[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