

[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
----------------------------------------------------------------------------------------------------------------
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
