National Life Insurance Company, et al., 54313-54316 [06-7641]
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Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices
where they will be processed through
security prior to entering GSFC. Please
provide the appropriate data, via fax
301–286–1230, noting at the top of the
page ‘‘Public Admission to the NASA
Advisory Council Meeting at GSFC’’.
For security questions, please call
Chuck Lombard at 301–286–1109.
It is imperative that the meeting be
held on this date to accommodate the
scheduling priorities of the key
participants.
P. Diane Rausch,
Advisory Committee Management Officer,
National Aeronautics and Space
Administration.
[FR Doc. E6–15272 Filed 9–13–06; 8:45 am]
BILLING CODE 7510–13–P
SECURITIES AND EXCHANGE
COMMISSION
[Rel. No. IC–27477; File No. 812–13244]
National Life Insurance Company, et al.
September 7, 2006.
Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of application for an
order pursuant to Section 26(c) of the
Investment Company Act of 1940, as
amended (the ‘‘Act’’), approving a
certain substitution of securities.
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AGENCY:
Applicants: National Life Insurance
Company (‘‘NLIC’’), National Variable
Annuity Account II (‘‘Annuity
Account’’), and National Variable Life
Insurance Account (‘‘Life Account’’)
(NLIC, Annuity Account and Life
Account collectively, the ‘‘Applicants’’).
Summary of Application: Applicants
have submitted an application for an
order of the Commission, pursuant to
Section 26(c) of the Act, permitting
NLIC to substitute securities issued by
Fidelity VIP Index 500 Portfolio
(‘‘Fidelity Fund’’), a series of Variable
Insurance Products Fund II, or DWS
Equity Index 500 VIP (‘‘DWS Fund’’), a
series of DWS Investments VIT Funds,
to support variable annuity contracts or
variable life insurance contracts
(separately, ‘‘Contract’’, collectively,
‘‘Contracts’’) issued by NLIC, for
securities issued by Sentinel Variable
Products Growth Index Fund (‘‘Sentinel
Fund’’), a series of Sentinel Variable
Products Trust, held by both the
Annuity Account or the Life Account
(individually, ‘‘Account’’ and
collectively, ‘‘Accounts’’).
Filing Date: The application was filed
on October 28, 2005, amended on
February 2, 2006, June 16, 2006, July 17,
2006, and September 1, 2006.
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20:23 Sep 13, 2006
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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 the
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 October 2, 2006 and
should be accompanied by proof of
service of 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, 100 F Street,
NE., Washington, DC 20549–0609.
Applicants, c/o Kerry A. Jung, Esq.,
Senior Counsel, National Life Insurance
Company, One National Life Drive,
Montpelier, VT 05604.
FOR FURTHER INFORMATION CONTACT:
Curtis A. Young, Senior Counsel, or
Harry Eisentein, Branch Chief, Office of
Insurance Products, Division of
Invstmetn Management, at 202–551–
6795.
SUPPLEMENTARY INFORMATION: The
following is a summary of the amended
and restated application. The complete
application may be obtained for a fee
from the Public Reference Room, 100 F
street, NE., Washington, DC 20549, or by
calling (202) 551–8090.
Applicants’ Representations
1. NLIC is a stock life insurance
company, all the outstanding stock of
which is indirectly owned by National
Life Holding Company, a mutual
insurance holding company. All owners
of NLIC contracts, including the
Contracts, are voting members of
National Life Holding Company. NLIC is
authorized to transact life insurance and
annuity business in Vermont and 50
other jurisdictions. For purposes of the
Act, NLIC is the depositor and sponsor
of the Accounts as those terms have
been interpreted by the Commission
with respect to variable life insurance
and variable annuity separate accounts.
2. NLIC established the Annuity
Account on November 1, 1996 and the
Life Account on February 1, 1985, as
segregated investment accounts under
Vermont law. Under Vermont law, the
assets of each Account attributable to
the Contracts through which interests in
that Account are issued are owned by
NLIC but are held separately from all
other assets of NLIC for the benefit of
the owners of, and the persons entitled
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54313
to payment under, those Contracts.
Consequently, such assets in each
Account equal to the reserves and other
liabilities with respect to such Account
are not chargeable with liabilities
arising out of any other business that
NLIC may conduct. Income, gains and
losses, realized and unrealized, from
assets allocated to each Account are
credited to or charged against that
Account without regard to the other
income, gains or losses of NLIC. Each
Account is a ‘‘separate account’’ as
defined by Rule 0–1(e) under the Act
(File No. 811–08015 for the Annuity
Account and File No. 811–09044 for the
Life Account).
3. The Annuity Account is divided
into forty-nine subaccounts. Each
subaccount invests exclusively in a
corresponding series of one of thirteen
management investment companies.
The assets of the Annuity Account
support variable annuity contracts, and
interests in the Account offered through
the Contracts have been registered
under the Securities Act of 1933, as
amended (‘‘1933 Act’’) on Form N–4
(File No. 333–19583).
4. The Life Account is divided into
one hundred and twenty-nine
subaccounts. Each subaccount invests
exclusively in shares representing an
interest in a corresponding series of one
of thirteen management investment
companies. The assets of the Life
Account support variable life insurance
contracts, and interests in this Account
offered through the Contracts have been
registered under the 1933 Act on Form
N–6 (File Nos. 33–91938, 333–44723,
and 333–67003).
5. The Sentinel Variable Products
Trust was organized as a business trust
in Delaware on March 14, 2000, and is
currently registered under the Act as an
open-end diversified management
investment company. It is a series
investment company as defined by Rule
18f–2 under the Act.
6. The Sentinel Fund’s investment
advisor, Sentinel Asset Management,
Inc. (‘‘SAM’’), is an affiliated person of
NLIC because it is controlled by NLIC.
7. The Variable Insurance Products
Fund II was created under an initial
declaration of trust dated March 21,
1988, and is currently registered under
the Act as an open-end management
investment company. It is a series
investment company as defined by Rule
18f–2 under the Act.
8. The DWS Investments VIT Funds
was organized on January 18, 1996,
under the laws of the Commonwealth of
Massachusetts, and is currently
registered under the Act as an open-end
management investment company. SVIT
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Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices
is a series investment company as
defined by Rule 18f–2 under the Act.
9. Neither NLIC nor the Accounts are
affiliated with the Fidelity Fund or the
DWS Fund. In consideration for
administrative services provided by
NLIC to the Fidelity and DWS Funds,
NLIC is paid an annual fee of 0.05% and
0.13%, respectively, of each fund’s
average net assets that are attributable to
the Accounts.
10. The Contracts are flexible
premium variable life insurance
Contracts and individual flexible
premium deferred variable annuity
Contracts. The Contracts provide for the
accumulation of values on a variable
basis, fixed basis, or both, during the
accumulation period, and provide
settlement or annuity payment options
on a fixed basis. In each of the
prospectuses for the Contracts, NLIC
reserves the right to substitute shares of
one series of an investment company for
shares of another series, including a
series of a different investment
company.
11. Contract owners may transfer
among the subaccounts of the Variable
Account and, subject to certain
limitations, among the Variable
Account, the fixed account and the
guaranteed accounts. Contract owners
may transfer among the subaccounts of
the Life Account and between the Life
Account and NLIC’s general account,
where available. Currently there is no
charge for transfers. However, NLIC
reserves the right to assess a $25 charge
for each transfer in excess of twelve in
any Contract year. Each series of an
investment company in which a
subaccount invests may also impose its
own redemption fees.
12. NLIC proposes to substitute (a)
The Fidelity Fund, which is currently
offered as an investment option, for the
Sentinel Fund in the Annuity Account
and the VariTrak and Sentinel Estate
Provider products of the Life Account
and (b) the DWS Fund, which is
currently offered as an investment
option, for the Sentinel Fund in the
Sentinel Benefit Provider product of the
Life Account. NLIC believes that by
making the proposed substitution in
each of the Accounts they can better
serve the interests of the Contracts
owners.
13. The investment objective and
principal investment strategies of each
of the Sentinel Fund, the Fidelity Fund
and the DWS Fund are as follows:
Objective
Principal strategies
Sentinel Fund
Seeks to match, as closely as possible
before expenses, the performance of
the S&P 500/ Citigroup Growth Index
(‘‘Index’’), by investing in common
stocks of the companies comprising the
Index in approximately the same
weightings as the Index.
Fidelity Fund ..
Seeks investment results that correspond
to the total return of common stocks
publicly traded in the United States, as
represented by the S&P 500.
DWS Fund .....
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Fund
Seeks to replicate, as closely as possible,
before the deduction of expenses, the
performance of the S&P 500.
Invests at all times at least 80% of its total assets in the common stocks of the
companies that comprise the Index.
Normally intends to invest substantially all its total assets in these common stocks,
in approximately the same weightings as the Index.
May hold up to 20% of its assets in money market instruments and stock index options and futures, which it intends to buy, if at all, only in anticipation of buying
stocks. The Fund may not purchase or sell derivative instruments if, as a result,
the aggregate initial margin and options premiums required to establish these positions exceed 5% of the Fund’s total assets.
Normally invests at least 80% of assets in common stocks included in the S&P
500.
May buy and sell futures contracts, swaps, and exchange traded funds, to increase
or decrease the Fund’s exposure to changing security prices or other factors that
affect security values. The Fund will not purchase any option if, as a result, more
than 5% of its total assets would be invested in option premiums. Under normal
conditions, the Fund will not enter into any futures contract, option, or swap
agreement if, as a result, the sum of (i) the current value of assets hedged in the
case of strategies involving the sale of securities, and (ii) the current value of the
indices or other instruments underlying the fund’s other futures, options, or
swaps positions, would exceed 35% of the Fund’s total assets. These limitations
do not apply to options attached to, or acquired or traded together with their underlying securities, and do not apply to securities that incorporate features similar
to futures, options or swaps.
Lends securities to earn income for the Fund.
Investments at least 80% of its assets in the securities of the companies included
in the Standard & Poor’s 500 Composite Stock Price Index (‘‘S&P 500 Index’’)
and derivative instruments such as futures contracts and options, relating to the
benchmark.
May not invest more than 15% of assets in options on securities indices and may
not invest more than 5% of assets in futures on securities indices or on options
on futures.
Invests in a statistically selected sample of the securities found in the S&P 500
Index, using a process known as ‘‘optimization.’’
May exclude or remove any S&P stock if its investment advisor believes that the
stock is illiquid or that the merit of the investment has been impaired by financial
conditions or other extraordinary events.
May purchase a stock not included in the S&P 500 Index when it is believed to be
a cost-efficient way of approximating the S&P 500 Index’s performance.
May hold assets in short-term debt securities or money market instruments for liquidity purposes.
My lend its investment securities up to 30% of its total assets.
14. Projected advisory fees and
expense ratios for the Fidelity Fund and
DWS Fund are lower than the advisory
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fees and net expense ratios of the
Sentinel Fund as of December 31, 2005.
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Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices
54315
EXPENSE RATIOS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2005
Management fee
(percent)
Fund
Sentinel Fund ...................
Fidelity Fund ....................
DWS Fund .......................
0.30
0.10
0.19
Other expenses
(percent)
12b–1 fee
............................
0.25
............................
Total annual
expense ratio
(percent)
1.59
0.00
0.15
Waivers and reimbursements
(percent)
11.29
............................
30.06
1.89
0.35
0.34
New annual
expense ratio
(percent)
0.60
2 0.35
0.28
1 SAM
and/or an affiliate has agreed to waive fees and/or reimbursement expenses so that the net annual expense ratio of the Sentinel Fund,
after expense offsets, is no more than 0.60% through December 31, 2006.
2 Fidelity management & Research Company (‘‘FMR’’) has contractually agreed to reimburse the Fidelity Fund to the extent that total operating
expenses (excluding interest, taxes, certain securities lending costs, brokerage commissions and extraordinary expenses) as a percentage of average net assets exceed 0.35%. The expense limitation may not be increased without approval of the Fidelity Fund’s shareholders and board of
trustees. Therefore the expense limit is required by contact and is not voluntary on the Fidelity Fund manager’s part.
3 Effective September 19, 2005, the DWS Fund’s advisor contractually agreed to waive its fees and/or reimbursement expenses to the extent
necessary to limit all expenses to 0.28% for Class A Shares until April 30, 2009.
15. The Applicants note that the
primary differences between the
Sentinel Fund and the Fidelity Fund are
that (1) The Fidelity Fund seeks to
match the S&P 500 index, while the
Sentinel Fund seeks to match only the
Citigroup Growth portion of the S&P
500 Index and (2) the Fidelity Fund may
lend securuities while the Sentinel
Fund does not. Applicants state the
primary difference between the Sentinel
Fund and the DWS Fund are that (1)
The DWS Fund seeks to match the S&P
500 Index, while the Sentinel Fund
seeks to match only the Citigroup
Growth portion of the S&P 500 Index,
(2) the DWS Fund may invest in
securities other than those included in
the S&P 500 Index under certain
cirucmstances in which the Sentinel
Fund could not and (3) DWS Fund may
lend securities, while the Sentinel Fund
does not. While there are some
differences in these strategies, NLIC
believes that the Fidelity Fund and the
DWS Fund offer an investment strategy
that is sufficiently similar to the
Sentinel Fund considering the benefits
of the proposed substitution.
16. Applicants state that the Fidelity
and DWS Funds each have significantly
more assets than the Sentinel Fund. In
addition, each of the Fidelity and DWS
Funds has also significantly
outperformed the Sentinel Fund in the
one and three year peiods ended June
30, 2006 as well as the period since the
inception of the Sentinel fund.
PERFORMANCE AS OF JUNE 30, 2006
1-year
(percent)
Fund
Sentinel Fund ...........................................
Fidelity Fund ............................................
DWS Fund ...............................................
rwilkins on PROD1PC63 with NOTICES
1 Not
3.81
8.57
8.34
3-year
(percent)
5-year
(percent)
6.42
11.04
10.91
10-year
(percent)
(1 )
8.05
(1)
¥0.26
2.27
2.18
Since
inception
(percent)
¥3.36
10.26
4.64
Since 11/30/00
percent)
3.36
8.76
0.76
applicable.
17. Supplements to the prospectus
will advise Contract owners that they
are permitted from the date of the
supplement until the date of the
proposed substitution to make transfers
of all amounts under the Contracts
invested in the Sentinel Fund
subaccount to another subaccount
available under the Contracts without
those transfers counting as ‘‘free’’
transfers permitted under the Contracts
at any time prior to the substitution.
18. The proposed substitution will
take place at relative net asset value
with no change in the amount of any
Contract owner’s account value or death
benefit or in the dollar value of any
Account. Contract owners will not incur
any fees or charges as a result of the
proposed substitutions, nor will their
rights or NLIC’s obligations under the
Contracts be altered in any way. All
expenses incurred in connection with
the proposed substitution is not
expected to impose any tax liability on
Contract owners. The proposed
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substitution will not cause the Contract
fees and charges currently being paid by
Contract owners to be greater than those
being charged at the time of the
substitution. The proposed substituting
will not be treated as a transfer or
exchange for purposes of assessing
transfer charges or for determining the
number of remaining ‘‘free’’ transfers or
exchanges in a Contract year.
19. Within five days of the
substitution, Contract owners affected
by the substitution will be sent a written
notice informing them that the
substitution was carried out and that for
the next 30 days they may make
transfers of all accumulated or contract
value under a Contract invested in the
Fidelity Fund or DWS Fund subaccount,
as applicable, on the date of the notice
to another subaccount available under
the Contract without the transfers
counting as part of the limited number
of transfers permitted in a Contract year
free of charge. The notice as delivered
in certain states also may explain that,
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under the insurance regulations in those
states, Contract owners who are affected
by the substitutions may exchange their
Contracts for fixed-benefit life insurance
contracts or annuity contracts, as
applicable, issued by NLIC during the
60 days following the proposed
substitutions. A current prospectus for
the Fidelity Fund or DWS Fund, as
applicable, each of which is a currently
available investment option under the
applicable Contract, will precede or
accompany the notice.
20. NLIC will not receive, for three
years from the date of the substitution,
any direct or indirect benefits from the
Fidelity Fund or the DWS Fund or their
respective advisors or underwriters or
any of their respective affiliates in
connection with the assets attributable
to the Contracts, which in the aggregate
(including, without limitation, all
advisory, 12b–1, shareholder servicing,
administration, marketing support or
similar fees) is higher than the benefit
it would have received from the
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Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices
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Sentinel Fund or its advisor,
underwriter or affiliates absent any
waivers.
21. Applicants state that the
substitution and selection of the Fidelity
Fund and the DWS Fund was not
motivated by any financial
consideration paid or to be paid to NLIC
or its affiliates by the Fidelity Fund or
the DWS Fund or their respective
advisor, underwriters or affiliates.
Applicants’ Legal Analysis
1. Applicants state that the proposed
substitution is a substitution within the
meaning of Section 26(c) of the Act,
which requires the depositor of a
registered unit investment trust holding
the securities of a single issuer to
receive commission approval before
substituting the securities held by the
trust.
2. Applicants note that the
prospectuses disclose that the Contracts
expressly reserve for NLIC the right,
subject to compliance with applicable
law, to substitute shares of one series of
an investment company held by a
subaccount for another series, including
a series of a different investment
company, when, among other things, in
NLIC’s judgment the investment in such
series is inappropriate.
3. Applicants assert that the proposed
substitution will provide Contract
owners a sufficiently similar investment
strategy considering the opportunity for
lower expenses and greater economies
of scale. In addition, Applicants
generally submit that the proposed
substitution meets the standards that the
Commission and its staff have applied
to similar substitutions that have been
approved in the past.
4. Applicants anticipate that Contract
owners will be at least as well off with
the proposed array of subaccounts
offered after the proposed substitution
as they have been with the array of
subaccounts offered prior to the
substitution. Applicants’ assert that the
proposed substitution retains for
Contract owners the investment
flexibility that is a central feature of the
Contracts.
5. Applicants assert that the proposed
substitution is not the type of
substitution which Section 26(c) was
designed to prevent. Unlike traditional
unit investment trusts where a depositor
could only substitute an investment
security in a manner that permanently
affected all the investors in the trust, the
Contracts provide each Contract owner
with the right to exercise her or his own
judgment and transfer accumulation and
contract values into other subaccounts.
6. Applicants note that the Contracts
will offer Contract owners an
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20:23 Sep 13, 2006
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opportunity to transfer amounts out of
the Sentinel Fund, prior to the
substitution, or the Fidelity Fund or
DWS Fund, as applicable, after the
substitution, into any of the remaining
subaccounts without cost or other
disadvantage. The proposed
substitution, therefore, will not result in
the type of costly forced redemption
which Section 26(c) was designed to
prevent.
7. The Applicants note that within
five days after the proposed
substitution, Contract owners affected
by the substitution will be sent a written
notice informing them that the
substitution was carried out and that,
for the next 30 days, they may make one
transfer of all accumulated or contract
value under a Contract invested in the
Fidelity Fund or the DWS Fund, as
applicable, on the date of the notice to
another subaccount available under
their Contract without the transfer
counting as one of a limited number of
transfers permitted in a Contract year
free of charge.
8. Applicants state the proposed
substitution in also unlike the type of
substitutions which Section 26(c) was
designed to prevent in that by
purchasing a Contract, Contract owners
select much more than a particular
investment company in which to invest
their account values. They also select
the specific type of insurance coverage
offered by NLIC under their Contract as
well as numerous other rights and
privileges set forth in the Contract.
Contract owners may also have
considered NLIC’s size, financial
condition, type and its reputation for
service in selecting their Contract. These
factors will not change as a result of the
proposed substitution.
Conclusion
Applicants submit that, for all the
reasons stated above, the proposed
substitution is consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06–7641 Filed 9–13–06; 8:45 am]
BILLING CODE 8010–01–M
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54410; File No. SR–
NYSEArca–2006–31]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
a Proposed Rule Change Amending
Rules to Mandate Listed Companies
Become Eligible To Participate in a
Direct Registration System
September 7, 2006.
I. Introduction
On June 19, 2006, NYSE Arca, Inc.
(‘‘NYSE Arca’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–NYSEArca–2006–31 pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’).1 Notice
of the proposal was published in the
Federal Register on July 18, 2006.2 One
comment letter was received.3 For the
reasons discussed below, the
Commission is granting approval of the
proposed rule change.4
II. Description
The Direct Registration System
(‘‘DRS’’) allows an investor to establish
either through the issuer’s transfer agent
or through the investor’s broker-dealer a
book-entry position on the books of the
issuer and to electronically transfer her
position between the transfer agent and
the broker-dealer of her choice through
a facility currently administered by The
Depository Trust Company (‘‘DTC’’).5
DRS, therefore, enables an investor to
have securities registered in her name
on the books of the issuer without
having a securities certificate issued to
her and to electronically transfer her
1 15
U.S.C. 78s(b)(1).
Exchange Act Release No. 54126 (July
11, 2006), 71 FR 40768 (July 18, 2006) [File No. SR–
NYSEArca–2006–31].
3 Letter from Loren K. Hanson, Director of
Investor Relations, to Nancy M. Morris, Secretary,
Commission (August 15, 2006).
4 The Commission has also granted approval to
similar rule changes submitted by the New York
Stock Exchange LLC (‘‘NYSE’’), American Stock
Exchange LLC (‘‘Amex’’), and The NASDAQ Stock
Market LLC (‘‘Nasdaq’’). Securities Exchange Act
Release Nos. 54289 (August 8, 2006), 71 FR 47278
(August 16, 2006) [File No. SR–NYSE–2006–29];
54288 (August 8, 2006), 71 FR 47276 (August 16,
2006) [File No. SR–NASDAQ–2006–08]; and 54290
(August 8, 2006), 71 FR 47262 (August 16, 2006)
[File No. SR–Amex–2006–40].
5 Currently, the only registered clearing agency
operating a DRS is DTC. For a detailed description
of DRS and the DRS facilities administered by DTC,
see Securities Exchange Act Release Nos. 37931
(November 7, 1996), 61 FR 58600 (November 15,
1996), [File No. SR–DTC–96–15] (order granting
approval to establish DRS) and 41862 (September
10, 1999), 64 FR 51162 (September 21, 1999), [File
No. SR–DTC–99–16] (order approving
implementation of the Profile Modification System).
2 Securities
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]]>Agencies
[Federal Register Volume 71, Number 178 (Thursday, September 14, 2006)]
[Notices]
[Pages 54313-54316]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-7641]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-27477; File No. 812-13244]
National Life Insurance Company, et al.
September 7, 2006.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order pursuant to Section 26(c) of
the Investment Company Act of 1940, as amended (the ``Act''), approving
a certain substitution of securities.
-----------------------------------------------------------------------
Applicants: National Life Insurance Company (``NLIC''), National
Variable Annuity Account II (``Annuity Account''), and National
Variable Life Insurance Account (``Life Account'') (NLIC, Annuity
Account and Life Account collectively, the ``Applicants''). Summary of
Application: Applicants have submitted an application for an order of
the Commission, pursuant to Section 26(c) of the Act, permitting NLIC
to substitute securities issued by Fidelity VIP Index 500 Portfolio
(``Fidelity Fund''), a series of Variable Insurance Products Fund II,
or DWS Equity Index 500 VIP (``DWS Fund''), a series of DWS Investments
VIT Funds, to support variable annuity contracts or variable life
insurance contracts (separately, ``Contract'', collectively,
``Contracts'') issued by NLIC, for securities issued by Sentinel
Variable Products Growth Index Fund (``Sentinel Fund''), a series of
Sentinel Variable Products Trust, held by both the Annuity Account or
the Life Account (individually, ``Account'' and collectively,
``Accounts'').
Filing Date: The application was filed on October 28, 2005, amended
on February 2, 2006, June 16, 2006, July 17, 2006, and September 1,
2006.
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 the 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 October 2, 2006 and should be accompanied by proof of
service of 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, 100 F Street,
NE., Washington, DC 20549-0609. Applicants, c/o Kerry A. Jung, Esq.,
Senior Counsel, National Life Insurance Company, One National Life
Drive, Montpelier, VT 05604.
FOR FURTHER INFORMATION CONTACT: Curtis A. Young, Senior Counsel, or
Harry Eisentein, Branch Chief, Office of Insurance Products, Division
of Invstmetn Management, at 202-551-6795.
SUPPLEMENTARY INFORMATION: The following is a summary of the amended
and restated application. The complete application may be obtained for
a fee from the Public Reference Room, 100 F street, NE., Washington, DC
20549, or by calling (202) 551-8090.
Applicants' Representations
1. NLIC is a stock life insurance company, all the outstanding
stock of which is indirectly owned by National Life Holding Company, a
mutual insurance holding company. All owners of NLIC contracts,
including the Contracts, are voting members of National Life Holding
Company. NLIC is authorized to transact life insurance and annuity
business in Vermont and 50 other jurisdictions. For purposes of the
Act, NLIC is the depositor and sponsor of the Accounts as those terms
have been interpreted by the Commission with respect to variable life
insurance and variable annuity separate accounts.
2. NLIC established the Annuity Account on November 1, 1996 and the
Life Account on February 1, 1985, as segregated investment accounts
under Vermont law. Under Vermont law, the assets of each Account
attributable to the Contracts through which interests in that Account
are issued are owned by NLIC but are held separately from all other
assets of NLIC for the benefit of the owners of, and the persons
entitled to payment under, those Contracts. Consequently, such assets
in each Account equal to the reserves and other liabilities with
respect to such Account are not chargeable with liabilities arising out
of any other business that NLIC may conduct. Income, gains and losses,
realized and unrealized, from assets allocated to each Account are
credited to or charged against that Account without regard to the other
income, gains or losses of NLIC. Each Account is a ``separate account''
as defined by Rule 0-1(e) under the Act (File No. 811-08015 for the
Annuity Account and File No. 811-09044 for the Life Account).
3. The Annuity Account is divided into forty-nine subaccounts. Each
subaccount invests exclusively in a corresponding series of one of
thirteen management investment companies. The assets of the Annuity
Account support variable annuity contracts, and interests in the
Account offered through the Contracts have been registered under the
Securities Act of 1933, as amended (``1933 Act'') on Form N-4 (File No.
333-19583).
4. The Life Account is divided into one hundred and twenty-nine
subaccounts. Each subaccount invests exclusively in shares representing
an interest in a corresponding series of one of thirteen management
investment companies. The assets of the Life Account support variable
life insurance contracts, and interests in this Account offered through
the Contracts have been registered under the 1933 Act on Form N-6 (File
Nos. 33-91938, 333-44723, and 333-67003).
5. The Sentinel Variable Products Trust was organized as a business
trust in Delaware on March 14, 2000, and is currently registered under
the Act as an open-end diversified management investment company. It is
a series investment company as defined by Rule 18f-2 under the Act.
6. The Sentinel Fund's investment advisor, Sentinel Asset
Management, Inc. (``SAM''), is an affiliated person of NLIC because it
is controlled by NLIC.
7. The Variable Insurance Products Fund II was created under an
initial declaration of trust dated March 21, 1988, and is currently
registered under the Act as an open-end management investment company.
It is a series investment company as defined by Rule 18f-2 under the
Act.
8. The DWS Investments VIT Funds was organized on January 18, 1996,
under the laws of the Commonwealth of Massachusetts, and is currently
registered under the Act as an open-end management investment company.
SVIT
[[Page 54314]]
is a series investment company as defined by Rule 18f-2 under the Act.
9. Neither NLIC nor the Accounts are affiliated with the Fidelity
Fund or the DWS Fund. In consideration for administrative services
provided by NLIC to the Fidelity and DWS Funds, NLIC is paid an annual
fee of 0.05% and 0.13%, respectively, of each fund's average net assets
that are attributable to the Accounts.
10. The Contracts are flexible premium variable life insurance
Contracts and individual flexible premium deferred variable annuity
Contracts. The Contracts provide for the accumulation of values on a
variable basis, fixed basis, or both, during the accumulation period,
and provide settlement or annuity payment options on a fixed basis. In
each of the prospectuses for the Contracts, NLIC reserves the right to
substitute shares of one series of an investment company for shares of
another series, including a series of a different investment company.
11. Contract owners may transfer among the subaccounts of the
Variable Account and, subject to certain limitations, among the
Variable Account, the fixed account and the guaranteed accounts.
Contract owners may transfer among the subaccounts of the Life Account
and between the Life Account and NLIC's general account, where
available. Currently there is no charge for transfers. However, NLIC
reserves the right to assess a $25 charge for each transfer in excess
of twelve in any Contract year. Each series of an investment company in
which a subaccount invests may also impose its own redemption fees.
12. NLIC proposes to substitute (a) The Fidelity Fund, which is
currently offered as an investment option, for the Sentinel Fund in the
Annuity Account and the VariTrak and Sentinel Estate Provider products
of the Life Account and (b) the DWS Fund, which is currently offered as
an investment option, for the Sentinel Fund in the Sentinel Benefit
Provider product of the Life Account. NLIC believes that by making the
proposed substitution in each of the Accounts they can better serve the
interests of the Contracts owners.
13. The investment objective and principal investment strategies of
each of the Sentinel Fund, the Fidelity Fund and the DWS Fund are as
follows:
----------------------------------------------------------------------------------------------------------------
Fund Objective Principal strategies
----------------------------------------------------------------------------------------------------------------
Sentinel Fund.............. Seeks to match, as closely as Invests at all times at least 80% of its total
possible before expenses, the assets in the common stocks of the companies that
performance of the S&P 500/ comprise the Index.
Citigroup Growth Index Normally intends to invest substantially all its
(``Index''), by investing in total assets in these common stocks, in
common stocks of the companies approximately the same weightings as the Index.
comprising the Index in May hold up to 20% of its assets in money market
approximately the same instruments and stock index options and futures,
weightings as the Index. which it intends to buy, if at all, only in
anticipation of buying stocks. The Fund may not
purchase or sell derivative instruments if, as a
result, the aggregate initial margin and options
premiums required to establish these positions
exceed 5% of the Fund's total assets.
Fidelity Fund.............. Seeks investment results that Normally invests at least 80% of assets in common
correspond to the total return stocks included in the S&P 500.
of common stocks publicly May buy and sell futures contracts, swaps, and
traded in the United States, exchange traded funds, to increase or decrease
as represented by the S&P 500. the Fund's exposure to changing security prices
or other factors that affect security values. The
Fund will not purchase any option if, as a
result, more than 5% of its total assets would be
invested in option premiums. Under normal
conditions, the Fund will not enter into any
futures contract, option, or swap agreement if,
as a result, the sum of (i) the current value of
assets hedged in the case of strategies involving
the sale of securities, and (ii) the current
value of the indices or other instruments
underlying the fund's other futures, options, or
swaps positions, would exceed 35% of the Fund's
total assets. These limitations do not apply to
options attached to, or acquired or traded
together with their underlying securities, and do
not apply to securities that incorporate features
similar to futures, options or swaps.
Lends securities to earn income for the Fund.
DWS Fund................... Seeks to replicate, as closely Investments at least 80% of its assets in the
as possible, before the securities of the companies included in the
deduction of expenses, the Standard & Poor's 500 Composite Stock Price Index
performance of the S&P 500. (``S&P 500 Index'') and derivative instruments
such as futures contracts and options, relating
to the benchmark.
May not invest more than 15% of assets in options
on securities indices and may not invest more
than 5% of assets in futures on securities
indices or on options on futures.
Invests in a statistically selected sample of the
securities found in the S&P 500 Index, using a
process known as ``optimization.''
May exclude or remove any S&P stock if its
investment advisor believes that the stock is
illiquid or that the merit of the investment has
been impaired by financial conditions or other
extraordinary events.
May purchase a stock not included in the S&P 500
Index when it is believed to be a cost-efficient
way of approximating the S&P 500 Index's
performance.
May hold assets in short-term debt securities or
money market instruments for liquidity purposes.
My lend its investment securities up to 30% of its
total assets.
----------------------------------------------------------------------------------------------------------------
14. Projected advisory fees and expense ratios for the Fidelity
Fund and DWS Fund are lower than the advisory fees and net expense
ratios of the Sentinel Fund as of December 31, 2005.
[[Page 54315]]
Expense Ratios for the Twelve Months Ended December 31, 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total annual Waivers and New annual
Fund Management fee 12b-1 fee Other expenses expense ratio reimbursements expense ratio
(percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sentinel Fund............................... 0.30 ................ 1.59 1.89 \1\1.29 0.60
Fidelity Fund............................... 0.10 0.25 0.00 0.35 ................ \2\ 0.35
DWS Fund.................................... 0.19 ................ 0.15 0.34 \3\0.06 0.28
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ SAM and/or an affiliate has agreed to waive fees and/or reimbursement expenses so that the net annual expense ratio of the Sentinel Fund, after
expense offsets, is no more than 0.60% through December 31, 2006.
\2\ Fidelity management & Research Company (``FMR'') has contractually agreed to reimburse the Fidelity Fund to the extent that total operating expenses
(excluding interest, taxes, certain securities lending costs, brokerage commissions and extraordinary expenses) as a percentage of average net assets
exceed 0.35%. The expense limitation may not be increased without approval of the Fidelity Fund's shareholders and board of trustees. Therefore the
expense limit is required by contact and is not voluntary on the Fidelity Fund manager's part.
\3\ Effective September 19, 2005, the DWS Fund's advisor contractually agreed to waive its fees and/or reimbursement expenses to the extent necessary to
limit all expenses to 0.28% for Class A Shares until April 30, 2009.
15. The Applicants note that the primary differences between the
Sentinel Fund and the Fidelity Fund are that (1) The Fidelity Fund
seeks to match the S&P 500 index, while the Sentinel Fund seeks to
match only the Citigroup Growth portion of the S&P 500 Index and (2)
the Fidelity Fund may lend securuities while the Sentinel Fund does
not. Applicants state the primary difference between the Sentinel Fund
and the DWS Fund are that (1) The DWS Fund seeks to match the S&P 500
Index, while the Sentinel Fund seeks to match only the Citigroup Growth
portion of the S&P 500 Index, (2) the DWS Fund may invest in securities
other than those included in the S&P 500 Index under certain
cirucmstances in which the Sentinel Fund could not and (3) DWS Fund may
lend securities, while the Sentinel Fund does not. While there are some
differences in these strategies, NLIC believes that the Fidelity Fund
and the DWS Fund offer an investment strategy that is sufficiently
similar to the Sentinel Fund considering the benefits of the proposed
substitution.
16. Applicants state that the Fidelity and DWS Funds each have
significantly more assets than the Sentinel Fund. In addition, each of
the Fidelity and DWS Funds has also significantly outperformed the
Sentinel Fund in the one and three year peiods ended June 30, 2006 as
well as the period since the inception of the Sentinel fund.
Performance as of June 30, 2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
Since
Fund 1-year 3-year 5-year 10-year inception Since 11/30/00
(percent) (percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sentinel Fund........................................... 3.81 6.42 -0.26 (\1\) -3.36 3.36
Fidelity Fund........................................... 8.57 11.04 2.27 8.05 10.26 8.76
DWS Fund................................................ 8.34 10.91 2.18 (\1\) 4.64 0.76
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Not applicable.
17. Supplements to the prospectus will advise Contract owners that
they are permitted from the date of the supplement until the date of
the proposed substitution to make transfers of all amounts under the
Contracts invested in the Sentinel Fund subaccount to another
subaccount available under the Contracts without those transfers
counting as ``free'' transfers permitted under the Contracts at any
time prior to the substitution.
18. The proposed substitution will take place at relative net asset
value with no change in the amount of any Contract owner's account
value or death benefit or in the dollar value of any Account. Contract
owners will not incur any fees or charges as a result of the proposed
substitutions, nor will their rights or NLIC's obligations under the
Contracts be altered in any way. All expenses incurred in connection
with the proposed substitution is not expected to impose any tax
liability on Contract owners. The proposed substitution will not cause
the Contract fees and charges currently being paid by Contract owners
to be greater than those being charged at the time of the substitution.
The proposed substituting will not be treated as a transfer or exchange
for purposes of assessing transfer charges or for determining the
number of remaining ``free'' transfers or exchanges in a Contract year.
19. Within five days of the substitution, Contract owners affected
by the substitution will be sent a written notice informing them that
the substitution was carried out and that for the next 30 days they may
make transfers of all accumulated or contract value under a Contract
invested in the Fidelity Fund or DWS Fund subaccount, as applicable, on
the date of the notice to another subaccount available under the
Contract without the transfers counting as part of the limited number
of transfers permitted in a Contract year free of charge. The notice as
delivered in certain states also may explain that, under the insurance
regulations in those states, Contract owners who are affected by the
substitutions may exchange their Contracts for fixed-benefit life
insurance contracts or annuity contracts, as applicable, issued by NLIC
during the 60 days following the proposed substitutions. A current
prospectus for the Fidelity Fund or DWS Fund, as applicable, each of
which is a currently available investment option under the applicable
Contract, will precede or accompany the notice.
20. NLIC will not receive, for three years from the date of the
substitution, any direct or indirect benefits from the Fidelity Fund or
the DWS Fund or their respective advisors or underwriters or any of
their respective affiliates in connection with the assets attributable
to the Contracts, which in the aggregate (including, without
limitation, all advisory, 12b-1, shareholder servicing, administration,
marketing support or similar fees) is higher than the benefit it would
have received from the
[[Page 54316]]
Sentinel Fund or its advisor, underwriter or affiliates absent any
waivers.
21. Applicants state that the substitution and selection of the
Fidelity Fund and the DWS Fund was not motivated by any financial
consideration paid or to be paid to NLIC or its affiliates by the
Fidelity Fund or the DWS Fund or their respective advisor, underwriters
or affiliates.
Applicants' Legal Analysis
1. Applicants state that the proposed substitution is a
substitution within the meaning of Section 26(c) of the Act, which
requires the depositor of a registered unit investment trust holding
the securities of a single issuer to receive commission approval before
substituting the securities held by the trust.
2. Applicants note that the prospectuses disclose that the
Contracts expressly reserve for NLIC the right, subject to compliance
with applicable law, to substitute shares of one series of an
investment company held by a subaccount for another series, including a
series of a different investment company, when, among other things, in
NLIC's judgment the investment in such series is inappropriate.
3. Applicants assert that the proposed substitution will provide
Contract owners a sufficiently similar investment strategy considering
the opportunity for lower expenses and greater economies of scale. In
addition, Applicants generally submit that the proposed substitution
meets the standards that the Commission and its staff have applied to
similar substitutions that have been approved in the past.
4. Applicants anticipate that Contract owners will be at least as
well off with the proposed array of subaccounts offered after the
proposed substitution as they have been with the array of subaccounts
offered prior to the substitution. Applicants' assert that the proposed
substitution retains for Contract owners the investment flexibility
that is a central feature of the Contracts.
5. Applicants assert that the proposed substitution is not the type
of substitution which Section 26(c) was designed to prevent. Unlike
traditional unit investment trusts where a depositor could only
substitute an investment security in a manner that permanently affected
all the investors in the trust, the Contracts provide each Contract
owner with the right to exercise her or his own judgment and transfer
accumulation and contract values into other subaccounts.
6. Applicants note that the Contracts will offer Contract owners an
opportunity to transfer amounts out of the Sentinel Fund, prior to the
substitution, or the Fidelity Fund or DWS Fund, as applicable, after
the substitution, into any of the remaining subaccounts without cost or
other disadvantage. The proposed substitution, therefore, will not
result in the type of costly forced redemption which Section 26(c) was
designed to prevent.
7. The Applicants note that within five days after the proposed
substitution, Contract owners affected by the substitution will be sent
a written notice informing them that the substitution was carried out
and that, for the next 30 days, they may make one transfer of all
accumulated or contract value under a Contract invested in the Fidelity
Fund or the DWS Fund, as applicable, on the date of the notice to
another subaccount available under their Contract without the transfer
counting as one of a limited number of transfers permitted in a
Contract year free of charge.
8. Applicants state the proposed substitution in also unlike the
type of substitutions which Section 26(c) was designed to prevent in
that by purchasing a Contract, Contract owners select much more than a
particular investment company in which to invest their account values.
They also select the specific type of insurance coverage offered by
NLIC under their Contract as well as numerous other rights and
privileges set forth in the Contract. Contract owners may also have
considered NLIC's size, financial condition, type and its reputation
for service in selecting their Contract. These factors will not change
as a result of the proposed substitution.
Conclusion
Applicants submit that, for all the reasons stated above, the
proposed substitution is consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-7641 Filed 9-13-06; 8:45 am]
BILLING CODE 8010-01-M
