[Federal Register Volume 67, Number 197 (Thursday, October 10, 2002)]
[Notices]
[Pages 63174-63180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25743]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25763; File No. 812-12834]


Acacia National Life Insurance Company, et al.; Notice of 
application

October 4, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for an order pursuant to Sections 17(b) 
and 11(a) of the Investment Company Act of 1940 (``1940 Act'' or 
``Act''), and Rule 17d-1 thereunder.

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APPLICANTS: Acacia National Life Insurance Company (``Acacia 
National''), Acacia National Variable Annuity Separate Account II 
(``Acacia VA Account''), Acacia National Variable Life Insurance 
Separate Account I (``Acacia VUL Account,'' collectively with the 
Acacia VA Account, the ``Acacia Accounts''), Ameritas Variable Life 
Insurance Company (``AVLIC''), Ameritas Variable Separate Account VA 
(``AVLIC VA Account''), Ameritas Variable Separate Account VL (``AVLIC 
VUL Account,'' collectively with the AVLIC VA Account, the ``AVLIC 
Accounts'') and The Advisors Group, Inc. (``TAG'') (collectively, 
``Applicants'').

SUMMARY OF APPLICATION: Applicants seek an order of the Commission (1) 
permitting the transfer of assets from the Acacia Accounts to the AVLIC 
Accounts in connection with the assumption reinsurance by AVLIC from 
Acacia National of the individual variable annuity contracts (the 
``Acacia Contracts'') and individual variable life insurance policies 
(the ``Acacia Policies'') to which those assets relate; (2) permitting 
any joint arrangement that could be deemed to be associated with those 
reinsurance transactions; and (3) approving the terms of any offers of 
exchange that may be deemed to be involved in those reinsurance 
transactions.

FILING DATES: The application was filed on May 31, 2002 and amended and 
restated on September 26, 2002, and October 2, 2002.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this Application by writing to the 
Commission's Secretary and serving Applicants with a copy of the 
request, personally or by mail. Hearing requests must be received by 
the Commission by 5:30 p.m. on October 29, 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 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 20549-0609. Applicants: c/o Jorden Burt 
LLP, 1025 Thomas Jefferson Street, NW, Suite 400 East, Washington, DC 
20007-5208, Attention: W. Randolph Thompson, Esq.

FOR FURTHER INFORMATION CONTACT: Joyce M. Pickholz, Senior Counsel, or 
Zandra Y. Bailes, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the

[[Page 63175]]

application. The complete application is available for a fee from the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Acacia National is a stock life insurance company organized 
under the laws of the Commonwealth of Virginia and a wholly owned 
subsidiary of Acacia Life Insurance Company (``Acacia Life''). Acacia 
Life is wholly owned by Ameritas Holding Company, a subsidiary of 
Ameritas Acacia Mutual Holding Company (``Ameritas Acacia''). On March 
29, 2001, Acacia National was re-domesticated in the District of 
Columbia. Acacia National is engaged in the business of issuing life 
insurance and annuities throughout the United States, except Alaska, 
Maine, New Hampshire and New York.
    2. The Acacia VA Account is a separate account established by 
Acacia National on November 30, 1995, for the purpose of funding 
certain individual variable annuity contracts (``Acacia Contracts''). 
The Acacia VA Account is registered as a unit investment trust under 
the 1940 Act (File No. 811-07627), and registration statements filed 
pursuant to the Securities Act of 1933 (``1933 Act'') are in effect 
with respect to two Acacia Contracts (File Nos. 333-53732 and 333-
03963).
    3. The Acacia VUL Account is a separate account established by 
Acacia National on January 31, 1995, under Virginia law for the purpose 
of funding certain individual variable life insurance policies 
(``Acacia Policies''). The Acacia VUL Account is registered as a unit 
investment trust under the 1940 Act (File No. 811-8998), and 
registration statements filed pursuant to the 1933 Act are in effect 
with respect to three Acacia Policies (File Nos. 33-90208, 333-95593 
and 333-81057).
    4. All assets of the Acacia Accounts are invested in shares of 
portfolios of various investment companies (``Underlying Portfolios'') 
each of which is registered under the 1940 Act, and the shares of each 
of which are registered pursuant to the 1933 Act.
    5. AVLIC is a stock life insurance company organized under the laws 
of the State of Nebraska. AVLIC is engaged in the business of issuing 
life insurance and annuities throughout the United States, except New 
York. AVLIC is an indirect majority-owned subsidiary of Ameritas 
Acacia, the ultimate parent of Ameritas Life Insurance Corp. 
(``Ameritas Life''). In 1996, Ameritas Life entered into a joint 
venture with AmerUs Life Insurance Company (``AmerUs'') forming AMAL 
Corporation (``AMAL''), a holding company that initially owned the 
common stock of AVLIC and Ameritas Investment Corporation. As of April 
1, 2002, shares of AMAL were also transferred to Acacia Life, Acacia 
National and Acacia Financial Corp. (``AFCO'').
    AmerUs is a life insurance company with its principal place of 
business in Des Moines, Iowa. It is a wholly-owned subsidiary of AmerUs 
Group Co. and is not affiliated with Ameritas Life other than through 
the joint ownership of AMAL. Both Ameritas Life and AmerUs now 
guarantee the obligations of AVLIC through their agreement forming AMAL 
Corporation (``AMAL''), a holding company that owns the common stock of 
AVLIC, and is in turn a majority-owned subsidiary of Ameritas Life.
    6. The AVLIC VA Account is a separate account newly established by 
AVLIC under Nebraska law for the purpose of funding certain individual 
variable annuity contracts (``AVLIC Contracts'' collectively with the 
Acacia Contracts, ``Variable Contracts''). The AVLIC VA Account is 
registered as a unit investment trust under the 1940 Act, and 
registration statements filed under the 1933 Act are in effect with 
respect to the AVLIC Contracts.
    7. The AVLIC VUL Account is a separate account newly established by 
AVLIC under Nebraska law for the purpose of funding certain individual 
variable life insurance policies (``AVLIC Policies'' collectively with 
the Acacia Policies, ``Variable Policies''). The AVLIC VUL Account is 
registered as a unit investment trust under the 1940 Act, and 
registration statements filed pursuant to the 1933 Act are in effect 
with respect to the AVLIC Policies.
    8. All assets of the AVLIC Accounts, like those of the Acacia 
Accounts, will be invested in shares of the Underlying Portfolios. 
There will be no change in the investment advisers, or sub-advisers to, 
assets of, or charges imposed by, the Underlying Portfolios in 
connection with, or by virtue of, any of the transactions described 
below. The AVLIC Contracts are identical to the Acacia Contracts, and 
the AVLIC Policies are identical to the Acacia Policies in all material 
respects, including current and maximum permitted charges. The AVLIC 
Contracts will be issued in exchange for the variable portion of the 
Acacia Contracts, and the AVLIC Policies will be issued in exchange for 
the variable portion of the Acacia Policies as part of the assumption 
reinsurance transactions described below.
    9. TAG is an affiliate of Acacia National and wholly owned by AFCO, 
a subsidiary of Acacia Life, and serves as the distributor of the 
Acacia Contracts and Policies. TAG is registered with the Commission as 
a broker-dealer under the Securities Exchange Act of 1934 (the ``1934 
Act'') and is a member of the National Association of Securities 
Dealers, Inc. (the ``NASD''). TAG enters into selling group agreements 
with affiliated and unaffiliated broker-dealers. The Acacia Contracts 
and Policies are sold by licensed insurance agents who are registered 
representatives of TAG or other broker-dealers that are registered 
under the 1934 Act and are members of the NASD.
    10. Applicants propose to implement, as part of a larger 
reorganization plan to consolidate their product lines and corporate 
organization, a restructuring that would permit AVLIC, through the 
AVLIC Accounts, to serve as the issuer of the Variable Contracts and 
Policies. The restructuring would be accomplished through an asset 
transfer agreement, modified coinsurance agreement and assumption 
reinsurance agreement.
    11. On April 1, 2002, Acacia National entered into a modified 
coinsurance agreement (the ``Coinsurance Agreement'') with AVLIC 
relating to the Acacia Contracts and Policies. Under that agreement, 
AVLIC agreed to accept, and to reinsure and indemnify, and Acacia 
National agreed to ``cede'' (i.e., transfer to) and reinsure with 
AVLIC, all of Acacia's National's obligations with respect to the 
variable portion of the Acacia Contracts and the variable portion of 
the Acacia Policies, including any and all riders and any supplementary 
contracts associated therewith, and any Acacia Contracts or Policies in 
the process of 1035 exchanges. AVLIC agreed that the reinsurance under 
the Coinsurance Agreement would (a) be coinsurance on all of the 
rights, obligations and liabilities of Acacia National under the Acacia 
Contracts and Policies, (b) follow the forms of Acacia National, and 
(c) be in the amount of the benefit provided by the Acacia Contracts 
and Policies. Coinsurance involves reinsurance of the obligations of an 
issuer of insurance contracts where both the issuer of the contracts 
and the reinsurer remain fully obligated under the contracts, and the 
owner of the contract may look to either or both for performance of the 
issuer's obligations under those contracts. If Acacia Contracts or 
Policies are surrendered or terminated before the effective date of the 
Coinsurance Agreement but are reinstated before the effective date, 
those Contracts and Policies will be covered under the Coinsurance 
Agreement. For all other

[[Page 63176]]

incidents occurring at any time, AVLIC is responsible for any and all 
rights, obligations or liabilities under the Acacia Contracts and 
Policies, to the extent not paid for prior to the effective date of the 
Coinsurance Agreement, and for the maintenance of any assets or 
reserves in connection therewith. Concurrently with the execution of 
the Coinsurance Agreement, Acacia National and AVLIC also entered into 
and executed an assumption reinsurance agreement (the ``Assumption 
Agreement''). The Assumption Agreement is a true novation or 
substitution of one insurer (AVLIC) for the other (Acacia National) 
after which owners of Acacia Contracts or Policies which have been 
``assumption reinsured'' could look only to AVLIC (and no longer to 
Acacia National) for performance of the obligations under the AVLIC 
Contracts and Policies.
    12. In accordance with the Agreement of Merger and Plan of 
Reorganization (``TAG Merger Agreement'') with an effective date of 
April 1, 2002, AMAL will transfer 2.97% of the outstanding stock of 
AMAL to AFCO. In return, AFCO agrees to transfer all outstanding stock 
of TAG to AMAL. Following the closing of the TAG Merger Agreement, AMAL 
will continue to be a directly majority-owned subsidiary of Ameritas 
Life.
    13. In accordance with the Asset Transfer Agreement with an 
effective date of April 1, 2002, AVLIC will transfer 7.43% of the 
outstanding stock of AMAL to Acacia National. Following the closing of 
the Asset Transfer Agreement, AMAL will continue to be a directly 
majority-owned subsidiary of Ameritas Life.
    14. In accordance with the Distribution Commitment Agreement for 
Variable Business (``Distribution Agreement'') with an effective date 
of April 1, 2002, AVLIC will transfer 3.48% of the outstanding stock of 
AMAL to Acacia Life. Following the closing of the Distribution 
Agreement, AMAL will continue to be a directly majority-owned 
subsidiary of Ameritas Life.
    Prior to all stock transfers, 61% of AMAL's stock was owned by 
Ameritas Life and 39% was owned by AmerUs. When all of these 
transactions have been completed, AMAL's stock ownership will be: 
Ameritas Life, 52.53%; AmerUs, 33.59%; Acacia Life, 3.48%; Acacia 
National, 7.43%; and AFCO, 2.97%.
    15. Acacia National and AVLIC entered into the Assumption Agreement 
with an effective date of April 1, 2002. Assumption reinsurance is 
reinsurance where only the company reinsuring the issuing company 
assumes all of the obligations under the contracts or policies 
reinsured; the company that issued the contracts or policies would no 
longer be obligated in any way on those contracts and policies covered 
by the assumption reinsurance. In the Assumption Agreement, Acacia 
National agreed to transfer to AVLIC (by way of assumption reinsurance) 
all of its obligations and liabilities under the Acacia Contracts and 
Policies and all of its rights thereunder (e.g., the rights to receive 
contract or policy charges), and AVLIC agreed to assume all of those 
obligations (e.g., the obligation to pay surrender values and death 
benefits), liabilities and rights. AVLIC will issue an ``assumption 
certificate'' approved for use by the appropriate state insurance 
regulatory authorities, to each owner of an Acacia Contract or Policy 
(an ``Owner'') to be reinsured by it. The assumption certificate will 
inform the Owner of AVLIC's assumption of Acacia National's 
obligations, liabilities and rights under the Acacia Contracts and 
Policies, that the Owner will become a contract or policy owner of 
AVLIC and that there will be no impact on his or her contract or policy 
Value as a result of the Assumption Agreement. No fee or commission is 
payable by or to Acacia National or by or to any other party to the 
Assumption Agreement.
    16. The Assumption Agreement is also subject to the satisfaction of 
various conditions, including the making of all required filings with 
and obtaining all necessary approvals of applicable state insurance 
authorities. All of the conditions precedent to the obligations of 
AVLIC and Acacia National pursuant to the Assumption Agreement are to 
be fulfilled or satisfied by the closing date of the Assumption 
Agreement, including the assignment or novation of the Coinsurance 
Agreement for the benefit of AVLIC. However, it is anticipated that the 
transfer and assumption will take place in a series of transactions, 
because all required clearances from state insurance authorities to the 
assumption reinsurance of the Acacia Contracts and Policies may not 
have been obtained at the time of the closing date. Until any Acacia 
Contracts or Policies that cannot be assumption reinsured on the 
closing date of the Assumption Agreement can be assumption reinsured, 
they will continue to be governed by the Coinsurance Agreement, under 
which AVLIC will perform all functions necessary for the proper 
administration of the Acacia Contracts and Policies, but Acacia 
National will remain obligated under those Contracts and Policies.
    17. The assumption reinsurance of the Acacia Contracts and Policies 
is subject to, among other things, the parties having obtained from the 
Commission any order necessary to permit the transactions; and having 
effective registration statements under the 1933 Act relating to the 
AVLIC Contracts and Policies that are to be issued in exchange for the 
Acacia Contracts and Policies. Consequently, Applicants expect the 
assumption reinsurance of the Acacia Contracts and Policies to take 
place at dates subsequent to the closing date of the Assumption 
Agreement. When all conditions to the closing of the agreement as it 
relates to the Acacia Contracts and Policies have been satisfied, 
assets of the Acacia Accounts equal to the contract liabilities 
attributable to the fixed and variable portions of the Acacia Contracts 
and Policies being assumption reinsured will be transferred to AVLIC. 
Because many states require that Owners be given the opportunity to 
voice their opinion on the assumption of their contracts or policies 
(``opt in'' and ``opt out'' rights), Applicants expect AVLIC to 
initially assumption reinsure Acacia Contracts and Policies in 
approximately four states, and thereafter to reinsure Acacia Contracts 
and Policies in the remaining jurisdictions upon obtaining the 
necessary state authority or approvals. Subsequent assumption 
reinsurance with respect to the Acacia Contracts and Policies will take 
place in a series of transactions as state authority or approvals are 
obtained and required notifications have been made to Owners.
    18. Upon the assumption reinsurance of an Acacia Contract or 
Policy, AVLIC will issue an assumption certificate to the Owner. The 
assumption certificate will inform the Owner of the assumption by AVLIC 
of all of Acacia National's liabilities under the Acacia Contracts and 
Policies. In addition, because the charges against assets of the AVLIC 
Accounts (sometimes referred to herein as the ``Reinsuring Accounts'') 
under AVLIC Contracts and Policies are identical to the charges against 
assets of the Acacia Accounts under the corresponding Acacia Contracts 
and Policies, the assumption certificate will also inform the Owner 
that there will be no impact on the Owner's contract or policy value 
because of the assumption reinsurance transactions contemplated in the 
Assumption Agreement. After receipt of an assumption certificate, an 
Owner will deal directly with AVLIC, and any further premiums the Owner 
wishes to apply to an Acacia Contract or

[[Page 63177]]

Policy will be forwarded directly to AVLIC for allocation to the 
appropriate AVLIC Account.
    19. The terms of the AVLIC Contracts or Policies are the same as 
those of the Acacia Contracts and Policies, but for the issuer of the 
respective Contracts or Policies. The assumption reinsurance of the 
Acacia Contracts and Policies will not change the number of 
accumulation or annuity units credited under the Variable Contracts or 
Policies or the value of such units, which will continue to be affected 
only by the investment performance of the Underlying Portfolios. 
Further, because shares of the Underlying Portfolios held by the Acacia 
Accounts will be transferred to the Reinsuring Accounts on the date a 
reinsurance transaction is effected, and because both the Acacia 
Accounts and the Reinsuring Accounts are administered at the same 
location using the processing system, there will be no interruption of 
investment performance. No charges or expenses will be incurred by the 
Acacia Accounts, the Reinsuring Accounts or the Underlying Portfolios 
in connection with the transfer of shares of the Underlying Portfolios 
because the transfer will be made by book entry on the shareholder 
records of the Underlying Portfolios. There will be no change in the 
values of any amounts allocated to fixed account funding options under 
the Acacia Contracts or Policies, and no charges to those accounts will 
be made as a result of the assumption reinsurance transactions. Any 
costs of the transactions will be born by ALVIC. Accordingly, contract 
values under AVLIC Contracts and Policies will be the same as they 
would have been under the Acacia Contracts and Policies had the 
assumption reinsurance transaction not occurred. The AVLIC Contracts 
and Policies will be sold through the same principal underwriter (TAG) 
after the assumption reinsurance transactions. There will be no tax 
consequences, adverse or otherwise, to Owners as a result of the 
assumption reinsurance of their Acacia Contracts or Policies. Finally, 
the fixed guarantee obligations that are not allocated to the AVLIC 
Accounts (e.g., minimum death benefit and fixed account accumulations) 
will be supported by the general account assets of AVLIC and by 
guarantees of AVLIC's obligations by two of its parents, Ameritas Life 
and AmerUs. These fixed obligations are thus supported by far greater 
assets than those of Acacia National.
    20. Applicants anticipate that one or more jurisdictions may 
require that Owners of Acacia Contracts or Policies assumption 
reinsured by AVLIC be afforded the right to ``opt out'' of or ``opt 
in'' to the assumption reinsurance of their Contracts or Policies. 
Thus, a state may require that an Owner be permitted to object to the 
assumption reinsurance of his or her Acacia Contract or Policy within a 
specified number of days after the Owner receives notice by means of a 
negative consent (``opt out'') or affirmative consent (``opt in'') to 
the assumption reinsurance transaction. If, under such an opt out 
provision, timely objection from the Owner were received by the 
reinsuring company, the Acacia Contract or Policy would be not be 
assumption reinsured, and the Owner would continue to deal directly 
with Acacia National as to all aspects of his or her Acacia Contract or 
Policy. However, the Acacia Contract or Policy would continue to be 
coinsured by AVLIC and AVLIC would perform all administrative services 
with respect to the Acacia Contract or Policy pursuant to the 
Coinsurance Agreement. The assumption reinsurance transaction and 
related requests to Owners for consents in connection with opt in or 
opt our rights will comply in all respects with applicable state 
insurance laws.
    21. Acceptance of an opt out right after the assumption reinsurance 
transaction has occurred will result in the Owner being restored to the 
same position he or she would have had if the transaction had not taken 
place. The number of accumulation units or annuity units credited under 
a Variable Contract or Policy will remain unchanged, and the value of 
such units will be identical to what it would have been had the 
reinsurance transaction not occurred. In addition, there will be no tax 
consequences to the Owner resulting from the election of the opt out 
right.
    22. AVLIC may continue to afford Owners who have previously opted 
out of (or have not opted in to) the assumption reinsurance of their 
Acacia Contracts or Policies a second opportunity to have their 
contract or policy assumed by AVLIC by issuing to them a second 
assumption certificate which would include any state-mandated opt out 
(or opt in) provision. Owners opting out (or opting in to) the 
reinsurance of their Acacia Contracts or Policies at this time would 
thereafter remain with Acacia National and have their contract or 
policy values based on the applicable Acacia Account. Because 
Applicants anticipate that only a few Owners will remain with Acacia 
National, Acacia National may seek at a future date to deregister the 
Acacia Accounts pursuant to Section 8(f) of the 1940 Act or to take 
such other steps as it deems appropriate to reduce the number of Acacia 
Contracts and Policies outstanding or the administrative burdens 
presented by such contracts and policies.
    23. On or about September 25, 2002, AVLIC sent assumption 
certificates to Owners in those states where the assumption has 
received state insurance regulatory approval. Concurrent with this 
mailing, ALVIC sent, under separate cover letter, the applicable ALVIC 
prospectus to each Owner. The majority of these states allow for the 
assumption reinsurance to be become effective either: (a) Immediately 
upon mailing of this notice; or (b) upon the passage of time (anywhere 
from 10 to 30 days) after the mailing of the certificate, assuming the 
Owners fail to send an ``opt out'' notice during this time period. The 
``opt out'' rights were explained in the written materials sent to each 
Owner with the AVLIC prospectuses. For Owners in such states, the 
assumption certificate and cover letter stated that Acacia National and 
AVLIC will assumption reinsure this portion of the Acacia Policies 
effective November 1, subject to receiving an order from the Commission 
granting the application. (Any mention of receiving an order in this or 
other communications stated or will state that there can be no 
assurance of the order being issued.)
    Another category of Owners receiving the mailings made on or about 
September 25th, including the current prospectus, were those in states 
that require affirmative election from Owners to ``opt in'' to the 
assumption reinsurance transaction. Materials provided to those 
individuals explained that the reinsurance will become effective only: 
(a) After receiving an order from the Commission granting the 
application; (b) after receiving an affirmative ballot from the Owner 
electing to participate in the assumption transaction; and (c) in any 
case, not before November 1, 2002.
    Finally, Owners in states that had not approved the assumption 
reinsurance transaction by September 25 will be mailed assumption 
certificates, current prospectuses, and other appropriate materials as 
their states approve the transaction. Owners in such states will in all 
instances receive these materials at least 30 days (assuming reasonable 
mail delivery) prior to the assumption becoming effective, and always 
subject to the state opt-in or opt-out requirements and Applicants 
having received the order requested in their application with the 
Commission.

Applicants' Legal Analysis

    1. Section 17(a)(1) of the 1940 Act, in pertinent part, prohibits 
any affiliated

[[Page 63178]]

person or promoter of or principal underwriter for a registered 
investment company, or any affiliated person of such an affiliated 
person, promoter or principal underwriter, acting as principal from 
knowingly selling to or purchasing from such registered company any 
security or other property with exceptions not relevant to the 
transactions described in the application.
    2. Section 2(a)(3) of the Act defines ``affiliated person'' of 
another person in pertinent part as (a) any person directly or 
indirectly owning, controlling, or holding with power to vote, 5 per 
centum or more of the outstanding voting securities of such other 
person; (b) any person 5 per centum or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote, by the other person; (c) any person directly or 
indirectly controlling, controlled by, or under common control with, 
such other person; or (d) if such other person is an investment 
company, any investment adviser thereof or any member of an advisory 
board thereof.
    3. Applicants state that the prohibitions of section 17(a) would 
apply to the Acacia Accounts' sale of shares of the Underlying 
Portfolios to AVLIC in connection with the assumption reinsurance of 
the Acacia Contracts and Policies if the Acacia Accounts were deemed to 
have been at that time under common control with the Reinsuring 
Accounts and, therefore, an affiliated person of registered investment 
companies. Similarly, section 17(a) would prohibit the Reinsuring 
Accounts' purchase of shares of the Underlying Portfolios from the 
Acacia Accounts if the Reinsuring Accounts were deemed to have been 
affiliated persons of the Acacia Accounts, also registered investment 
companies. Moreover, section 17(a) applies to the Reinsuring Accounts' 
purchases of shares of the Underlying Portfolios because of AVLIC's 
affiliation with TAG, which will continue to act as principal 
underwriter for the Acacia Accounts.
    4. Section 17(b) of the 1940 Act provides that, notwithstanding 
section 17(a), a person may file with the Commission an application for 
an order exempting a proposed transaction of the applicant from one or 
more of the prohibitions of section 17(a). The Commission shall grant 
such application if evidence establishes that: (a) The terms of the 
proposed transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned; (b) the proposed transaction is 
consistent with the policy of each registered investment company 
concerned, as recited in its registration statement and in reports 
filed under the Act; and (c) the proposed transaction is consistent 
with the general purposes of the Act.
    5. Applicants seek an order of the Commission under section 17(b) 
of the 1940 Act granting an exemption from the prohibitions of section 
17(a) to the extent necessary to permit the transfer of shares of the 
Underlying Portfolios from the Acacia Accounts to the Reinsuring 
Accounts in connection with the assumption reinsurance of the Acacia 
Contracts and Policies. Applicants submit that the proposed transfer of 
shares meets the standards for relief imposed by section 17(b) of the 
Act.
    6. Applicants submit that the terms of the proposed arrangement are 
fair and reasonable and do not involve overreaching. The proposed 
arrangement is not susceptible to the kinds of serious harms that could 
result from a violation of section 17(a). Applicants state that there 
is no possibility of any overreaching or disadvantageous pricing 
because the only consideration to be received by the Acacia Accounts 
and to be paid by the Reinsuring Accounts is the Reinsuring Accounts' 
assumption of the obligations and liabilities held in the Acacia 
Accounts with respect to the Acacia Contracts and Policies being 
assumption reinsured. The value of the shares of the Underlying 
Portfolios to be transferred will equal the amount of the liabilities 
assumed, and that value will be computed in accordance with provisions 
of the 1940 Act and the rules thereunder.
    7. Applicants also submit that the terms of the transactions will 
be consistent with the investment objectives and policies of the Acacia 
Accounts and Reinsuring Accounts because the objectives and policies of 
the Acacia Accounts and Reinsuring Accounts are to invest exclusively 
in shares of the Underlying Portfolios.
    8. Finally, Applicants submit that the proposed transactions are 
consistent with the general purposes of the 1940 Act because the 
interests of the Owners are not adversely affected by the assumption 
reinsurance of their Acacia Contracts or Policies. As noted, the terms 
of the Variable Contracts and Policies remain unchanged, and the value 
of the Variable Contracts and Policies are unaffected by the 
transactions. AVLIC has been providing administrative services for the 
Acacia Contracts and Policies, so services provided will remain the 
same. Further, the proposed assumption reinsurance of the Acacia 
Contracts and Policies affords Owners the opportunity to have their 
contracts and policies remain with a company that is part of the 
Ameritas Acacia group and that is committed to the issuance of variable 
annuities and other variable products.
    9. Section 17(d) of the 1940 Act, in pertinent part, prohibits any 
affiliated person of or principal underwriter for a registered 
investment company, or any affiliated person of such an affiliated 
person or principal underwriter, acting as principal from effecting any 
transaction in which such registered company is a joint or joint and 
several participant with such person, principal underwriter or 
affiliated person in contravention of rules and regulations adopted by 
the Commission if the participation of the registered company is on a 
basis different from or less advantageous than that of other 
participants.
    10. Rule 17d-1 under the Act provides, in pertinent part, that no 
affiliated person of or principal underwriter for any registered 
investment company and no affiliated person of such a person or 
principal underwriter, acting as principal, shall participate in, or 
effect any transaction in connection with, any ``joint enterprise or 
other joint arrangement or profit-sharing plan'' in which such 
registered company is a participant unless an application with regard 
thereto has been granted by order of the Commission. Rule 17d-1(c) 
defines ``joint enterprise or other joint arrangement or profit-sharing 
plan'' as any arrangement or any practice or understanding concerning 
an enterprise or undertaking whereby a registered investment company 
and any affiliated person of or a principal underwriter for such 
registered investment company, or any affiliated person of such a 
person or principal underwriter, have a joint or a joint and several 
participation, or a share in the profits of such enterprise or 
undertaking.
    11. Applicants state that it is possible that the assumption 
reinsurance arrangements could be deemed to be subject to Rule 17d-1. 
Accordingly, Applicants request an order pursuant to Rule 17d-1 to 
permit, to the extent necessary, the proposed assumption reinsurance 
arrangements. Rule 17d-1 provides that in passing upon an application 
filed pursuant to the rule, the Commission will consider ``whether the 
participation of such registered or controlled company in such joint 
enterprise, joint arrangement or profit-sharing plan on the basis 
proposed is

[[Page 63179]]

consistent with the provisions, policies and purposes of the Act and 
the extent to which such participation is on a basis different from or 
less advantageous than that of other participants.''
    12. Applicants assert that if the relief from the provisions of 
Sections 17(a) and 11 requested herein is granted, the proposed 
assumption reinsurance agreement will not otherwise be inconsistent 
with any provision, policy or purpose of the 1940 Act. As noted, the 
principal effect of the reinsurance transactions will be to substitute 
a new insurance company responsible for the performance of the 
obligations of the Acacia Contracts and Policies. Applicants state that 
although the participation of each registered investment company in the 
reinsurance arrangement is different from that of the other 
participants, such difference is attributable to the separate and 
distinct interests of each party to the transaction. Applicants 
maintain that because the assumption reinsurance agreement is fair to 
Owners and will not affect the underlying investments on which the 
performance of their Variable Contracts or Policies depends, the 
requested relief should be granted.
    13. Section 11(a) of the 1940 Act makes it unlawful for a 
registered open-end investment company, or its principal underwriter, 
to offer securities of an open-end investment company in exchange for 
other securities of the same or another open-end investment company 
unless the exchange either is based on the respective net asset values 
of the securities or the terms of the offer have received prior 
approval of the Commission. Section 11(c) of the Act provides that in 
the case of a unit investment trust the prohibition of Section 11(a) is 
applicable regardless of the basis of exchange.
    14. Rule 11a-2 under the 1940 Act permits an offer by a registered 
variable annuity separate account or any principal underwriter for such 
an account to the holder of a security of any other registered variable 
annuity separate account having an insurance company depositor or 
sponsor that is an affiliate of the offering account's depositor or 
sponsor to exchange his or her security for a security of the offering 
account when both contracts are subject to a deferred sales load if: 
(a) The exchange is made at the relative net asset values of the 
securities to be exchanged, with exceptions not here applicable; (b) 
the deferred sales load imposed on the acquired security is calculated 
as if the holder of such security had been the holder thereof from the 
date on which he or she became the holder of the exchanged security and 
purchase payments made for the exchanged security had been made for the 
acquired security on the dates on which they were made for the 
exchanged security; and (c) the deferred sales load imposed on the 
acquired security does not exceed nine percent of the sum of the 
purchase payments made for the acquired security and the exchanged 
security.
    15. The assumption reinsurance of the Acacia Contracts and Policies 
by AVLIC will involve the issuance of AVLIC Contracts and Policies in 
exchange for the Acacia Contracts and Policies. Applicants believe that 
in most states this may be done without the consent of Owners. However, 
certain states may require that Owners resident in that state be given 
the right to object to the exchange by requiring that they be afforded 
the right to opt out of (or not opt in to) the reinsurance of their 
Acacia Contracts or Policies. Where such right is provided, an offer of 
exchange may be deemed to exist to which the provisions of Sections 
11(a) and (c) may apply.
    16. Applicants assert that any offers of exchange involved in the 
assumption reinsurance of the Acacia Contracts will satisfy all of the 
conditions of Rule 11a-2 and will be permitted by that rule. 
Accordingly, no Section 11 relief is requested in connection with that 
aspect of the reinsurance transactions. However, Applicants state that 
there is uncertainty that the relief in Rule 11a-2(b)(2) would extend 
to an offer of exchange of variable life insurance contracts. 
Accordingly, Applicants request approval, to the extent necessary, of 
any exchange offers that may be deemed to be entailed in the assumption 
reinsurance of the Acacia Policies.
    17. Applicants assert that any offers of exchange involved in the 
assumption reinsurance of the Acacia Policies would satisfy all of the 
conditions of Rule 11a-2 because they will be made at the relative net 
asset values of the securities to be exchanged; any deferred sales load 
imposed on the AVLIC Policies will be calculated as if the Owner had 
been the holder thereof from the date on which he or she became the 
holder of the Acacia Policy, and purchase payments applied to the 
Acacia Policy had been made for the AVLIC Policy on the dates on which 
they were applied to the Acacia Policy; and the deferred sales load 
imposed under the AVLIC Policy will not exceed nine percent of the sum 
of the purchase payments made for the Acacia and AVLIC Policies.
    18. Applicants request an order pursuant to Section 11(a) under the 
1940 Act to the extent necessary to permit the offers of exchange that 
may be deemed to be involved in the assumption reinsurance of the 
Acacia Policies. Applicants assert that, because no new sales or other 
charges will be assessed in connection with the assumption reinsurance 
of the Acacia Policies by AVLIC, the principal abuse at which Section 
11(a) is directed will not be present. Section 11(c) of the 1940 Act 
requires Commission approval, irrespective of the basis of exchange, 
where a unit investment trust security is exchanged for another 
investment company security. The requirement of approval of such 
exchanges appears to have been designed to avoid possible unfairness 
latent in such exchanges, even if they are made at net asset value.
    19. Applicants submit that the terms of any offers of exchange 
involved in the proposed assumption reinsurance of the Acacia Policies 
by AVLIC are fair and should be approved by the Commission. As 
previously stated, no new sales or other charges will be assessed at 
the time of, or as a result of, the assumption reinsurance of the 
Acacia Policies, and no provisions of the Variable Policies will be 
changed at the time of, or as a result of, assumption reinsurance of 
the Policies. Owners will have the same opportunity as they currently 
have to invest in the same Underlying Portfolios, and the number and 
value of the accumulation and annuity units credited under an AVLIC 
Policy at the time an Acacia Policy is assumption reinsured will be the 
same as they would have been if the assumption reinsurance transaction 
had not taken place. If an Owner should elect to opt out of the 
assumption reinsurance of his or her Acacia Policy after the 
transaction has occurred, the number and value of the accumulation 
units and annuity units credited under his or her Acacia Policy upon 
its reissue will be the same as if the reinsurance had not taken place. 
As noted, neither the reinsurance of the Acacia Policies nor the 
election to opt out of (or not opt in to) the reinsurance transaction 
will have any adverse tax consequences to Owners. Finally, any exchange 
of variable life policies will be made at the relative net asset values 
of the securities to be exchanged and any deferred sales loads imposed 
under the AVLIC Policies will comply with the provisions of Rule 11a-
2(d) under the 1940 Act.
    20. Applicants state that, in effect, the only material change 
resulting from the reinsurance of the Acacia Policies is a change in 
the insurance company directly responsible to Owners for the 
performance of Variable Policy obligations, for under the Coinsurance 
Agreement described above, AVLIC will

[[Page 63180]]

not only perform all administrative services with respect to the Acacia 
Policies not assumption reinsured but it will bear any gain or loss 
that Acacia National would otherwise incur with respect to such Acacia 
Policies. Applicants state that AVLIC has substantial assets, and 
capital and surplus to assure the performance of its respective 
obligations under the Variable Policies. Further, Owners will receive 
current prospectuses for the AVLIC Policies and will have sufficient 
information on which to base any opt-in or opt-out decision.

Conclusion

    For the reasons stated herein, Applicants submit that the terms of 
the proposed transaction meet all of the requirements of Sections 17(b) 
and 11(a) of the 1940 Act, and of Rule 17d-1 thereunder and that an 
order should, therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-25743 Filed 10-9-02; 8:45 am]
BILLING CODE 8010-01-P