[Federal Register Volume 62, Number 36 (Monday, February 24, 1997)]
[Notices]
[Pages 8278-8279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4386]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22514; File No. 812-10412]


Ameritas Variable Life Insurance Company, et al.

February 14, 1997.
AGENCY: The Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of Application for an Order Pursuant to the Investment 
Company Act of 1940 (``1940 Act'').

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APPLICANTS: Ameritas Variable Life Insurance Company Separate Account V 
(``Separate Account V''), Ameritas Variable Life Insurance Company 
Separate Account VA-2 (``Separate Account VA-2,'' together with 
Separate Account V, the ``Applicant Accounts''), the Ameritas Variable 
Life Insurance Company (``AVLIC'').

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 26(b).

SUMMARY OF THE APPLICATION: Applicants seek an order approving the 
proposed substitution of shares of the Index 500 Portfolio of the 
Variable Insurance Products Fund II (``Index 500 Portfolio'') for 
shares of The Dreyfus Stock Index Fund (``Dreyfus Fund'') held by 
Applicant Accounts.

FILING DATES: The application was filed on October 21, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on March 11, 1997, 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 requestor'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, N.W., Washington, DC., 20549. Applicants, c/o Norman M. 
Krivosha, Esq., Ameritas Variable Life Insurance Company, 5900 ``O'' 
Street, Lincoln, Nebraska 68510.

FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Branch Chief, Office of Insurance Products (Division 
of Investment Management), at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application is available for a fee from the Public 
Reference Branch of the Commission.

Applicants' Representations

    1. AVLIC, a stock life insurance company organized pursuant to 
Nebraska law, is a wholly-owned subsidiary of AMAL Corporation. 
Ameritas Life Insurance Corporation, also a Nebraska corporation, owns 
a majority interest in AMAL Corporation.
    2. The Applicant Accounts were established by AVLIC and registered 
with the Commission as unit investment trusts pursuant to the 1940 Act. 
Separate Account VA-2 was established on May 28, 1987, to fund group 
variable annuity policies (``VA Policies''). Separate Account V was 
established on August 28, 1985, to fund variable universal life 
insurance policies (``VUL Policies''). The VA and VUL Policies 
(collectively, the ``Subject Contracts'') are issued and administered 
by AVLIC and are offered exclusively by means of separate prospectuses 
that describe the applicable terms and conditions of the respective 
contracts.
    3. Each of the Applicant Accounts is divided into separate 
subaccounts that invest exclusively in shares of one of the investment 
portfolios of certain open-end investment companies (collectively, 
``Underlying Funds''). The Underlying Funds in which the subaccounts of 
the Applicant Accounts may invest are: The Alger American Fund, which 
currently offers to Applicant Accounts six investment portfolios, and 
MFS Variable Insurance Trust, which currently offers three investment 
portfolios. In addition, Variable Insurance Products Fund I and 
Variable Insurance Products Fund II currently offer to Applicant 
Accounts ten investment portfolios, one of which is the Index 500 
Portfolio. Applicant Accounts offer subaccounts that invest exclusively 
in the Index 500 Portfolio (``Index 500 Subaccounts'').
    4. Applicant Accounts also offered subaccounts that invested 
exclusively in shares of the Dreyfus Fund (``Dreyfus Subaccounts''). 
New investments in the Dreyfus Subaccounts have not been accepted since 
May 1, 1996, and all prospectuses relating to the Subject Contracts 
have been amended to eliminate reference to them. Subject Contract 
owners who invested in the Dreyfus Subaccounts (``Affected 
Contractholders'') were permitted to remain in the Dreyfus Subaccounts 
after May 1, 1996, and to continue to reinvest dividends paid by the 
Dreyfus Fund in the Dreyfus Subaccounts. All Affected Contractholders 
continue to have the option of transferring investments without charge 
from the Dreyfus Subaccounts to the Index 500 Subaccounts or to other 
subaccounts, but it is not anticipated that all Affected 
Contractholders will take advantage of this option. As of July 31, 
1996, the Dreyfus Subaccount of Separate Account VA-2 had total assets 
of $8,561,723, representing the interests of 916 owners, and the 
Dreyfus Subaccount of Separate Account V had total assets of 
$2,067,298, representing the interests of 735 owners.
    5. Applicants represent that the investment objectives of the Index 
500 Portfolio and the Dreyfus Fund are identical. Both are ``index 
funds'' that attempt to allocate assets to correspond to the Standard & 
Poor's Index (``S&P 500''). Each fund: (a) must invest at least 80% of 
its assets in securities represented in the S&P 500; (b) seeks to 
achieve a total return that reflects at least a 95% correlation with 
the S&P 500; and (c) may use financial futures for hedging purposes 
only.
    6. Fidelity Management & Research Company (``FRM''), which manages 
the Index 500 Portfolio, is entitled to receive an investment advisory 
fee at the annual rate of .28% of the Portfolio's net assets. For each 
of the fiscal years ended December 31, 1995, 1994, and 1993, the 
expense ratio of the Index 500 Portfolio, taking into account expense 
reimbursements and fee waivers, was .28% of the Portfolio's average net 
assets. During each such period FMR voluntarily reimbursed the Index 
500 Portfolio to the extent that its ratio of expenses to average net 
assets exceeded

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.28%. Had this reimbursement policy not been in place, the expense 
ratios for the Index 500 Portfolio for the fiscal years ended December 
31, 1995, 1994, and 1993, would have been .47%, .81%, and .95%, 
respectively.
    7. The Dreyfus Corporation (``Dreyfus''), which manages the Dreyfus 
Fund, receives a fee at the annual rate of .245% of the Fund's average 
daily net assets. The expense ratios for the Dreyfus Fund for the 
fiscal years ended December 31, 1995, 1994, and 1993, were .39%, .40%, 
and .40% of the Fund's average daily net assets. These expense levels 
take into account Dreyfus's policy to voluntarily reimburse the Fund in 
any year in which the Fund's expenses exceeded .40% of the Fund's 
average net assets. Dreyfus has undertaken to maintain this expense 
reimbursement policy absent 180 days notice to the Fund's shareholders 
of any change in the policy.
    8. The proposed substitution will be effected by redeeming the 
shares of the Dreyfus Fund held by the Dreyfus Subaccounts, 
transferring the cash values of Affected Contractholders from the 
Dreyfus Subaccounts to the Index 500 Subaccounts, and then purchasing 
shares of the Index 500 Portfolio. The Dreyfus Subaccounts would then 
be eliminated. All redemptions of shares of the Dreyfus Fund and 
purchases of shares of the Index 500 Portfolio will be effected in 
compliance with Rule 22c-1 under the 1940 Act. The substitution will be 
at net asset value of the respective shares, without the imposition of 
any transfer, sales, or similar charge. There will be no change in the 
amount of any Affected Contractholder's investment after the 
substitution.

Applicants' Legal Analysis

    1. Section 26(b) 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(b) provides that 
the Commission will approve a substitution if it is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the 1940 Act. The purpose of Section 26(b) is to 
protect the expectation of investors in a unit investment trust that 
the unit investment trust will accumulate the shares of a particular 
issuer and to prevent unscrutinized substitutions which might, in 
effect, force the contractholders, dissatisfied with the substituted 
security, to redeem their shares, thereby incurring either a loss of 
the sales load deducted from initial proceeds, an additional sales load 
upon reinvestment of the redemption proceeds, or both.
    2. Applicants request that the Commission issue an order pursuant 
to Section 26(b) of the 1940 Act to permit the Applicant Accounts to 
substitute securities of the Index 500 Portfolio for securities of the 
Dreyfus Fund.
    3. Applicants submit that the proposed substitution meets the 
standard enunciated in Section 26(b), and further that, if implemented, 
the substitution would not raise any of the concerns that Congress 
sought to address when the 1940 Act was amended to include the 
provision. Applicants further submit that the substitution will not 
result in the type of costly forced redemption that Section 26(b) was 
intended to guard against and is consistent with the protection of 
investors and the purposes fairly intended by the 1940 Act.
    4. Applicants submit that the investment objective, policies, and 
operating expenses of the Index 500 Portfolio and the Dreyfus Fund are 
substantially the same or comparable. Applicants state that the Index 
500 Portfolio is large enough to provide the portfolio diversification 
necessary to decrease investment risk and to provide the economies of 
scale that may benefit the Affected Contractholders, as well as other 
Subject Contractholders.
    5. Applicants represent that AVLIC will bear the costs of the 
proposed substitution, including legal, accounting, and brokerage fees, 
and Affected Contractholders will not incur any fees or charges as a 
result of the substitution. Applicants also represent that the 
substitution will not impose any tax liability on Affected 
Contractholders or raise the level of fees and charges currently paid 
by Affected Contractholders. Applicants further represent that the 
rights of affected Contractholders and AVLIC's obligations under any of 
the Subject Contracts will also not change.
    6. Applicants represent that as soon as reasonably practicable 
after the requested order is issued, AVLIC will send to the Affected 
Contractholders a written notice (``Notice'') describing the proposed 
substitution, including the date on which the substitution will take 
effect. The Notice will advise Affected Contractholders that either 
before or within thirty days from the date on which the substitution 
occurs, they may transfer all substituted assets to other subaccounts. 
Applicants also represent that any transfer of cash values in the 
Dreyfus Subaccounts that occurs either prior to, or within the thirty 
days, after the substitution will not be treated as a transfer that may 
be restricted because of earlier transfers between subaccounts. 
Applicants further represent that no transfer charge is currently in 
effect, and none will be imposed before the end of the thirty-day 
period.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested order approving the proposed substitution is consistent with 
the protection of investors and the policy and provisions of the 1940 
Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4386 Filed 2-21-97; 8:45 am]
BILLING CODE 8010-01-M