that,
in the judgment of the portfolio's advisor, are high quality and likely
to achieve superior earnings growth. The Growth portfolio seeks long-
term growth of capital by investing primarily in equity securities of
companies with a favorable outlook for earnings and the rate of growth
of which is expected to exceed that of the United States economy over
time. Year-to-date total return of the JanCap Growth portfolio is
36.44%, compared to 30.50% for the Premier Growth portfolio and 16.06%
for the Growth portfolio. The total return of the JanCap Growth
portfolio for the past 12 months has been 31.05%, compared to 28.44%
for the Premier Growth portfolio and 22.48% for the Growth portfolio.
The total return of the JanCap Growth portfolio for the past three
years has been 31.55%, compared to 30.24% for the Premier Growth
portfolio and 25.90% for the Growth portfolio. The total annual
expenses of the JanCap Growth portfolio are 1.06% (0.88% management fee
and 0.18% other expenses), compared to 1.08% (1.00% management fee and
0.08% other expenses) for the Premier Growth portfolio and 0.84% (0.75%
management fee and 0.09% other expenses) for the Growth portfolio.
However, the JanCap Growth portfolio currently has in place a
management fee waiver equal to 0.02%. Without the fee waiver, total
annual expenses of the JanCap Growth portfolio would be 1.08%.
25. The Lord Abbett Growth & Income portfolio seeks long-term
growth of capital and income while attempting to avoid excessive
fluctuations in market value by investing in securities which are
selling at reasonable prices in relation to value. Normally,
investments will be made in common stocks of seasoned companies which
are expected to show above-average growth and
[[Page 7921]]
which the Sub-advisor believes to be in sound financial condition. The
Growth and Income portfolio seeks reasonable current income and
reasonable opportunity for appreciation through investments primarily
in dividend-pay common stocks of good quality. The Utility Income
portfolio seeks current income and capital appreciation by investing
primarily in equity and fixed income securities of companies in the
utilities industry. Year to date total return of the Lord Abbett Growth
& Income portfolio has been 4.26% compared to 11.45% for the Growth and
Income portfolio and 8.98% for the Utility Income portfolio. The total
return of the Lord Abbett Growth & Income portfolio over the past 12
months has been 3.54% compared to 13.76% for the Growth and Income
portfolio and 23.56% for the Utility Income portfolio. The total return
of the Lord Abbett Growth & Income portfolio over the past three years
has been 16.76% compared to 23.44% for the Growth and Income portfolio
and 15.00% for the Utility Income portfolio. The total annual expenses
for the Lord Abbett Growth & Income Portfolio are 0.93% (0.75%
management fee and 0.18% other expenses), compared to 0.72% (0.63%
management fee and 0.09% other expenses) for the Growth and Income
portfolio and 0.95% (0.19% management fee and 0.76% other expenses) for
the Utility Income portfolio. However, the Utility Income portfolio
currently has a 0.56% management fee waiver in place. Without the fee
waiver, total annual expenses of the Utility Income portfolio would
increase to 1.51%.
26. ASLAC, on its own behalf and on behalf of Account B, also
proposes to exercise its contractual right to eliminate the Alger
American Small Capitalization Portfolio of The Alger American Fund
(``Alger Small Capitalization portfolio'') as an investment option
under the following contracts: Account B-1 Contracts (PSA, ASAP,
ASAPII, ASXT, ASL, and ASPro); Account B-2 Contracts (Advisors Choice
and Advisors Choice2); and Account B-3 Contracts (ASImpact). ASLAC
proposes to substitute shares of AST Kemper Small Cap Growth portfolio,
(Kemper Small Cap Growth portfolio''), a portfolio of American Skandia
Trust that is sub-advised by Scudder Kemper Investments, Inc. for
shares of the Alger Small Capitalization portfolio (``Substitution No.
3''). The investment objectives and policies of the Alger Small
Capitalization and Kemper Small-Cap Growth portfolios are very similar.
Both portfolios seek capital appreciation by investing in smaller
companies, generally within the range of companies included within the
Russell 2000 Growth Index ($1 billion to $1.5 billion capitalization).
The Kemper Small-Cap Growth portfolio is a new portfolio that
applicants began to offer on January 4, 1999. Its investment objective
and style modeled after the Investors Fund Series Kemper Passport Small
Cap Growth Fund (``Passport Fund''), an underlying mutual fund offered
to various sub-accounts of Kemper Investors Life Insurance Company, and
its portfolio manager will be the same as the portfolio manager of the
Passport Fund. Total return of the Passport Fund has been 28.47%
(1995), 26.45% (1996) and 32.55% (1997), respectively. Total return of
the Alger Small Capitalization portfolio has been 42.29% (1995), 2.71%
(1996) and 9.83% (1997), respectively. Total annual expenses for the
Alger Small Capitalization portfolio are 0.89% (0.85% management fee
and 0.04% other expenses). The management fee for the AST Kemper Small-
Cap Growth portfolio will be 0.95% on the first $1 billion of portfolio
assets and 0.90% on assets in excess of $1 billion. Other expenses for
the AST Kemper Small-Cap Growth portfolio are estimated and annualized
at 0.59%. However, the portfolio has a voluntary expense cap so that
initially, total annual expenses will be 1.35%.
27. ASLAC, on its own behalf and on behalf of Account B, also
proposes to exercise its contractual right to eliminate the Stein Roe
Venture Portfolio of AST (``Venture portfolio'') as an investment
option under the following contracts: Account B-1 Contracts (PSA, ASAP,
ASAPII, ASXT, Stagecoach XT, ASL, Stagecoach ASL, ASPro, Stagecoach VA
Plus and Stagecoach Variable Annuity); Account B-2 Contracts (Advisors
Choice and Advisors Choice2); and Account B-3 Contracts (ASImpact).
ASLAC proposes to substitute shares of the AST T. Rowe Price Small
Company Value Portfolio (``Value portfolio''), that is sub-advised by
T. Rowe Price Associates, Inc., for shares of the Venture portfolio
(``Substitute No. 4,'' together with Substitutions 1-3,
``Substitutions''). (The portfolios to be replaced in the Substitutions
are referred to collectively as the ``Replaced Portfolios.'' The
portfolios to be substituted in the Substitutions are referred to
collectively as the ``Substitute Portfolios.'') Both portfolios are
managed with a value approach, seeking stocks of companies whose
current stock prices do not appear to adequately reflect their
underlying value as measured by assets, earnings, cash flow, or
business franchises. The Value portfolio has been in existence since
December 31, 1996. Its total return has been 0.75% for the last 12
months and 11.33% since inception. The Venture portfolio has been in
existence since December 31, 1997. Since inception, its total return
has been--13.51%. Total annual expenses for the Value portfolio are
currently 1.16% (0.90% Management fee and 0.26% other expenses),
compared to an estimated 1.34% for the Stein Roe Venture portfolio
(0.95% management fee and 0.39% estimated other expenses). Estimated
annual other expenses before giving effect to an expense reimbursement
for the Venture portfolio are 1.24%. Applicants assert that the Venture
portfolio has not been able to accumulate enough assets to make it a
viable portfolio.
28. In any state, at least five days prior to the latest of: (a)
the granting of the requested exemptive relief; (b) approval, if
required, of the state insurance department in a particular state; or
(c) the date determined by the management of ASLAC (``Measuring
Date''), ASLAC will mail a written notice to all owners (``Contract
Owners'') of the applicable Annuity (the ``Notices''). ASLAC will also
mail the Notices to other persons who have vested interests in an
Annuity. The Notices will include a current AST prospectus. Transfer
request forms and prepaid postage return envelopes will be included
with the Notices.
29. ASLAC distributed a prospectus supplement to Contract Owners of
the respective contracts affected by Substitution No. 1 and
Substitution No. 2 on or about March 10, 1998. The supplement notified
Contract Owners of those proposed substitutions and the impact on the
availability of the Replaced Portfolios. In addition, the May 1, 1998
prospectus for each of those Contracts disclosed the proposed
substitutions and discussed the rights of Contract Owners. On December
31, 1998, ASLAC distributed a prospectus supplement to Contract Owners
affected by Proposed Substitution No. 3 and Proposed Substitution No. 4
regarding the proposed substitutions and the rights of Contract Owners.
30. As of the Measuring Date, any initial allocations or internal
transfers to any Sub-account offering investment in the Replaced
Portfolios (``Replaced Sub-accounts'') will automatically be allocated
to the corresponding Sub-account offering investment in the
corresponding Substitute Portfolio (``Substitute Sub-account'').
Replaced Sub-accounts will not be eligible for any
[[Page 7922]]
new allocations or transfers on or after the Measuring Date.
31. Up to and including the 59th calendar day, or if the 59th
calendar day is not a business day, then the following business day,
after the Measuring Date, (the ``Voluntary Transfer End Date''),
Contract Owners may transfer Account Value out of any Replaced Sub-
account to any other available Sub-account without transfer fees.
Furthermore, any such transfer will not be counted toward the
limitation on transfers, currently 12 per year in each of the Annuity
contracts.
32. The next business day after the Voluntary Transfer End Date
(the 60th calendar day or the next business day following the 60th
calendar day) will be the ``Automatic Selection Date.'' On the
Automatic Selection Date, any Account Value that remains allocated to
each Replaced Sub-account will be automatically transferred to the
corresponding Substitute Sub-account. During the 30 days following the
Substitution Date, Contract Owners may transfer value out of any
Substitute Sub-Account to any other available Sub-account with no
transfer fees.
Applicants' Legal Analysis and Conditions
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
policies and provisions of the 1940 Act. Section 26(b) protects the
expectation of investors that the unit investment trust will accumulate
shares of a particular issuer and is intended to insure that
unnecessary or burdensome sales loads, additional reinvestment costs or
other charges will not be incurred due to unapproved substitutions of
securities.
2. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the Substitutions. Applicants represent that the
purposes, terms, and conditions of the Substitutions are consistent
with the protection for which Section 26(b) was designed. Applicants
assert that Substitution No. 1 would benefit investors because it would
result in greater administrative efficiency and enhanced oversight of
the MidCap portfolio by ASLAC while continuing to provide Contract
Owners with a ``best-in-class'' money manager and the identical fund
objective and investment policies and restrictions as those of the
Partners portfolio. Applicants assert that Substitution No. 2 would
benefit investors because it would consolidate insufficiently sized
Subaccounts, which would help reduce the high fixed costs of compliance
and reporting of Alliance and that segment of Account B-1 dedicated to
the Alliance Capital Navigator annuity. Following the Substitutions,
Alliance Capital Navigator Contract Owners would be able to reallocate
account value to any of the variable investment options available
through American Skandia Trust in addition to the three remaining
portfolios of the Alliance Variable Products Series. Furthermore,
Alliance Capital Navigator Contract Owners are likely to benefit from
economies of scale in most cases as a result of Substitution No. 2.
Substitution No. 3, like Substitution No. 1, would result in greater
administrative efficiency and enhanced oversight of the Substitute
Portfolio by ASLAC. Applicants assert that oversight has been a
particular issue with the Replaced Portfolio, which has experienced
significant ``style drift'' within its objective and investment style.
The Replaced Portfolio's securities holdings have drifted toward a
midsize capitalization. In addition, its performance has not been
satisfactory when compared to other small capitalization portfolios in
its universe or when compared to the most relevant index, the Russell
2000. Substitution No. 4 would benefit investors by replacing a
portfolio that has not been able to generate enough asset flow to make
it a viable portfolio and over its limited tenure, has had performance
that was below its peer group.
3. Any investor who does not want his or her assets allocated to
the Substitute Portfolios would be able to transfer assets to any one
of the other sub-accounts available under their annuity without charge
prior to the Automatic Selection Date or up to 30 days after the
Automatic Selection Date.
4. Applicants represent that the Substitutions will be effected at
net asset value in conformity with Sections 22(c) and 22(g) of the 1940
Act and Rule 22c-1 thereunder. The Substitutions may be effected
primarily for cash, but also may involve partial redemptions in-kind of
securities. The use of in-kind redemptions in conformity with Section
22(g) of the 1940 Act will reduce the brokerage expenses involved in
the Substitutions. The in-kind redemptions will be affected to the
extent consistent with the investment objectives and any applicable
diversification requirements.
5. ASLAC or the investment adviser of the Substitute Portfolios (or
sub-advisor where applicable) will assume the transfer and custodial
expenses and legal and accounting fees incurred with respect to the
Substitutions. Contract Owners will not incur any fees or charges as a
result of the transfer of account values from any portfolio. All
contract level fees and charges and the asset-based fees (morality,
expense risk and administration fees) deducted by the separate account
will remain the same after the Substitutions. Applicants represent that
the rights and benefits of Contract Owners or ASLAC's obligations,
under any Annuity will not be altered in any way. Applicants further
represent that the Substitutions are designed to avoid any adverse
effects upon the tax benefits available to Contract Owners; the
Substitutions are designed not to give rise to any current Federal
income tax to policyholders.
6. Section 17(a)(1) of the 1940 Act prohibits any affiliated person
or an affiliate of an affiliated person, of a registered investment
company, from selling any security or other property to such registered
investment company. Section 17(a)(2) of the 1940 Act prohibits such
affiliated persons from purchasing any security or other property from
such registered investment company.
7. Section 17(b) of the 1940 Act authorizes the Commission to issue
an order exempting a proposed transaction from Section 17(a) if: (a)
the terms of the proposed transaction are fair and reasonable and do
not involve overreaching on the part of any person concerned; (b) the
proposed transaction is consistent with the policy of each registered
investment company concerned; and (c) the proposed transaction is
consistent with the general purposes of the 1940 Act.
8. Applicants request an order pursuant to Sections 6(c) and 17(b)
of the 1940 Act exempting the in-kind redemptions from the provisions
of Section 17(a) of the 1940 Act.
9. Applicants represent that the terms of the Substitutions are
reasonable and fair and do not involve overreaching on the part of any
person concerned. The Substitutions would be effected at the net asset
value of the securities involved and the interests of Contract Owners
would not be diluted. In-kind redemptions would alleviate some of the
expenses involved with the Substitutions and only would be used to the
extent they are consistent with the investment objectives and
applicable diversification requirements of the affected portfolios. All
in-kind redemptions would be conducted in a
[[Page 7923]]
manner conforming with the conditions of Rules 17a-7 under the 1940
Act.
10. Applicants represent 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 delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3773 Filed 2-16-99; 8:45 am]
BILLING CODE 8010-01-M
