[Federal Register Volume 67, Number 109 (Thursday, June 6, 2002)]
[Notices]
[Pages 39086-39089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14202]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-25600; File No. 812-12100]
Ameritas Life Insurance Corp., et al.; Notice of Application
May 31, 2002.
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 (``1940 Act'').
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Applicants: Ameritas Life Insurance Corp. (``Ameritas''), and
Ameritas Life Insurance Corp. Separate Account LLVA (``Separate
Account'').
Summary of Application: Applicants seek an order pursuant to Section
26(c) of the 1940 Act to permit the substitution of shares of the
Vanguard International Portfolio for the Strong International Fund II.
Filing Date: The application was filed by Acacia National Life
Insurance Company, Acacia National Variable Life Separate Account I and
Acacia National Variable Annuity Separate Account II (collectively, the
``Acacia Applicants'') on May 16, 2000, and amended and restated by the
Acacia Applicants, Ameritas and Separate Account on October 16, 2001.
The filing was amended and restated by Ameritas and Separate Account on
February 12, 2002, April 10, 2002, and April 19, 2002. Applicants
represent that they will file an amendment to the application during
the notice period to conform to the representations set forth herein.
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 June 21, 2002, 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 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, 450 Fifth
Street, NW., Washington, DC 20549-0609. Applicants: Ken Reitz, Esq.,
Ameritas Life Insurance Corp., 5900 ``O'' Street, Lincoln, NE 68510.
For Further Information Contact: Zandra Y. Bailes, Senior Counsel, or
Lorna MacLeod, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
Supplementary Information: The 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 (telephone (202) 942-8090).
Applicants' Representations
1. Ameritas is a stock life insurance company organized in the
State of Nebraska and currently licensed to sell life insurance in all
50 states and in the District of Columbia. Ameritas is a subsidiary of
AmeritasAcacia Mutual Holding Company.
2. The Separate Account was established by Ameritas on August 26,
1995, to receive and invest premiums received from purchasers of
certain variable annuity contracts issued by Ameritas. The Separate
Account is registered with the Commission as a unit investment trust
under the 1940 Act. In addition, the variable annuity contracts funded
by the Separate Account are registered with the Commission under the
Securities Act of 1933 (``1933 Act''). The income, capital gains and
capital losses incurred on the assets of the Separate Account are
[[Page 39087]]
credited to, or charged against, the assets of the Separate Account
without regard to the income, capital gains or capital losses arising
out of any other business Ameritas may conduct. In addition, the laws
of the State of Nebraska, under which the Applicants were established
provide that assets in each such Separate Account attributable to the
annuity contracts funded by such Account are generally not chargeable
with liabilities arising out of any other business which Ameritas may
conduct.
3. The Separate Account currently serves as the funding vehicle for
variable annuity contracts (``VA Contracts'') registered under the 1933
Act. The Separate Account is divided into separate subaccounts
(``Subaccounts'') that each invest exclusively in shares of an
underlying fund. Owners of the VA Contracts are currently permitted to
accumulate funds, on a tax-deferred basis, based on the investment
experience of the assets underlying the VA Contract. The VA Contracts
may be purchased on a non-tax qualified basis or in connection with
certain plans qualifying for favorable federal income tax treatment.
Owners of a VA Contract can allocate premium payments to one or more
Subaccounts and/or to the Fixed Account. Owners of a VA Contract may
make up to 15 transfers of cash values among the Subaccounts each year
without charge; transfers in excess of 15 in any year may be subject to
a charge. Owners of VA Contracts are also subject to certain
administrative and other charges and may be subject to certain
surrender charges.
4. The Separate Account currently makes available to owners of VA
Contracts a total of forty-five separate investment options, as well as
the option to allocate premiums to the insurance company Fixed Account.
5. Prior to October 1, 2001, the Separate Account also offered a
subaccount (``Strong Subaccount'') that invested exclusively in shares
of Strong International Stock Fund II, (``Strong International'').
Shares of Strong International are registered under the 1933 Act on
Form N-1A (File No. 33-45108). Strong Capital Management, Inc., serves
as the investment adviser for Strong International. Ameritas
discontinued offering the Strong Subaccount as an investment option
under VA Contracts as of October 1, 2001. Owners of VA Contracts with
interests in the Strong Subaccount were, and continue to be, permitted
to remain in the subaccount, but no new investments in the subaccount
are being accepted.
6. Shares of Vanguard International Portfolio (``Vanguard
International'') are registered under the 1933 Act on Form N-1A (File
No. 33-32216). Vanguard International is a separate investment
portfolio of the Vanguard Variable Insurance Fund and has been
available to owners of VA Contracts since May 2001. Schroder Investment
Management North America, Inc., serves as the investment adviser for
Vanguard International.
7. The investment objective of both Vanguard International and
Strong International is capital growth. Each fund seeks to achieve its
objective by investing primarily in equity securities of foreign
issuers. Neither fund is limited with respect to the nations in which
investments may be made or the capitalization of the companies in which
they invest.
8. Strong International and Vanguard International differ with
respect to the relative emphasis placed by each fund's investment
adviser on various investment criteria. As stated in the prospectus
relating to Strong International, that fund's investment adviser
selects securities for the fund using an investment approach that
examines the investment outlook of individual countries in determining
whether to invest; identifies individual investments based on rigorous,
in-depth analysis of the individual characteristics of the issuer
involved; and seeks to manage foreign currency risk. The investment
adviser for Vanguard International considers similar factors, but with
a somewhat different emphasis. Vanguard International's investment
adviser first examines the investment outlook of foreign markets around
the world, then determines the proportion of the fund's assets to
allocate to individual countries before selecting companies' securities
within such countries based upon a selection process emphasizing on-
site evaluations of the companies. The adviser's investment approach
results in a fund portfolio whose overall characteristics often differ
substantially from those of broad international stock indexes and are
therefore apt to differ substantially from time to time from the
performance of such indexes.
9. Applicants propose to substitute securities of Vanguard
International for securities issued by Strong International (the
``Substitution'').
10. Applicants state that although not identical, Vanguard
International and Strong International afford their shareholders very
similar investment opportunities. Applicants believe that the
objectives and policies of Vanguard International are the same as, or
sufficiently similar to, those of Strong International to assure that
the core investment goals of those owners of the VA Contracts affected
by the Substitution (``Affected Contractowners'') will not be
frustrated and the investment expectations of Affected Contractowners
can continue to be met. Further, Applicants state that the Substitution
will reduce the expenses of the Affected Contractowners because
Vanguard International is larger and less expensive than Strong
International and because Vanguard International has a performance
record that is both comparable to, and less volatile than, that of
Strong International.
11. The following table summarizes the annual operating expenses to
which holders of shares of Strong International have been and which
holders of shares of Vanguard International are subject. The table does
not include any fees or sales charges imposed by those VA contracts
issued by Ameritas. The figures shown below are based on the assets of
Strong International and Vanguard International as of December 31,
2001.
------------------------------------------------------------------------
Strong Vanguard
International International
(percent) (percent)
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Management Fees........................... 1.00 0.16
Distribution and service (12b-1) fees..... ............. .............
Other Expenses............................ 0.03 0.27
Total before Waivers and Reductions....... 1.03 0.43
Waivers and Reductions.................... ............. .............
Total after Waivers and Reductions........ 1.03 0.43
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12. On April 6, 2001, Applicants were notified by Strong
International that it had suspended sales to new insurance company
separate accounts and, on June 1, 2001, received a second notice from
Strong International stating that it intended to close to existing
relationships.
13. A prospectus supplement dated September 21, 2001, was
distributed to all owners of VA Contracts. The supplement stated, among
other things, that the Strong Subaccount would not be available as an
investment option under the VA Contracts as of October 1, 2001, and
that Applicants intended to file an application with the Commission to
substitute other investment options for Strong International.
14. Following the date on which Ameritas is notified that the
notice of this Application is to be published in the Federal Register,
but before the date the Requested Order becomes effective,
[[Page 39088]]
Ameritas will forward to Affected Contractowners a notice describing
the Substitution that will affect their interest in the VA Contracts,
including the anticipated effective date of the Substitution. The
notice will be accompanied by a copy of the portfolio prospectus for
Vanguard International. This Notice will inform Affected Contractowners
of (i) the anticipated effective date of the Substitution; (ii) the
right of each Affected Contractowner under the VA Contracts to transfer
contract values among the various Subaccounts; and (iii) the fact that
any such transfer that involves a transfer from Strong International
will not be subject to any administrative charge and will not count as
one of the ``free transfers'' to which Affected Contractowners may
otherwise be entitled. The notice will advise Contractowners that cash
values attributable to investments in Strong International may be
transferred to any other available Subaccount, without regard to any
transfer charge or other restriction to which transfers between
Subaccounts may otherwise be subject, for not less than 30 days after
the effective date of the Substitution. All such transfers will be made
at the relative net asset value on the date on which the Affected
Contractowner elects to make the transfer.
15. Within five days after the effective date of the Substitution,
Ameritas will forward to Affected Contractowners a written confirmation
notice relating to the substitution transaction. The confirmation
notice will (i) confirm that such transaction was carried out; (ii)
again advise Affected Contractowners that cash values attributable to
investments in Strong International may be transferred to any other
available Subaccount, without regard to any transfer charge or other
restriction to which transfers between Subaccounts may otherwise be
subject, for not less than 30 days after the effective date of the
Substitution; (iii) advise Affected Contractowners that no transfer
made by Affected Contractowners during this period will be counted as
one of the ``free'' transfers to which such owners may otherwise be
entitled under the Subject Contract held; and (iv) state that Ameritas
will not exercise any right reserved by it under the Subject Contracts
to impose additional restrictions on transfers from cash value
attributable to investment in Strong International until at least 30
days after the effective date of the Substitution.
16. As of the effective date of the Substitution, shares of Strong
International held by the Strong Subaccount will be presented to Strong
International for cash redemption. The proceeds of such cash
redemptions will then be used to purchase the appropriate number of
shares of Vanguard International. On the effective date of the
Substitution, the cash values of Affected Contractowners will be
transferred to Vanguard International, and the Strong Subaccount will
then be eliminated. The Substitution will take place at net asset
value, with no change in the contract value of any Affected
Contractowner, and all cash redemptions of shares of Strong
International and purchases of shares of Vanguard International will be
effected in accordance with Section 22(c) of the 1940 Act and Rule 22c-
1 thereunder.
17. Ameritas will bear the costs of the Substitution, including any
legal, accounting and brokerage fees and expenses relating to them.
Affected Contractowners will not incur any additional fees or charges
as a result of the Substitution. No current fees or charges applicable
under the Subject Contracts will be increased as a result of the
Substitution, nor will the rights of the owners of the Subject
Contracts or the obligations of Ameritas under the Subject Contracts be
diminished. The Substitution will not alter in any way the annuity,
life or tax benefits afforded under the VA Contracts held by any
Affected Contractowner. The Substitution will not result in any adverse
tax consequences to the owners of the Subject Contracts, any change in
the economic interest or contract values of any such owner or any
change in the dollar value of the Subject Contracts held by any
Affected Contractowner. Finally, Affected Contractowners will be
permitted to withdraw amounts from the VA Contracts held, or to
terminate their interest in any such contract, under the conditions set
forth in the contracts.
18. Applicants state that Applicants will not receive for three
years from the date of the substitutions, any direct or indirect
benefit from Vanguard International, its advisers or underwriters, or
from affiliates of Vanguard International, its advisers or underwriters
in connection with assets attributable to Contracts affected by the
substitution, at a higher rate than Applicants have received from
Strong International, its advisers or underwriters, or from affiliates
of Strong International, its advisers or underwriters, including,
without limitation, Rule 12b-1 fees, shareholder service or
administrative or other service fees, revenue sharing or other
arrangements. Applicants represent that the substitutions and the
selection of Vanguard International was not motivated by any financial
consideration paid or to be paid to Applicants or any affiliate of
Applicants by Vanguard International, its advisors or underwriters, or
by affiliates of them.
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
substitution if the evidence establishes that the substitution is
consistent with the protection of investors and the purposes fairly
intended by the policies and provisions of the 1940 Act.
2. Applicants request an order pursuant to Section 26(c) of the
1940 Act approving the substitution. Applicants assert that the
purposes, terms, and conditions of the Substitution are consistent with
the protection of investors and the purposes fairly intended by the
1940 Act.
3. Each Subject Contract reserves to the issuing insurance company
the right, subject to compliance with applicable law, to substitute
shares of another open-end management investment company for shares of
an open-end management company held by a Subaccount of the Separate
Account. This reservation of rights is disclosed in the prospectus for
the Subject Contracts.
4. Applicants assert that Vanguard International and Strong
International afford their shareholders very similar investment
opportunities. Applicants state that from an investment perspective,
the only difference between Strong International and Vanguard
International lies in the relative emphasis placed by each fund's
investment adviser on various investment criteria. Applicants believe
such a distinction in investment style does not require a conclusion
that the proposed Substitution would not meet the standards of Section
26(c).
5. Applicants believe that the Strong International/Vanguard
International substitution satisfies the standards for relief under
Section 26(c), because, following the Substitution, Affected
Contractowners will be invested in Vanguard International, a fund (i)
with the same investment objective as, and investment policies very
similar to, those of Strong International; (ii) with actual performance
which has been better on a cumulative basis than that of Strong
International; and (iii) that is
[[Page 39089]]
both larger than Strong International, and enjoys a lower management
fee and lower overall expense ratio than Strong International.
Conclusion
Applicants assert that the proposed Substitution is consistent with
the protection of investors and the purposes fairly intended by the
policy and purposes of the 1940 Act and therefore request that the
Substitution should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14202 Filed 6-5-02; 8:45 am]
BILLING CODE 8010-01-U