[Federal Register: October 26, 2005 (Volume 70, Number 206)]
[Notices]
[Page 61850-61854]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26oc05-134]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27118; File No. 812-13195]
Ameritas Variable Life Insurance Company, et al.: Notice of
Application
October 20, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(c) of
the Investment Company Act of 1940 (the ``1940 Act'' or ``Act'')
approving certain substitutions of securities and for an order of
exemption pursuant to Section 17(b) of the Act from Section 17(a) of
the Act.
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Applicants: Ameritas Variable Life Insurance Company
(``Ameritas''), Ameritas Variable Life Insurance Company Separate
Account V (``Account V'') and Ameritas Variable Life Insurance Company
Separate Account VA-2 (``Account VA-2'', together with Account V
``Separate Accounts'') and Ameritas Investment Corp. (``Ameritas
Investment'') (collectively, the ``Applicants'').
Summary of Application: The Applicants request an order pursuant to
Section 26(c) of the 1940 Act to permit the substitution of shares of
Calvert Variable Series, Inc.'s Ameritas Portfolios (``Ameritas
Portfolios'') Income & Growth Fund (``Ameritas Income & Growth'' or
``Replacement Fund'') for (a) shares of Alger American Leveraged
AllCap--Class 0 Portfolio (``Alger AllCap'') of the Alger American Fund
and (b) shares of Salomon Variable All Cap Portfolio (``Salomon
Variable All Cap'') of the Salomon Brothers Variable Series Trust
(Alger AllCap and Salomon Variable All Cap collectively, the
``Substituted Portfolios'') currently held by the Separate Accounts.
Applicants also request an order of exemption pursuant to Section 17(b)
of the 1940 Act from the provisions of Section 17(a) of the Act to
permit certain in-kind transactions in connection with the
substitutions.
Filing Date: The application was filed on May 31, 2005 and amended
and restated on September 12, 2005, September 29, 2005, October 3, 2005
and October 7, 2005.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested person may request a hearing 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 14, 2005, and should be 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 the writer's interest, the reason for the request, and the
issues contested. Persons who wish to be notified of a hearing may
request notification by writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-9303.
[[Page 61851]]
Applicants, c/o Kenneth W. Reitz, Ameritas Variable Life Insurance
Company, 5900 ``O'' Street, Lincoln, NE 68501.
FOR FURTHER INFORMATION CONTACT: Joyce M. Pickholz, Senior Counsel, or
William J. Kotapish, Assistant Director, Office of Insurance Products,
Division of Investment Management at (202) 551-6795.
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, 100 F Street, NE., Room
1580, Washington, DC 20549 (telephone (202) 551-5850).
Applicants' Representations
1. Ameritas is a stock life insurance company organized in the
State of Nebraska currently licensed to sell life insurance in 49
states (all except New York) and in the District of Columbia. Ameritas
is a wholly owned subsidiary of AMAL Corp. which is a direct subsidiary
of Ameritas Life Insurance Corp. Ameritas Life Insurance Corp. is a
subsidiary of Ameritas Acacia Mutual Holding Company.
2. Ameritas Investment, a Nebraska corporation, is registered as an
investment adviser under the 1940 Act and as a broker-dealer under the
Securities Exchange Act of 1934. Ameritas Investment is an affiliate of
Ameritas. Ameritas Investment is the investment adviser of the Ameritas
Portfolios and principal underwriter of the Contracts.
3. Account V is a separate account established by Ameritas under
Nebraska law to fund variable life insurance contracts issued by
Ameritas. Account VA-2 is a separate account established by Ameritas
under Nebraska law to fund variable annuity contracts issued by
Ameritas. Account V and Account VA-2 are registered under the 1940 Act
as unit investment trusts (File Nos. 811-04473 and 811-05192
respectively). The variable life insurance contracts and variable
annuity contracts issued through the Separate Accounts (together,
``Contracts'') have been registered under the 1933 Act.
4. Calvert Variable Series, Inc. (``CVS'') is registered under the
1940 Act as an open-end management investment company of the series
type. The Ameritas Portfolios, including Ameritas Income and Growth,
are series of CVS. CVS obtained an order pursuant to Section 6(c) of
the 1940 Act exempting it and Ameritas Investment, as investment
advisor, from Section 15(a) of the 1940 Act with respect to subadvisory
agreements (the ``Manager of Managers Order''). The Manager of Managers
Order permits Ameritas Investment to replace any sub-adviser or to
employ a new sub-adviser for each of its series without obtaining
shareholder approval. At a meeting held on January 15, 2002,
shareholders of each Ameritas Portfolio approved the implementation of
procedures contemplated in the Manager of Managers Order. Fred Alger
Management, Inc. is the subadviser to Ameritas Income & Growth.
5. Each of the Contracts permits its owners to allocate the
Contract's accumulated value among numerous Subaccounts of the Separate
Accounts. Each Subaccount invests exclusively in a different investment
portfolio (``Fund'') of an underlying mutual fund. Depending on the
Contract, between twenty-one and thirty-six different Subaccounts (and
corresponding funds) are currently available for this purpose.
6. Contract Owners can allocate accumulated Contract value to one
or more Subaccounts and/or, where available, to the Fixed Account,
subject to certain potential restrictions described in the application
and in the prospectus relating to each Contract. No sales charge
applies to any transfer of accumulated Contract value among
Subaccounts. Applicants represent that the relief requested here will
not affect any charge to which Contract Owners of any Contract would
otherwise be subject, or affect any right or privilege to which such
owners are otherwise entitled.
7. The Contracts expressly reserve to Ameritas the right to
substitute shares of another investment company for shares of an
investment company held by a Subaccount of the Separate Accounts.
Ameritas proposes to substitute shares of Ameritas Income and Growth
for shares of (a) Alger AllCap and (b) Salomon Variable All Cap held by
Subaccounts of the Separate Accounts (each a ``Substitution'' and
together, the ``Substitutions'').
8. The investment objectives and principal investment policies of
the Replacement Fund and the Substituted Portfolios are as follows:
Ameritas Income & Growth primarily seeks to provide a high level of
dividend income, with a secondary goal to provide capital appreciation,
by investing in dividend paying equity securities, such as common or
preferred stocks, preferably those which the subadviser believes also
offer opportunities for capital appreciation. Alger AllCap seeks long-
term capital appreciation by investing in equity securities of
companies of any size which demonstrate promising growth potential.
Salomon Variable All Cap seeks capital appreciation by investing
primarily in securities which the manager believes have above-average
capital appreciation potential. A secondary consideration is given to a
company's dividend record and the potential for improved dividend
return. Salomon Variable All Cap invests primarily in common stocks and
common stock equivalents of large well known domestic companies, but
may also invest a significant portion of its assets in securities of
small to medium-sized companies and may invest in fixed income
securities, convertible debt securities, securities of foreign issuers,
and in non-dividend paying stocks.
9. Following is the comparative expense data for the Substitutions
as of December 31, 2004. Applicants submit that each Substitution will
result in a Replacement Fund with net expenses and management fees less
than the Substituted Fund. Applicants also represent that there are no
breakpoints in fund expenses for either the Substituted Funds or the
Replacement Fund.
[In percent]
----------------------------------------------------------------------------------------------------------------
Replacement Substituted Replacement
Substituted fund Ameritas fund Salomon fund Ameritas
fund Alger Income & Variable All Income &
AllCap Growth Cap Growth
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Management Fees................................. 0.85 0.74 0.75 0.74
Distribution and service (12b-1) fees........... .............. .............. .............. ..............
Other Expenses.................................. 0.12 0.22 0.05 0.22
Total Expenses.................................. 0.97 0.96 0.80 0.96
Waivers......................................... .............. \1\ 0.18 .............. \2\ 0.18
[[Page 61852]]
Net Expenses.................................... 0.97 0.78 0.80 0.78
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\1\ Pursuant to a contractual agreement between Ameritas Portfolios and Ameritas Investment, Ameritas
Investment, has agreed to waive fees or reimburse expenses so that Total Expenses do not exceed the rate shown
in the table above through April 30, 2006. Management Fee includes both the investment advisory fee and
administrative service fee. The administrative service fee is 0.05% of the fund's average daily net assets
with a minimum of $50,000.
\2\ Supra, footnote 1.
10. The day-to-day manager of both the Substituted Alger AllCap
Fund as its adviser and to the Replacement Ameritas Income & Growth
Fund as its subadviser is Fred Alger Management, Inc.
11. Applicants note that Contract Owners with Subaccount balances
invested in shares of the Replacement Funds will have lower total
expense ratios than they currently have in the Substituted Funds.
Moreover, there will be no increase in Contract fees and expenses
including mortality and expense risk fees and administration and
distribution fees charged to the Separate Accounts as a result of the
Substitutions. Applicants believe that, if the proposed Substitutions
are implemented, the core investment goals of affected Contract Owners
will not be frustrated and the investment expectations of affected
Contract Owners can continue to be met. Applicants expect that the
Substitutions will provide significant benefits to Contract Owners,
including improved selection of portfolio managers and simplification
of fund offerings through the elimination of overlapping offerings.
Applicants state that Ameritas considered the performance history
of the Substituted Funds and the Replacement Funds and determined that
no Contract Owners would be materially adversely affected as a result
of the Substitutions. Applicants believe that the Substitutions, each
of which replaces outside funds with a fund for which Ameritas
Investment acts as investment advisor, will permit Ameritas Investment,
under a multi-manager order granted by the Commission and under
shareholder approval previously obtained, to hire, monitor and replace
subadvisers as necessary to seek optimal performance and to ensure a
consistent investment style. Applicants further believe that the
subadviser to the Replacement Fund is better positioned to provide
consistent above-average performance for its Fund than the adviser or
subadvisers of the Substituted Funds. Applicants state that Contract
Owners will continue to be able to select among a large number of
funds, with a full range of investment objectives, investment
strategies, and managers. Applicants believe there will also be a
significant savings to Contract Owners because certain costs, such as
the costs of printing and mailing lengthy periodic reports and
prospectuses for the Substituted Funds will be substantially reduced.
12. Applicants represent that they will not receive, for three
years from the date of the Substitutions, any direct or indirect
benefits from the new fund, its advisors or underwriters, or from
affiliates of the new funds, their advisors or underwriters, in
connection with assets attributable to Contracts affected by the
Substitutions, at a higher rate than Applicants have received from
substituted funds, their advisors or underwriters, or from affiliates
of substituted funds, their advisors or underwriters, including without
limitation Rule 12b-1 fees, shareholder service or administrative or
other service fees, revenue sharing or other arrangements (collectively
``Revenue Arrangements''). Applicants represent that the substitutions
and the selection of the new fund was not motivated by any financial
consideration paid or to be paid to Applicants or any affiliate of
Applicants by the new fund, its advisors, underwriters, or affiliates.
13. The proposed Substitutions will take place at relative net
asset value with no change in the amount of any Contract Owner's
Contract value, cash value, or death benefit or in the dollar value of
his or her investment in the Separate Accounts. Applicants expect that
the Substitutions will be effected by redeeming shares of a Substituted
Fund and reinvesting the proceeds of such redemption in shares of the
Replacement Fund through a combination of cash and ``in kind''
transactions.
14. Contract Owners will not incur any fees or charges as a result
of the proposed Substitutions, nor will their rights or Ameritas'
obligations under the Contracts be altered in any way. All expenses
incurred in connection with the proposed Substitutions, including
brokerage, legal, accounting, and other fees and expenses, will be paid
by Ameritas. In addition, the proposed Substitutions will not impose
any tax liability on Contract Owners. The proposed Substitutions will
not cause the Contract fees and charges currently being paid by
existing Contract owners to be greater after the proposed Substitutions
than before the proposed Substitutions. No fees will be charged on the
transfers made at the time of the proposed Substitutions because the
proposed Substitutions will not be treated as a transfer for the
purpose of assessing transfer charges or for determining the number of
remaining permissible transfers in a Contract year.
15. Following the date on which Ameritas is notified that the
notice of the Application is to be published in the Federal Register,
but before the date on which the order requested by the application
becomes effective, Ameritas will send to affected Contract Owners
notice (``Substitution Notice''). The Substitution Notice will inform
affected Contract Owners of (a) the Effective Date of the Substitutions
(``Effective Date''); (b) the right of each affected Contract Owner,
under their Contract, to transfer contract values among the various
Subaccounts; and (c) the fact that any such transfer involving a
transfer from a substituted fund will not be subject to any
administrative charge and will not count as one of the ``free
transfers'' to which affected Contract Owners may otherwise be
entitled. The Substitution Notice will also inform affected Contract
Owners that (a) Ameritas will not exercise any rights reserved under
any Contract to impose additional restrictions on transfers (other than
with respect to ``market timing'' activity described in each Contract's
prospectus) until at least 30 days after the proposed Substitutions;
(b) for 30 days after the proposed Substitutions, Ameritas will permit
affected Contract Owners to make transfers of Contract value (or
annuity unit exchange) out of the
[[Page 61853]]
Replacement Fund Subaccount to another Subaccount without the transfer
(or exchange) being treated as one of a limited number of transfers (or
exchanges) permitted without a transfer charge.
16. Within five days after the Effective Date, Ameritas will also
send affected Contract Owners a second written notice (``Confirmation
Notice''). The Confirmation Notice will (a) confirm that the
Substitutions were carried out; (b) reiterate that each affected
Contract Owner may transfer all of the contract value or cash value
under a Contract that is invested in a Substituted Fund to any other
Subaccount available under their Contract without such transfer being
subject to any administrative charge, or being counted as one of the
``free transfers'' (or one of the limited number of transfers) to which
affected Contract Owners may be entitled under the Contracts; and (c)
state that, other than with respect to ``market timing'' activity
described above, Ameritas will not exercise any rights reserved by it
under the Contracts to impose additional restrictions on transfers
until at least 30 days after the Effective Date.
17. For those who were Contract Owners on the date of the proposed
Substitutions, Ameritas and Ameritas Investment will reimburse, on the
last business day of each fiscal period (not to exceed a fiscal
quarter) during the twenty-four months following the date of the
proposed Substitutions, the Subaccount investing in the Replacement
Fund such that the sum of the Replacement Fund's operating expenses
(taking into account fee waivers and expense reimbursements) and
Subaccount expenses (asset-based fees and charges deducted on a daily
basis from Subaccount assets and reflected in the calculation of
Subaccount unit values) for such period will not exceed, on an
annualized basis, the sum of the Replacement Fund's operating expenses
(taking into account fee waivers and expense reimbursements) and
Subaccount expenses for the fiscal year preceding the date of the
proposed Substitutions. In addition, for twenty-four months following
the proposed Substitutions, Ameritas and Ameritas Investment will not
increase separate account fees or charges for Contracts outstanding on
the date of the proposed Substitutions.
Applicants' Legal Analysis
1. Section 26(c) of the 1940 Act provides, in pertinent part, 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.'' Section 26(c) of the 1940 Act
also provides that the Commission shall issue an order approving such
substitutions if the evidence establishes that the substitutions are
consistent with the protection of investors and the purposes fairly
intended by the policies and provisions of the 1940 Act.
2. The Contracts expressly reserve to Ameritas the right, subject
to compliance with applicable law, to substitute shares of another
investment company for shares of an investment company held by a
Subaccount of the Separate Accounts. Applicants assert that the
prospectuses for the Contracts and the Separate Accounts contain
appropriate disclosure of this right.
3. In each case, Applicants believe that it is in the best
interests of the Contract Owners to substitute the Replacement Fund for
the Substituted Fund. In this regard, Applicants contend that the
proposed Replacement Fund for each Substituted Fund has an investment
objective that is at least substantially similar to that of the
Substituted Fund. Applicants also assert that the principal investment
policies of the Replacement Funds are similar to those of the
corresponding Substituted Funds. In addition, with respect to each
proposed substitution, Applicants note that affected Contract Owners
with balances invested in the Replacement Fund will have a lower or the
same expense ratio in all cases.
4. Applicants anticipate that Contract Owners will be better off
with the array of Subaccounts offered after the proposed Substitutions
than they have been with the array of Subaccounts offered prior to the
Substitutions. The proposed Substitutions retain for Contract Owners
the investment flexibility which is a central feature of the Contracts.
If the proposed Substitutions are carried out, all Contract Owners will
be permitted to allocate purchase payment and transfer Contract values
and cash values between and among approximately the same number of
Subaccounts as they could before the proposed Substitutions. Moreover,
the elimination of the costs of printing and mailing prospectuses and
periodic reports of the Substituted Funds will benefit Contract Owners.
5. Applicants note that Contract Owners who do not wish to
participate in a Replacement Fund will have an opportunity to
reallocate their accumulated value among other available Subaccounts
without the imposition of any charge or limitation (other than with
respect to ``market timing'' activity).
6. Applicants assert that, for the reasons summarized above, the
proposed Substitutions and related transactions meet the standards of
Section 26(c) of the 1940 Act and that the requested order should be
granted.
7. Sections 17(a)(1) and (2) of the 1940 Act prohibit an affiliated
person of a registered investment company, or affiliated persons of any
such affiliated person, or any principal underwriter for such company
(collectively, ``Transaction Affiliates'') from selling a security to,
or purchasing a security from, the registered investment company.
Applicants may be deemed to be Transaction Affiliates of one another
based upon the definition of ``affiliated person'' under Section
2(a)(3) of the 1940 Act. Because the Substitutions may be effected, in
whole or in part, by means of in-kind redemptions and purchases, the
Substitutions may be deemed to involve one or more purchases or sales
of securities or property between Transaction Affiliates.
8. Section 17(b) provides that the Commission may grant an
application exempting proposed transactions from the prohibitions of
Section 17(a) if the terms of the proposed transaction are reasonable
and fair and do not involve overreaching on the part of any person
concerned; the transaction is consistent with the investment policies
of each registered investment company concerned; and the transaction is
consistent with the general purposes of the Act. Applicants state that
the consideration to be paid by the Replacement Fund, and each of the
Substituted Funds, will be fair and reasonable and will not involve
overreaching because the Substitutions will not result in the dilution
of the interests of any affected Contract Owners and will not effect
any change in economic interest, Contract value or the dollar value of
any variable contract held by an affected Contract Owner.
9. In addition, Applicants state that to the extent the
Substitutions are effected by redeeming shares of the Substituted Funds
and using the redemption proceeds to purchase shares of the Replacement
Funds, the Substitutions will satisfy each of the procedural safeguards
adopted by the Board of Directors responsible for each of the Ameritas
Portfolios and the Substituted Funds, respectively under Rule 17a-7
under the 1940 Act.
Applicants' Conclusion
Applicants assert that for the reasons summarized above the
proposed substitutions and transactions meet the standards of Section
26(c) of the Act and are consistent with the standards of
[[Page 61854]]
Section 17(b) of the Act and that the requested orders should be
granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5-5944 Filed 10-25-05; 8:45 am]
BILLING CODE 8010-01-P