Nationwide Life Insurance Company, et al.,, 66806-66811 [2010-27367]
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66806
Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Notices
registered broker-dealers makes an
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Dated: October 25, 2010.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–27366 Filed 10–28–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29486; File No. 812–13648]
Nationwide Life Insurance Company, et
al., Notice of Application
October 25, 2010.
Securities and Exchange
Commission (the ‘‘Commission’’).
ACTION: Notice of application for an
order of approval pursuant to Section
26(c) of the Investment Company Act of
1940, as amended (the ‘‘Act’’), and an
order of exemption pursuant to Section
17(b) of the Act from Section 17(a) of
the Act.
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
AGENCY:
Applicants: Nationwide Life
Insurance Company (‘‘NWL’’),
Nationwide Life and Annuity Insurance
Company (‘‘NLAIC’’) (together with
NWL, the ‘‘Insurance Companies’’),
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Nationwide Variable Account-II
(‘‘Account II’’), Nationwide Variable
Account-6 (‘‘Account 6’’), Nationwide
Variable Account-7 (‘‘Account 7’’),
Nationwide Variable Account-8
(‘‘Account 8’’), Nationwide Variable
Account-9 (‘‘Account 9’’), Nationwide
Variable Account-10 (‘‘Account 10’’),
Nationwide Variable Account-14
(‘‘Account 14’’), Nationwide VLI
Separate Account-2 (‘‘VLI Account 2’’),
Nationwide VLI Separate Account-4
(‘‘VLI Account 4’’), Nationwide VLI
Separate Account-7 (‘‘VLI Account 7’’),
Nationwide Provident VA Separate
Account 1 (‘‘Account P–1’’), Nationwide
Provident VLI Separate Account 1 (‘‘VLI
Account P–1’’); Nationwide VA Separate
Account-B (‘‘Account B’’), Nationwide
VL Separate Account-G (‘‘Account G’’),
Nationwide Provident VA Separate
Account A (‘‘Account P–A’’), and
Nationwide Provident VLI Separate
Account A (‘‘VLI Account P–A’’)
(together with Accounts II, 6, 7, 8, 9, 10,
14, P–1, B, G, and P–A along with VLI
Accounts 2, 4, 7, and P–1, the ‘‘Separate
Accounts’’) and Nationwide Variable
Insurance Trust. The Insurance
Companies and the Separate Accounts
are referred to collectively as the
‘‘Applicants.’’ The Applicants, together
with Nationwide Variable Insurance
Trust are referred to as the ‘‘Section
17(b) Applicants.’’
SUMMARY: Summary of Application:
Applicants seek an order approving the
proposed substitutions (the
‘‘Substitutions’’) of certain series of
Nationwide Variable Insurance Trust
(the ‘‘Trust’’ or ‘‘NVIT’’) for shares of
series of other unaffiliated registered
investment companies held by the
Separate Accounts under certain
variable annuity contracts and/or
variable life insurance policies issued
by the Insurance Companies
(collectively, the ‘‘Contracts’’). Section
17(b) Applicants also seek an order
pursuant to Section 17(b) of the Act to
permit certain in-kind transactions in
connection with the Substitutions.
DATES: Filing Date: The application was
filed on April 2, 2009, and amended and
restated on July 15, 2010 and October
21, 2010.
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 must be
received by the Commission by 5:30
p.m. on November 19, 2010, and should
be accompanied by proof of service on
Applicants in the form of an affidavit or,
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for lawyers, a certificate of service.
Hearing requests should state the nature
of the requester’s interest, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Secretary of the
Commission.
The Commission: Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090; Applicants: c/o Jamie Ruff
Casto, Esq., Nationwide Life Insurance
Company, One Nationwide Plaza, 1–34–
201, Columbus, Ohio 43215.
FOR FURTHER INFORMATION CONTACT:
Rebecca A. Marquigny, Senior Counsel,
or Joyce M. Pickholz, Branch Chief,
Office of Insurance Products, Division of
Investment Management, at (202) 551–
6795.
ADDRESSES:
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ and Section 17(b)
Applicants’ Representations
1. NWL and NLAIC are stock life
insurance companies organized under
the laws of the State of Ohio. NLAIC is
wholly owned by NWL which is wholly
owned by Nationwide Financial
Services, Inc. (‘‘NFS’’). NWL is the
depositor and sponsor of Accounts II, 6,
7, 8, 9, 10, 14 and P–1 and VLI Accounts
2, 4, 7, and P–1. NLAIC is the depositor
and sponsor of B, G, and P–A and VLI
Account P–A.
2. All of the Separate Accounts are
registered unit investment trusts used to
issue one or more Contracts together
with their respective Insurance
Company. The file numbers for each
Separate Account’s registration under
the Act and each Contract’s registration
under the Securities Act of 1933, as
amended (‘‘1933 Act’’) are set forth in
the Application.
3. NVIT is registered under the Act as
an open-end management investment
company of the series type, and it
securities are registered under the 1933
Act on Form N–1A (File Nos. 811–
03213 and 002–73024). Two of these
series, the NVIT—American Century
NVIT Multi-Cap Value Fund and
NVIT—Oppenheimer NVIT Large Cap
Growth Fund (each an ‘‘NVIT Fund’’),
are the replacement funds (‘‘New Funds’’
or ‘‘New Portfolios’’) in the proposed
Substitutions.
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4. Nationwide Fund Advisors (‘‘NFA’’)
currently serves as investment adviser
to each of the NVIT Funds. NFA
employs a subadvisory structure as part
of its advisory strategy with respect to
the NVIT Funds. Through an order from
the Commission pursuant to Section
6(c) of the Act, NVIT is exempt from
Section 15(a) of the Act and Rule 18f–
2 thereunder with respect to
subadvisory agreements (the ‘‘Manager
of Managers Order’’).1
5. Applicants represent that the relief
granted in the Manager of Managers
Order extends to New Funds permitting
NFA to enter into and materially amend
investment subadvisory agreements
without obtaining shareholder approval.
Applicants indicate that the
prospectuses for the New Funds
disclose and explain the existence,
substance and effect of the Manager of
Managers Order. They also represent
that if a new Subadviser is retained for
a Fund, Contract owners
(‘‘Contractowners’’) would receive all
information about the new Subadviser
that would be included in a proxy
statement, including any change in
disclosure caused by the addition of a
new Subadviser.
6. All of the Contracts involved in the
Substitutions (i) permit transfers of
contract value among the subaccounts
pursuant to the limitations of the
particular Contract, and (ii) are subject
to market timing policies and
procedures that may operate to limit
transfers. Applicants represent that to
the extent that the Contracts contain
restrictions, limitations or transfer fees
on a Contractowner’s right to transfer,
such restrictions, limitations, and
transfer fees will not apply in
connection with the proposed
Substitutions.
7. Each Contract’s prospectus contains
provisions reserving Insurance
Company Applicants’ right to substitute
shares of one Investment Option for
shares of another Investment Option
already purchased or to be purchased in
66807
the future if: (i) Shares of a current
underlying mutual fund are no longer
available for investment by the Separate
Account; or (ii) in the judgment of
Insurance Company Applicants’
management, further investment in such
Investment Option is inappropriate in
view of the purposes of the Contract.
Each Insurance Company Applicant’s
management has determined that
further investment in the New Funds is
no longer appropriate in view of the
purposes of the Contracts.
8. Applicants represent that all of the
portfolios involved in the Substitutions
are currently available as underlying
investment options in the Contracts.
9. Each Insurance Company, on its
behalf and on behalf of the Separate
Accounts proposes to make certain
substitutions of various classes of shares
of 6 funds currently available under the
Contracts (the ‘‘Old Funds’’ or ‘‘Old
Portfolios’’) for shares of the following
classes of the corresponding NVIT New
Funds:
No.
Old fund
Old class
NVIT New fund
1 .........................
American Century Variable Portfolios,
Inc.—American Century VP Value Fund
(‘‘Old Value Fund’’).
Old Value Fund ..........................................
Fidelity Variable Insurance Products
(‘‘VIP’’) Fund—VIP Contrafund Portfolio
(‘‘Old Contrafund Portfolio’’).
Old Contrafund Portfolio ............................
Old Contrafund Portfolio ............................
Fidelity VIP Fund—VIP Growth Opportunities Portfolio (‘‘Old Growth Opps. Fund’’).
Old Growth Opps. Fund .............................
Old Growth Opps. Fund .............................
Oppenheimer Variable Account Funds—
Oppenheimer
Capital
Appreciation
Fund/VA (‘‘Old Cap Appreciation Fund’’).
Old Cap Appreciation Fund .......................
T. Rowe Price Equity Series, Inc.—T.
Rowe Price Blue Chip Growth Portfolio
(‘‘Old Blue Chip Fund’’).
Old Blue Chip Fund ...................................
T. Rowe Price Equity Series, Inc.—T.
Rowe Price Equity Income Portfolio
(‘‘Old Equity Income Fund’’).
Old Equity Income Fund ............................
Class I ......................
Service Class ...........
Service Class 2 ........
Initial Class ..............
NVIT—American Century NVIT Multi Cap
Value Fund (‘‘New Multi Cap Value
Fund’’).
New Multi Cap Value Fund ........................
NVIT—Oppenheimer NVIT Large Cap
Growth Fund (‘‘New Large Cap Growth
Fund’’).
New Large Cap Growth Fund ....................
New Large Cap Growth Fund ....................
New Large Cap Growth Fund ....................
Class I
Class II
Class I
Service Class ...........
Service Class 2 ........
Non-Service Shares
New Large Cap Growth Fund ....................
New Large Cap Growth Fund ....................
New Large Cap Growth Fund ....................
Class I
Class II
Class I
Service Shares ........
Class II .....................
New Large Cap Growth Fund ....................
New Large Cap Growth Fund ....................
Class II
Class I
Class II .....................
Class II .....................
New Large Cap Growth Fund ....................
New Multi Cap Value Fund ........................
Class II
Class I
Class II .....................
New Multi Cap Value Fund ........................
Class II
2 .........................
3 .........................
4 .........................
5 .........................
6 .........................
7 .........................
8 .........................
9 .........................
10 .......................
11 .......................
12 .......................
13 .......................
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10. Applicants state that the proposed
Substitutions are part of each Insurance
Company’s overall business plan to
make the Contracts more attractive to
purchasers and more efficient to
administer and oversee.
11. Applicants assert their belief that
the Substitutions will: (i) Consolidate
investment options resulting in a less
confusing menu of investment options
for investors, greater efficiency in
Class II .....................
Initial Class ..............
administration of the Contracts and the
capacity to add other types of
investment options; (ii) make the
investment decision process more
manageable for the investor through
consistent disclosure format and
terminology making it easier for
Contractowners to analyze fund
information and make informed
investment decisions relating to
allocation of his or her Contract value;
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Class I
Class II
Class I
(iii) enable the Insurance Companies to
reduce certain costs that they incur in
administering the Contracts by
removing overlapping investment
options; (iv) lower administrative costs
for the Insurance Companies which
could result in resources being
reallocated to providing other
contractowner services and support, and
an overall more efficient and customerfriendly product offering. (v) enable the
1 In the Matter of Nationwide Investing
Foundation, et al., 1940 Act Rel. No. 23133 (April
28, 1998) (Order), File No. 812–10764.
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Trust’s sub-advised strategy and
augment the Insurance Companies’ goal
of efficiently offering a continuously
competitive menu of investment options
to its existing and prospective
contractowners; (vi) provide investors
with a more favorable and less
confusing overall investment
experience; and (vii) reduce the number
and potential for variation of trading
policies that contractowners must
navigate and understand.
12. Applicants submit that each
Substitution provides an alternate
investment option that has the same or
lower net operating expenses as the Old
No.
New/Old fund
Class
1 .....................
Old Value Fund .................................
New Multi Cap Value Fund ...............
Old Value Fund .................................
New Multi Cap Value Fund ...............
Old Contrafund Portfolio ...................
New Large Cap Growth Fund ...........
Old Contrafund Portfolio ...................
New Large Cap Growth Fund ...........
Old Contrafund Portfolio ...................
New Large Cap Growth Fund ...........
Old Growth Opps. Fund ....................
New: Large Cap Growth Fund ..........
Old Growth Opps. Fund ....................
New Large Cap Growth Fund ...........
Old Growth Opps. Fund ....................
New Large Cap Growth Fund ...........
Old Cap Appreciation Fund ..............
New Large Cap Growth Fund ...........
Old Cap Appreciation Fund ..............
New Large Cap Growth Fund ...........
Old Blue Chip Fund ..........................
New Large Cap Growth Fund ...........
Old Blue Chip Fund ..........................
New Large Cap Growth Fund ...........
Old Equity Income Fund ...................
New Multi Cap Value Fund ...............
Old Equity Income Fund ...................
New Multi Cap Value Fund ...............
Class I ..........
Class I ..........
Class II .........
Class II .........
Initial .............
Class I ..........
Service .........
Class I ..........
Class 2 .........
Class II .........
Initial .............
Class I ..........
Service .........
Class I ..........
Service 2 ......
Class II .........
Non-Service
Class I ..........
Service .........
Class II .........
Class II .........
Class I ..........
Class II .........
Class II .........
Class II .........
Class I ..........
Class II .........
Class II .........
2 .....................
3 .....................
4 .....................
5 .....................
6 .....................
7 .....................
8 .....................
9 .....................
10 ...................
11 ...................
12 ...................
13 ...................
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The following summarizes the more
complete comparison of New and Old
Funds provided in the Application.
13. Substitutions #1 & #2: Old Value
Fund Verses New Multi Cap Value
Fund. Applicants represent that both
Old Value Fund and New Multi Cap
Value Fund have similar investment
objectives and substantially similar
policies and risks. Specifically,
Applicants state that both ‘‘seek longterm capital growth or appreciation, and
secondarily income * * * [and] seek to
meet their objectives by investing in
equity securities, using a value
investment strategy that looks for
companies that are undervalued or are
temporarily out of favor in the market.’’
Both funds allow for the use of
derivatives securities, preferred stock,
convertible and foreign securities
without limitation. Applicants
acknowledge that differences in the
funds’ risks and investment objectives
and strategies exist, but assert the belief
that these differences are immaterial
and do not introduce Contractowners to
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Advisor fees
(percent)
12b-1 Fees
(percent)
0.97
0.57
0.87
0.57
0.56
0.50
0.56
0.50
0.56
0.50
0.56
0.50
0.56
0.50
0.56
0.50
0.66
0.50
0.66
0.50
0.85
0.50
0.85
0.50
0.85
0.57
0.85
0.57
N/A
N/A
0.25
0.25
N/A
N/A
0.10
N/A
0.25
0.25
N/A
N/A
0.10
N/A
0.25
0.25
N/A
N/A
0.25
0.25
0.25
N/A
0.25
0.25
0.25
N/A
0.25
0.25
materially greater risks than before the
Substitution.
14. Substitutions #3–#5: Old
Contrafund Portfolio Verses New Large
Cap Growth Fund. Applicants represent
that both the Old Contrafund Portfolio
and the New Large Cap Growth Fund
‘‘have similar investment objectives and
substantially similar policies and risks.
Both funds seek long-term capital
growth or appreciation, and both invest
at least 80% of their respective net
assets in common stocks. Both funds
diversify among a variety of industries
and sectors.’’ Applicants acknowledge
that differences in the funds’ risks and
investment objectives and strategies
exist, but assert the belief that these
differences are immaterial and do not
introduce Contractowners to materially
greater risks than before the
Substitution.
15. Substitutions #6–#8: Old Growth
Opps. Fund Verses New Large Cap
Growth Fund. Applicants represent that
both Old Growth Opps. Fund and New
Large Cap Growth Fund have similar
investment objectives and substantially
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Fund. The applicable management fees,
12b-1 fees, other expenses, contractual
waiver or reimbursement values and
total operating expenses for each Old
and New Fund are presented in detail
in the Application and summarized
below:
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Other
expenses
(percent)
0.00
3.10
0.00
3.10
0.11
3.51
0.11
3.51
0.11
3.51
0.16
3.51
0.16
3.51
0.17
3.51
0.12
3.51
0.13
3.51
0.00
3.51
0.00
3.51
0.00
3.10
0.00
3.10
Waiver/
reimburs’t
(percent)
0.00
2.75
0.00
2.83
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
3.36
0.00
2.75
0.00
2.83
Total
expenses
(percent)
0.97
0.92
1.12
1.09
0.67
0.65
0.77
0.65
0.92
0.90
0.72
0.65
0.82
0.65
0.98
0.90
0.78
0.65
1.04
0.90
1.10
0.65
1.10
0.90
1.10
0.92
1.10
1.09
similar policies and risks. Both funds
seek capital growth, investing primarily
in common stocks. Both funds employ
a growth style of investing, seeking
companies with above-average growth
potential or whose earnings are
expected to grow consistently faster
than those of other companies.
Applicants also note that New Large
Cap Growth Fund has a diversification
policy affirmatively seeking to limit risk
which Old Growth Opps. Fund does not
share. Applicants assert that both funds
have similar investment objectives and
substantially similar policies and risks.
Applicants state that while the funds’
investment objectives are not identical,
any distinction between them is
immaterial, since both funds are
intended for long-term investment and
represent that any differences in their
investment objectives do not introduce
Contract Owners to greater risks than
before the Substitution.
16. Substitutions #9 & #10: Old Cap
Appreciation Fund Verses New Large
Cap Growth Fund. Applicants represent
that Old Cap Appreciation Fund and
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New Large Cap Growth Fund have
similar investment objectives and
substantially similar policies and risks,
seek capital growth or appreciation by
investing in common stocks using a
growth style investment strategy,
diversify broadly among companies and
industries, and invest in a similar
percentage of foreign securities.
Applicants state that both funds look for
companies in businesses that have
above-average growth potential, growth
rates the portfolio manager believes are
sustainable over time, and stocks with
reasonable valuations relative to their
growth potential. Applicants represent
that immaterial differences in risks,
investment objectives and strategies
exist but do not expose Contractowners
to materially greater risks postSubstitution.
17. Substitutions #11 & #12: Old Blue
Chip Fund Verses New Large Cap
Growth Fund. Applicants believe Old
Blue Chip Fund and New Large Cap
Growth Fund have similar investment
objectives and substantially similar
policies and risks. Both funds seek longterm capital growth and invest at least
80% of their net assets in stocks of
established companies using a growth
style of investing. Applicants believe
that the differences in risks, investment
objectives and strategies are immaterial,
and the risks to Contractowners will not
be materially greater after the
Substitutions.
18. Substitutions #13 & #14: Old
Equity Income Fund Verses New Multi
Cap Value Fund. Applicants state their
belief that Old Equity Income Fund and
New Multi Cap Value Fund have similar
investment objectives and substantially
similar policies and risks. Both funds
seek capital appreciation and dividend
income, although seeking current
income is a secondary objective of New
Multi Cap Value Fund. Applicants
represent that both funds invest at least
80% of their respective net assets in
common stocks of companies of any
size, employing a value style of
investing, and allow foreign securities,
preferred stocks, convertible securities
and derivatives to be used as principal
strategies. Applicants assert that
immaterial differences in risks and
investment objectives and strategies
exist, but believe these differences do
not introduce Contractowners to
materially greater risks after the
Substitutions.
19. Substitution Procedure: In-Kind
Transactions. Applicants assert that as
of the effective date of the Substitutions
(‘‘Substitution Date’’), a portion of the
securities of the Old Funds will be
redeemed in-kind and those securities
received will be used to purchase shares
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of the New Funds. Applicants assert
that redemption requests and purchase
orders will be placed simultaneously so
that contract values will remain fully
invested at all times. They further
represent that all redemptions of shares
of the Old Portfolios and purchases of
shares of the New Portfolios will be
effected will take place at relative net
asset value determined on the
Substitution Date in accordance with
Section 22(c) of the Act and Rule 22c–
1 thereunder with no change in the
amount of any Contractowner’s Contract
value, cash value, death benefit, or
dollar value of his or her investment in
the Separate Accounts.
20. Likewise, Section 17(b)
Applicants represent that: (i) The New
Fund shares sold in-kind will be of the
type and quality that a New Fund could
have acquired with the proceeds from
the sale of its shares had the shares been
sold for cash; and (ii) NFA and the
relevant subadviser(s) will analyze the
portfolio securities being offered to each
relevant New Fund and will retain only
those securities that it would have
acquired for each such fund in a cash
transaction.
Whether NFA or relevant Subadviser
of a New Fund accepts or declines to
accept a particular portfolio security inkind, Applicants represent that each
Substitution will be effected by
redeeming shares of the Existing Fund
in cash and/or in-kind on the
Substitution Date and using the
proceeds of those redemptions to
purchase shares of the New Fund at
their net asset value on the same date.
21. Substitution Costs and Fund
Expenses. Applicants state that the
Insurance Companies have agreed to
bear all expenses incurred in connection
with the Substitutions and related
filings and notices, including legal,
accounting, brokerage, and other fees
and expenses. In addition, Applicants
assert that Contractowners will have the
same or lower net operating expenses
after the Substitutions as prior to the
Substitutions.
22. With respect to those who are
Contractowners on the Substitution
Date, Applicants specifically represent
the following: On the last business day
of each fiscal period (not to exceed a
fiscal quarter) during the twenty-four
(24) months following the Substitution
Date, the Insurance Companies will
reimburse those Contractowners with
Contract value allocated to a subaccount
corresponding to an New Fund to the
extent that, for that period, the New
Fund’s net operating expenses (taking
into account fee waivers and expense
reimbursements) and subaccount
expenses (asset based fees and charges
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66809
deducted on a daily basis from subaccount assets and reflected in the
calculation of sub-account unit values)
exceed, on an annualized basis, the sum
of the Old Fund’s net operating
expenses (taking into account fee
waivers and expense reimbursements)
and subaccount expenses (asset based
fees and charges deducted on a daily
basis from sub-account assets and
reflected in the calculation of subaccount unit values) for fiscal year 2009.
23. Contract Charges and Benefits.
Applicants represent that the Insurance
Companies will not increase the
Contract fees and charges that would
otherwise be assessed under the terms
of the Contracts for a period of at least
two (2) years following the Substitution
Date. To the extent the Contracts
contain restrictions, limitations or fees
for transfers, Applicants represent such
provisions will not apply in connection
with the proposed Substitutions, and
each Substitution redemption and
purchase will not be treated as a transfer
for purposes of assessing transfer
charges or computing the number of
permissible transfers under the
Contracts. Applicants state that
Contractowners will not incur any fees
or charges as a result of the proposed
Substitutions, nor will their rights or
insurance benefits or the Insurance
Companies’ obligations under the
Contracts be altered in any way.
Applicants also affirm that the
Substitutions will not result in adverse
tax consequences to Contractowners and
will not alter any tax benefits associated
with the Contracts.
24. Manager of Managers Order.
Applicants further represent that, after
the Substitution Date, the New Funds
will not change a Subadviser, add a new
Subadviser, or otherwise rely on the
Manager of Managers Order without
first obtaining shareholder approval of
the change in Subadviser, the new
Subadviser, or the Fund’s ability add or
to replace a subadviser in reliance on
Manager of Managers Order. In addition,
before the Substitutions, Applicants
state that each Contractowner will have
been provided with a New Portfolio
prospectus describing the existence,
substance and effect of the Manager of
Managers Order.
25. Notice Procedures. Applicants
represent that prospectus supplements
for the Contracts will be delivered to
Contractowners at least thirty (30) days
before the Substitution Date. Applicants
state that the supplement (‘‘PreSubstitution Notice’’) will: (i) Notify all
Contractowners of the Insurance
Company’s intent to implement the
Substitutions, that this Amended
Application has been filed to obtain the
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necessary orders to do so, and indicate
the anticipated Substitution Date; (ii)
advise Contractowners that from the
date of the supplement until the
Substitution Date, Contractowners are
permitted to transfer Contract value out
of any Old Fund sub-account to any
other sub-account(s) offered under the
Contract without the transfer being
treated as a transfer for purposes of
transfer limitations and fees otherwise
applicable under the terms of the
Contract; (iii) instruct Contractowners
how to submit transfer requests in light
of the proposed Substitutions; (iv)
advise Contractowners that any Contract
value remaining in an Old Fund subaccount on the Substitution Date will be
transferred to the corresponding New
Fund sub-account, and that the
Substitutions will take place at relative
net asset value without charge
(including sales charges or surrender
charges) and without counting toward
the number of transfers that may be
permitted without charge; (v) inform
Contractowners that for at least thirty
(30) days following the Substitution
Date, the Insurance Companies will
permit Contractowners to make transfers
of Contract value out of each New Fund
sub-account to any other sub-account(s)
offered under the Contract without the
transfer being treated as a transfer for
purposes of transfer limitations and fees
that would otherwise apply under the
terms of the Contract; and (vi) inform
Contractowners that, except as
described in the market timing
provision of the relevant prospectus, the
respective Insurance Company will not
exercise any rights reserved by it under
the Contracts to impose additional
restrictions on transfers out of a New
Fund for at least thirty (30) days after
the Substitution Date.
26. Applicants also represent that: (i)
Prior to the Substitutions; all existing
Contractowners will have received the
appropriate prospectus supplements
containing this disclosure and the most
recent prospectus and/or supplement
for the New Portfolios (ii) new
purchasers will be provided the
prospectus supplement, contract
prospectus, and the prospectus and/or
supplement for the New Funds in
accordance with all applicable legal
requirements; and (iii) prospective
Contract purchasers will be provided
the prospectus supplement and the
Contract prospectus. Applicants also
represent that, within five (5) business
days after the Substitution Date,
Contractowners will be sent a written
confirmation of the Substitutions which
will restate the information set forth in
the Pre-Substitution Notice.
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15:23 Oct 28, 2010
Jkt 223001
Applicants’ Legal Analysis
1. Applicants request that the
Commission issue an order pursuant to
Section 26(c) of the Act approving the
Substitutions.
2. Section 26(c) of the Act makes it
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
approves the substitution. The
Commission shall approve such a
substitution if the evidence establishes
that it is consistent with the protection
of investors and the purposes fairly
intended by the policy and provisions of
the Act.
3. Applicants state that the right to
make such a substitution has been
reserved under the Contracts and is
disclosed in the prospectus for the
related Contracts. Applicants declare
that, in all material respects, each New
Fund and its corresponding Old Fund
have similar, substantially similar, or
identical investment objectives and
strategies, and that each proposed
Substitutions retains for Contractowners
the investment flexibility and expertise
in asset management features of the
Contracts. They assert that after the
Substitution Date, Contractowners
invested in a New Fund will have the
same or lower net operating expense
ratio(s) as before the Substitution.
Further, Applicants have agreed to
certain expense limits to ensure affected
Contractowners do not incur higher
expenses as a result of a Substitution for
a period of twenty four (24) months after
the Substitution.
4. Applicants submit that the
proposed Substitutions meet the
standards set forth in Section 26(c) and
assert that replacement of the Old
Portfolios with the New Portfolios is
consistent with the protection of
Contractowners and the purposes fairly
intended by the policy and provisions of
the Act. Specifically, they argue that the
Substitutions will not result in the type
of costly forced redemption that Section
26(c) was designed to prevent. Rather,
Applicants conclude that ‘‘[a]ny impact
on the investment programs of affected
Contractowners should be negligible,’’
and affirm the Substitutions will have
no impact on other aspects of the
Contracts including the annuity, life, or
tax benefits they afford affected
Contractowners.
5. Section 17(b) Applicants request
that the Commission issue an order
pursuant to Section 17(b) of the 1940
Act exempting them from the provisions
of Section 17(a) of the 1940 Act to the
extent necessary to permit them to carry
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out the in-kind Substitution transactions
(‘‘In-Kind Transactions’’).
6. Section 17(a)(1) of the Act, in
relevant part, prohibits any affiliated
person of a registered investment
company, or any affiliated person of
such person, acting as principal, from
knowingly selling any security or other
property to that company. Section
17(a)(2) of the Act generally prohibits
the persons described above, acting as
principal, from knowingly purchasing
any security or other property from the
registered company. Pursuant to Section
17(a)(1) of the Act, the Section 17(b)
Applicants may be considered affiliates
of one or more of the portfolios involved
in the Substitutions. Because the
Substitutions may be effected, in whole
or in part, by means of in-kind
redemptions and subsequent purchases
of shares and by means of In-Kind
Transactions, the Substitutions may be
deemed to involve one or more
purchases or sales of securities or
property between affiliates.
7. Section 17(b) of the Act provides
that the Commission may, upon
application, grant an order exempting
any transaction from the prohibitions of
Section 17(a) if the evidence establishes
that: 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; the proposed transaction is
consistent with the policy of each
registered investment company
concerned, as recited in its registration
statement and records filed under the
Act; and the proposed transaction is
consistent with the general purposes of
the Act.
8. Based on the facts presented above,
Section 17(b) Applicants submit that the
terms of the In-Kind Transactions,
including the consideration to be paid
and received, are reasonable, fair, and
do not involve overreaching because: (i)
The Contractowners’ Contract values
will not be adversely impacted or
diluted; and (ii) Section 17(b)
Applicants agree to carry out the InKind Transactions in conformity with
all of the conditions of Rule 17a–7 and
the procedures adopted thereunder,
except that the consideration paid for
the securities being purchased or sold
may not be entirely cash. Thus, Section
17(b) Applicants conclude that the
purposes intended by implementation
of the rule are met by the terms of the
In-Kind Transactions.
9. In support of this position Section
17(b) Applicants assert that the
proposed In-Kind Transactions will be
effected based upon the independent
current market price of the portfolio
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securities as specified in Rule 17a–7(b)
and will include only securities for
which market quotations are readily
available on the Substitution Date. In
accordance with Rule 17a–7(c), Section
17(b) Applicants assert that the
proposed In-Kind Transactions will be
consistent with the policy of each
registered investment company and
separate series thereof participating in
the In-Kind Transactions, as recited in
the relevant registered investment
company’s registration statement and
reports. As specified in Rule 17a–7(d),
the Application states that no brokerage
commission, fee (except for any
customary transfer fees), or other
remuneration will be paid in connection
with the proposed In-Kind Transactions.
Likewise, Section 17(b) Applicants
represent that Trust’s Board of Trustees
has adopted and implemented the fund
governance and oversight procedures as
required by Rule 17a–7(e) and (f). The
Application also states, ‘‘pursuant to
Rule 17a–7(e)(3), during the calendar
quarter following the quarter in which
any In-Kind Transactions occur, the
Trust’s Board of Trustees will review
reports submitted by NFA in respect of
such In-Kind Transactions in order to
determine that all such In-Kind
Transactions made during the preceding
quarter were effected in accordance
with the representations stated herein.’’
Finally, Applicants represent that a
written record of the procedures for the
proposed In-Kind Transactions will be
maintained and preserved in accordance
with Rule 17a–7(g).
Conclusions
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Section 26 Applicants submit that for
the reasons summarized above the
proposed Substitutions meet the
standards of Section 26(c) of the 1940
Act and request that the Commission
issue an order of approval pursuant to
Section 26(c) of the 1940 Act. Section 17
Applicants submit that the proposed InKind Transactions meet the standards of
Section 17(b) of the 1940 Act and
request that the Commission issue an
order of exemption pursuant to Section
17(b) of the 1940 Act.
For the Commission, by the Division of
Investment Management pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–27367 Filed 10–28–10; 8:45 am]
BILLING CODE 8011–01–P
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15:23 Oct 28, 2010
Jkt 223001
66811
SECURITIES AND EXCHANGE
COMMISSION
The Office of the Secretary at (202)
551–5400.
Sunshine Act Meeting
Dated: October 27, 2010.
Elizabeth M. Murphy,
Secretary.
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold an Open Meeting
on November 3, 2010 at 10 a.m., in the
Auditorium, Room L–002.
The subject matter of the Open
Meeting will be:
1. The Commission will consider
whether to adopt new Rule 15c3–5, Risk
Management Controls for Brokers or
Dealers with Market Access, under the
Securities Exchange Act of 1934. The
new rule would require brokers or
dealers with access to trading directly
on an exchange or alternative trading
system (‘‘ATS’’), including those
providing sponsored or direct market
access to customers or other persons, to
implement risk management controls
and supervisory procedures reasonably
designed to manage the financial,
regulatory, and other risks of this
business activity. Among other things,
new Rule 15c3–5 would effectively
prohibit broker-dealers from providing
‘‘unfiltered’’ or ‘‘naked’’ sponsored access
to any exchange or ATS.
2. The Commission will consider
whether to propose a new rule under
Section 763(g) of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act, Public Law 111–203, to prohibit
fraud, manipulation, and deception in
connection with security-based swaps.
3. The Commission will consider
whether to propose rules and forms to
implement Section 21F of the Securities
Exchange Act of 1934 (‘‘Exchange Act’’)
entitled ‘‘Securities Whistleblower
Incentives and Protection.’’ Section 21F,
as added by Section 922 of the DoddFrank Wall Street Reform and Consumer
Protection Act, provides that the
Commission shall pay awards, under
regulations prescribed by the
Commission and subject to certain
limitations, to eligible whistleblowers
who voluntarily provide the
Commission with original information
about a violation of the Federal
securities laws that leads to the
successful enforcement of a covered
judicial or administrative action, or a
related action.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
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[FR Doc. 2010–27493 Filed 10–27–10; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63151; File No. SR–
NASDAQ–2010–132]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change by The
NASDAQ Stock Market LLC To Clarify
the Implementation Date of the
NASDAQ Options Market Professional
Filing
October 21, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on October
14, 2010, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by NASDAQ. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ is filing with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) a proposal that clarifies
when the NASDAQ Options Market
(‘‘NOM’’ or ‘‘Exchange’’) intends to
implement a recent filing that adopted
a definition of ‘‘Professional’’ on the
Exchange and required that all
Professional orders be appropriately
marked (the ‘‘NOM Professional filing’’).
The text of the proposed rule change
is available from NASDAQ’s Web site at
https://nasdaq.cchwallstreet.com/
Filings/, at NASDAQ’s principal office,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASDAQ included statements
concerning the purpose of and basis for
the proposed rule change and discussed
1 15
2 17
E:\FR\FM\29OCN1.SGM
U.S.C. 78s(b)(1)
CFR 240.19b–4.
29OCN1
]]>Agencies
[Federal Register Volume 75, Number 209 (Friday, October 29, 2010)]
[Notices]
[Pages 66806-66811]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27367]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29486; File No. 812-13648]
Nationwide Life Insurance Company, et al., Notice of Application
October 25, 2010.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an order of approval pursuant to
Section 26(c) of the Investment Company Act of 1940, as amended (the
``Act''), and an order of exemption pursuant to Section 17(b) of the
Act from Section 17(a) of the Act.
-----------------------------------------------------------------------
Applicants: Nationwide Life Insurance Company (``NWL''), Nationwide
Life and Annuity Insurance Company (``NLAIC'') (together with NWL, the
``Insurance Companies''), Nationwide Variable Account-II (``Account
II''), Nationwide Variable Account-6 (``Account 6''), Nationwide
Variable Account-7 (``Account 7''), Nationwide Variable Account-8
(``Account 8''), Nationwide Variable Account-9 (``Account 9''),
Nationwide Variable Account-10 (``Account 10''), Nationwide Variable
Account-14 (``Account 14''), Nationwide VLI Separate Account-2 (``VLI
Account 2''), Nationwide VLI Separate Account-4 (``VLI Account 4''),
Nationwide VLI Separate Account-7 (``VLI Account 7''), Nationwide
Provident VA Separate Account 1 (``Account P-1''), Nationwide Provident
VLI Separate Account 1 (``VLI Account P-1''); Nationwide VA Separate
Account-B (``Account B''), Nationwide VL Separate Account-G (``Account
G''), Nationwide Provident VA Separate Account A (``Account P-A''), and
Nationwide Provident VLI Separate Account A (``VLI Account P-A'')
(together with Accounts II, 6, 7, 8, 9, 10, 14, P-1, B, G, and P-A
along with VLI Accounts 2, 4, 7, and P-1, the ``Separate Accounts'')
and Nationwide Variable Insurance Trust. The Insurance Companies and
the Separate Accounts are referred to collectively as the
``Applicants.'' The Applicants, together with Nationwide Variable
Insurance Trust are referred to as the ``Section 17(b) Applicants.''
SUMMARY: Summary of Application: Applicants seek an order approving the
proposed substitutions (the ``Substitutions'') of certain series of
Nationwide Variable Insurance Trust (the ``Trust'' or ``NVIT'') for
shares of series of other unaffiliated registered investment companies
held by the Separate Accounts under certain variable annuity contracts
and/or variable life insurance policies issued by the Insurance
Companies (collectively, the ``Contracts''). Section 17(b) Applicants
also seek an order pursuant to Section 17(b) of the Act to permit
certain in-kind transactions in connection with the Substitutions.
DATES: Filing Date: The application was filed on April 2, 2009, and
amended and restated on July 15, 2010 and October 21, 2010.
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 must be received by the
Commission by 5:30 p.m. on November 19, 2010, 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 requester's interest, the reason for the request, and the
issues contested. Persons who wish to be notified of a hearing may
request notification by writing to the Secretary of the Commission.
ADDRESSES: The Commission: Secretary, Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-1090; Applicants:
c/o Jamie Ruff Casto, Esq., Nationwide Life Insurance Company, One
Nationwide Plaza, 1-34-201, Columbus, Ohio 43215.
FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel,
or Joyce M. Pickholz, Branch Chief, Office of Insurance Products,
Division of Investment Management, at (202) 551-6795.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' and Section 17(b) Applicants' Representations
1. NWL and NLAIC are stock life insurance companies organized under
the laws of the State of Ohio. NLAIC is wholly owned by NWL which is
wholly owned by Nationwide Financial Services, Inc. (``NFS''). NWL is
the depositor and sponsor of Accounts II, 6, 7, 8, 9, 10, 14 and P-1
and VLI Accounts 2, 4, 7, and P-1. NLAIC is the depositor and sponsor
of B, G, and P-A and VLI Account P-A.
2. All of the Separate Accounts are registered unit investment
trusts used to issue one or more Contracts together with their
respective Insurance Company. The file numbers for each Separate
Account's registration under the Act and each Contract's registration
under the Securities Act of 1933, as amended (``1933 Act'') are set
forth in the Application.
3. NVIT is registered under the Act as an open-end management
investment company of the series type, and it securities are registered
under the 1933 Act on Form N-1A (File Nos. 811-03213 and 002-73024).
Two of these series, the NVIT--American Century NVIT Multi-Cap Value
Fund and NVIT--Oppenheimer NVIT Large Cap Growth Fund (each an ``NVIT
Fund''), are the replacement funds (``New Funds'' or ``New
Portfolios'') in the proposed Substitutions.
[[Page 66807]]
4. Nationwide Fund Advisors (``NFA'') currently serves as
investment adviser to each of the NVIT Funds. NFA employs a subadvisory
structure as part of its advisory strategy with respect to the NVIT
Funds. Through an order from the Commission pursuant to Section 6(c) of
the Act, NVIT is exempt from Section 15(a) of the Act and Rule 18f-2
thereunder with respect to subadvisory agreements (the ``Manager of
Managers Order'').\1\
---------------------------------------------------------------------------
\1\ In the Matter of Nationwide Investing Foundation, et al.,
1940 Act Rel. No. 23133 (April 28, 1998) (Order), File No. 812-
10764.
---------------------------------------------------------------------------
5. Applicants represent that the relief granted in the Manager of
Managers Order extends to New Funds permitting NFA to enter into and
materially amend investment subadvisory agreements without obtaining
shareholder approval. Applicants indicate that the prospectuses for the
New Funds disclose and explain the existence, substance and effect of
the Manager of Managers Order. They also represent that if a new
Subadviser is retained for a Fund, Contract owners (``Contractowners'')
would receive all information about the new Subadviser that would be
included in a proxy statement, including any change in disclosure
caused by the addition of a new Subadviser.
6. All of the Contracts involved in the Substitutions (i) permit
transfers of contract value among the subaccounts pursuant to the
limitations of the particular Contract, and (ii) are subject to market
timing policies and procedures that may operate to limit transfers.
Applicants represent that to the extent that the Contracts contain
restrictions, limitations or transfer fees on a Contractowner's right
to transfer, such restrictions, limitations, and transfer fees will not
apply in connection with the proposed Substitutions.
7. Each Contract's prospectus contains provisions reserving
Insurance Company Applicants' right to substitute shares of one
Investment Option for shares of another Investment Option already
purchased or to be purchased in the future if: (i) Shares of a current
underlying mutual fund are no longer available for investment by the
Separate Account; or (ii) in the judgment of Insurance Company
Applicants' management, further investment in such Investment Option is
inappropriate in view of the purposes of the Contract. Each Insurance
Company Applicant's management has determined that further investment
in the New Funds is no longer appropriate in view of the purposes of
the Contracts.
8. Applicants represent that all of the portfolios involved in the
Substitutions are currently available as underlying investment options
in the Contracts.
9. Each Insurance Company, on its behalf and on behalf of the
Separate Accounts proposes to make certain substitutions of various
classes of shares of 6 funds currently available under the Contracts
(the ``Old Funds'' or ``Old Portfolios'') for shares of the following
classes of the corresponding NVIT New Funds:
----------------------------------------------------------------------------------------------------------------
No. Old fund Old class NVIT New fund New class
----------------------------------------------------------------------------------------------------------------
1............................... American Century Class I............ NVIT--American Class I
Variable Century NVIT
Portfolios, Inc.-- Multi Cap Value
American Century Fund (``New Multi
VP Value Fund Cap Value Fund'').
(``Old Value
Fund'').
2............................... Old Value Fund..... Class II........... New Multi Cap Class II
Value Fund.
3............................... Fidelity Variable Initial Class...... NVIT--Oppenheimer Class I
Insurance Products NVIT Large Cap
(``VIP'') Fund-- Growth Fund
VIP Contrafund (``New Large Cap
Portfolio (``Old Growth Fund'').
Contrafund
Portfolio'').
4............................... Old Contrafund Service Class...... New Large Cap Class I
Portfolio. Growth Fund.
5............................... Old Contrafund Service Class 2.... New Large Cap Class II
Portfolio. Growth Fund.
6............................... Fidelity VIP Fund-- Initial Class...... New Large Cap Class I
VIP Growth Growth Fund.
Opportunities
Portfolio (``Old
Growth Opps.
Fund'').
7............................... Old Growth Opps. Service Class...... New Large Cap Class I
Fund. Growth Fund.
8............................... Old Growth Opps. Service Class 2.... New Large Cap Class II
Fund. Growth Fund.
9............................... Oppenheimer Non-Service Shares. New Large Cap Class I
Variable Account Growth Fund.
Funds--Oppenheimer
Capital
Appreciation Fund/
VA (``Old Cap
Appreciation
Fund'').
10.............................. Old Cap Service Shares..... New Large Cap Class II
Appreciation Fund. Growth Fund.
11.............................. T. Rowe Price Class II........... New Large Cap Class I
Equity Series, Growth Fund.
Inc.--T. Rowe
Price Blue Chip
Growth Portfolio
(``Old Blue Chip
Fund'').
12.............................. Old Blue Chip Fund. Class II........... New Large Cap Class II
Growth Fund.
13.............................. T. Rowe Price Class II........... New Multi Cap Class I
Equity Series, Value Fund.
Inc.--T. Rowe
Price Equity
Income Portfolio
(``Old Equity
Income Fund'').
14.............................. Old Equity Income Class II........... New Multi Cap Class II
Fund. Value Fund.
----------------------------------------------------------------------------------------------------------------
10. Applicants state that the proposed Substitutions are part of
each Insurance Company's overall business plan to make the Contracts
more attractive to purchasers and more efficient to administer and
oversee.
11. Applicants assert their belief that the Substitutions will: (i)
Consolidate investment options resulting in a less confusing menu of
investment options for investors, greater efficiency in administration
of the Contracts and the capacity to add other types of investment
options; (ii) make the investment decision process more manageable for
the investor through consistent disclosure format and terminology
making it easier for Contractowners to analyze fund information and
make informed investment decisions relating to allocation of his or her
Contract value; (iii) enable the Insurance Companies to reduce certain
costs that they incur in administering the Contracts by removing
overlapping investment options; (iv) lower administrative costs for the
Insurance Companies which could result in resources being reallocated
to providing other contractowner services and support, and an overall
more efficient and customer-friendly product offering. (v) enable the
[[Page 66808]]
Trust's sub-advised strategy and augment the Insurance Companies' goal
of efficiently offering a continuously competitive menu of investment
options to its existing and prospective contractowners; (vi) provide
investors with a more favorable and less confusing overall investment
experience; and (vii) reduce the number and potential for variation of
trading policies that contractowners must navigate and understand.
12. Applicants submit that each Substitution provides an alternate
investment option that has the same or lower net operating expenses as
the Old Fund. The applicable management fees, 12b-1 fees, other
expenses, contractual waiver or reimbursement values and total
operating expenses for each Old and New Fund are presented in detail in
the Application and summarized below:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advisor Other Waiver/ Total
No. New/Old fund Class fees 12b-1 Fees expenses reimburs't expenses
(percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................... Old Value Fund......... Class I................. 0.97 N/A 0.00 0.00 0.97
New Multi Cap Value Class I................. 0.57 N/A 3.10 2.75 0.92
Fund.
2................................... Old Value Fund......... Class II................ 0.87 0.25 0.00 0.00 1.12
New Multi Cap Value Class II................ 0.57 0.25 3.10 2.83 1.09
Fund.
3................................... Old Contrafund Initial................. 0.56 N/A 0.11 0.00 0.67
Portfolio.
New Large Cap Growth Class I................. 0.50 N/A 3.51 3.36 0.65
Fund.
4................................... Old Contrafund Service................. 0.56 0.10 0.11 0.00 0.77
Portfolio.
New Large Cap Growth Class I................. 0.50 N/A 3.51 3.36 0.65
Fund.
5................................... Old Contrafund Class 2................. 0.56 0.25 0.11 0.00 0.92
Portfolio.
New Large Cap Growth Class II................ 0.50 0.25 3.51 3.36 0.90
Fund.
6................................... Old Growth Opps. Fund.. Initial................. 0.56 N/A 0.16 0.00 0.72
New: Large Cap Growth Class I................. 0.50 N/A 3.51 3.36 0.65
Fund.
7................................... Old Growth Opps. Fund.. Service................. 0.56 0.10 0.16 0.00 0.82
New Large Cap Growth Class I................. 0.50 N/A 3.51 3.36 0.65
Fund.
8................................... Old Growth Opps. Fund.. Service 2............... 0.56 0.25 0.17 0.00 0.98
New Large Cap Growth Class II................ 0.50 0.25 3.51 3.36 0.90
Fund.
9................................... Old Cap Appreciation Non-Service............. 0.66 N/A 0.12 0.00 0.78
Fund.
New Large Cap Growth Class I................. 0.50 N/A 3.51 3.36 0.65
Fund.
10.................................. Old Cap Appreciation Service................. 0.66 0.25 0.13 0.00 1.04
Fund.
New Large Cap Growth Class II................ 0.50 0.25 3.51 3.36 0.90
Fund.
11.................................. Old Blue Chip Fund..... Class II................ 0.85 0.25 0.00 0.00 1.10
New Large Cap Growth Class I................. 0.50 N/A 3.51 3.36 0.65
Fund.
12.................................. Old Blue Chip Fund..... Class II................ 0.85 0.25 0.00 0.00 1.10
New Large Cap Growth Class II................ 0.50 0.25 3.51 3.36 0.90
Fund.
13.................................. Old Equity Income Fund. Class II................ 0.85 0.25 0.00 0.00 1.10
New Multi Cap Value Class I................. 0.57 N/A 3.10 2.75 0.92
Fund.
14.................................. Old Equity Income Fund. Class II................ 0.85 0.25 0.00 0.00 1.10
New Multi Cap Value Class II................ 0.57 0.25 3.10 2.83 1.09
Fund.
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The following summarizes the more complete comparison of New and
Old Funds provided in the Application.
13. Substitutions #1 & #2: Old Value Fund Verses New Multi Cap
Value Fund. Applicants represent that both Old Value Fund and New Multi
Cap Value Fund have similar investment objectives and substantially
similar policies and risks. Specifically, Applicants state that both
``seek long-term capital growth or appreciation, and secondarily income
* * * [and] seek to meet their objectives by investing in equity
securities, using a value investment strategy that looks for companies
that are undervalued or are temporarily out of favor in the market.''
Both funds allow for the use of derivatives securities, preferred
stock, convertible and foreign securities without limitation.
Applicants acknowledge that differences in the funds' risks and
investment objectives and strategies exist, but assert the belief that
these differences are immaterial and do not introduce Contractowners to
materially greater risks than before the Substitution.
14. Substitutions #3-#5: Old Contrafund Portfolio Verses New Large
Cap Growth Fund. Applicants represent that both the Old Contrafund
Portfolio and the New Large Cap Growth Fund ``have similar investment
objectives and substantially similar policies and risks. Both funds
seek long-term capital growth or appreciation, and both invest at least
80% of their respective net assets in common stocks. Both funds
diversify among a variety of industries and sectors.'' Applicants
acknowledge that differences in the funds' risks and investment
objectives and strategies exist, but assert the belief that these
differences are immaterial and do not introduce Contractowners to
materially greater risks than before the Substitution.
15. Substitutions #6-#8: Old Growth Opps. Fund Verses New Large Cap
Growth Fund. Applicants represent that both Old Growth Opps. Fund and
New Large Cap Growth Fund have similar investment objectives and
substantially similar policies and risks. Both funds seek capital
growth, investing primarily in common stocks. Both funds employ a
growth style of investing, seeking companies with above-average growth
potential or whose earnings are expected to grow consistently faster
than those of other companies. Applicants also note that New Large Cap
Growth Fund has a diversification policy affirmatively seeking to limit
risk which Old Growth Opps. Fund does not share. Applicants assert that
both funds have similar investment objectives and substantially similar
policies and risks. Applicants state that while the funds' investment
objectives are not identical, any distinction between them is
immaterial, since both funds are intended for long-term investment and
represent that any differences in their investment objectives do not
introduce Contract Owners to greater risks than before the
Substitution.
16. Substitutions #9 & #10: Old Cap Appreciation Fund Verses New
Large Cap Growth Fund. Applicants represent that Old Cap Appreciation
Fund and
[[Page 66809]]
New Large Cap Growth Fund have similar investment objectives and
substantially similar policies and risks, seek capital growth or
appreciation by investing in common stocks using a growth style
investment strategy, diversify broadly among companies and industries,
and invest in a similar percentage of foreign securities. Applicants
state that both funds look for companies in businesses that have above-
average growth potential, growth rates the portfolio manager believes
are sustainable over time, and stocks with reasonable valuations
relative to their growth potential. Applicants represent that
immaterial differences in risks, investment objectives and strategies
exist but do not expose Contractowners to materially greater risks
post-Substitution.
17. Substitutions #11 & #12: Old Blue Chip Fund Verses New Large
Cap Growth Fund. Applicants believe Old Blue Chip Fund and New Large
Cap Growth Fund have similar investment objectives and substantially
similar policies and risks. Both funds seek long-term capital growth
and invest at least 80% of their net assets in stocks of established
companies using a growth style of investing. Applicants believe that
the differences in risks, investment objectives and strategies are
immaterial, and the risks to Contractowners will not be materially
greater after the Substitutions.
18. Substitutions #13 & #14: Old Equity Income Fund Verses New
Multi Cap Value Fund. Applicants state their belief that Old Equity
Income Fund and New Multi Cap Value Fund have similar investment
objectives and substantially similar policies and risks. Both funds
seek capital appreciation and dividend income, although seeking current
income is a secondary objective of New Multi Cap Value Fund. Applicants
represent that both funds invest at least 80% of their respective net
assets in common stocks of companies of any size, employing a value
style of investing, and allow foreign securities, preferred stocks,
convertible securities and derivatives to be used as principal
strategies. Applicants assert that immaterial differences in risks and
investment objectives and strategies exist, but believe these
differences do not introduce Contractowners to materially greater risks
after the Substitutions.
19. Substitution Procedure: In-Kind Transactions. Applicants assert
that as of the effective date of the Substitutions (``Substitution
Date''), a portion of the securities of the Old Funds will be redeemed
in-kind and those securities received will be used to purchase shares
of the New Funds. Applicants assert that redemption requests and
purchase orders will be placed simultaneously so that contract values
will remain fully invested at all times. They further represent that
all redemptions of shares of the Old Portfolios and purchases of shares
of the New Portfolios will be effected will take place at relative net
asset value determined on the Substitution Date in accordance with
Section 22(c) of the Act and Rule 22c-1 thereunder with no change in
the amount of any Contractowner's Contract value, cash value, death
benefit, or dollar value of his or her investment in the Separate
Accounts.
20. Likewise, Section 17(b) Applicants represent that: (i) The New
Fund shares sold in-kind will be of the type and quality that a New
Fund could have acquired with the proceeds from the sale of its shares
had the shares been sold for cash; and (ii) NFA and the relevant
subadviser(s) will analyze the portfolio securities being offered to
each relevant New Fund and will retain only those securities that it
would have acquired for each such fund in a cash transaction.
Whether NFA or relevant Subadviser of a New Fund accepts or
declines to accept a particular portfolio security in-kind, Applicants
represent that each Substitution will be effected by redeeming shares
of the Existing Fund in cash and/or in-kind on the Substitution Date
and using the proceeds of those redemptions to purchase shares of the
New Fund at their net asset value on the same date.
21. Substitution Costs and Fund Expenses. Applicants state that the
Insurance Companies have agreed to bear all expenses incurred in
connection with the Substitutions and related filings and notices,
including legal, accounting, brokerage, and other fees and expenses. In
addition, Applicants assert that Contractowners will have the same or
lower net operating expenses after the Substitutions as prior to the
Substitutions.
22. With respect to those who are Contractowners on the
Substitution Date, Applicants specifically represent the following: On
the last business day of each fiscal period (not to exceed a fiscal
quarter) during the twenty-four (24) months following the Substitution
Date, the Insurance Companies will reimburse those Contractowners with
Contract value allocated to a subaccount corresponding to an New Fund
to the extent that, for that period, the New Fund's net operating
expenses (taking into account fee waivers and expense reimbursements)
and subaccount expenses (asset based fees and charges deducted on a
daily basis from sub-account assets and reflected in the calculation of
sub-account unit values) exceed, on an annualized basis, the sum of the
Old Fund's net operating expenses (taking into account fee waivers and
expense reimbursements) and subaccount expenses (asset based fees and
charges deducted on a daily basis from sub-account assets and reflected
in the calculation of sub-account unit values) for fiscal year 2009.
23. Contract Charges and Benefits. Applicants represent that the
Insurance Companies will not increase the Contract fees and charges
that would otherwise be assessed under the terms of the Contracts for a
period of at least two (2) years following the Substitution Date. To
the extent the Contracts contain restrictions, limitations or fees for
transfers, Applicants represent such provisions will not apply in
connection with the proposed Substitutions, and each Substitution
redemption and purchase will not be treated as a transfer for purposes
of assessing transfer charges or computing the number of permissible
transfers under the Contracts. Applicants state that Contractowners
will not incur any fees or charges as a result of the proposed
Substitutions, nor will their rights or insurance benefits or the
Insurance Companies' obligations under the Contracts be altered in any
way. Applicants also affirm that the Substitutions will not result in
adverse tax consequences to Contractowners and will not alter any tax
benefits associated with the Contracts.
24. Manager of Managers Order. Applicants further represent that,
after the Substitution Date, the New Funds will not change a
Subadviser, add a new Subadviser, or otherwise rely on the Manager of
Managers Order without first obtaining shareholder approval of the
change in Subadviser, the new Subadviser, or the Fund's ability add or
to replace a subadviser in reliance on Manager of Managers Order. In
addition, before the Substitutions, Applicants state that each
Contractowner will have been provided with a New Portfolio prospectus
describing the existence, substance and effect of the Manager of
Managers Order.
25. Notice Procedures. Applicants represent that prospectus
supplements for the Contracts will be delivered to Contractowners at
least thirty (30) days before the Substitution Date. Applicants state
that the supplement (``Pre-Substitution Notice'') will: (i) Notify all
Contractowners of the Insurance Company's intent to implement the
Substitutions, that this Amended Application has been filed to obtain
the
[[Page 66810]]
necessary orders to do so, and indicate the anticipated Substitution
Date; (ii) advise Contractowners that from the date of the supplement
until the Substitution Date, Contractowners are permitted to transfer
Contract value out of any Old Fund sub-account to any other sub-
account(s) offered under the Contract without the transfer being
treated as a transfer for purposes of transfer limitations and fees
otherwise applicable under the terms of the Contract; (iii) instruct
Contractowners how to submit transfer requests in light of the proposed
Substitutions; (iv) advise Contractowners that any Contract value
remaining in an Old Fund sub-account on the Substitution Date will be
transferred to the corresponding New Fund sub-account, and that the
Substitutions will take place at relative net asset value without
charge (including sales charges or surrender charges) and without
counting toward the number of transfers that may be permitted without
charge; (v) inform Contractowners that for at least thirty (30) days
following the Substitution Date, the Insurance Companies will permit
Contractowners to make transfers of Contract value out of each New Fund
sub-account to any other sub-account(s) offered under the Contract
without the transfer being treated as a transfer for purposes of
transfer limitations and fees that would otherwise apply under the
terms of the Contract; and (vi) inform Contractowners that, except as
described in the market timing provision of the relevant prospectus,
the respective Insurance Company will not exercise any rights reserved
by it under the Contracts to impose additional restrictions on
transfers out of a New Fund for at least thirty (30) days after the
Substitution Date.
26. Applicants also represent that: (i) Prior to the Substitutions;
all existing Contractowners will have received the appropriate
prospectus supplements containing this disclosure and the most recent
prospectus and/or supplement for the New Portfolios (ii) new purchasers
will be provided the prospectus supplement, contract prospectus, and
the prospectus and/or supplement for the New Funds in accordance with
all applicable legal requirements; and (iii) prospective Contract
purchasers will be provided the prospectus supplement and the Contract
prospectus. Applicants also represent that, within five (5) business
days after the Substitution Date, Contractowners will be sent a written
confirmation of the Substitutions which will restate the information
set forth in the Pre-Substitution Notice.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order pursuant
to Section 26(c) of the Act approving the Substitutions.
2. Section 26(c) of the Act makes it 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 approves the substitution. The Commission shall approve
such a substitution if the evidence establishes that it is consistent
with the protection of investors and the purposes fairly intended by
the policy and provisions of the Act.
3. Applicants state that the right to make such a substitution has
been reserved under the Contracts and is disclosed in the prospectus
for the related Contracts. Applicants declare that, in all material
respects, each New Fund and its corresponding Old Fund have similar,
substantially similar, or identical investment objectives and
strategies, and that each proposed Substitutions retains for
Contractowners the investment flexibility and expertise in asset
management features of the Contracts. They assert that after the
Substitution Date, Contractowners invested in a New Fund will have the
same or lower net operating expense ratio(s) as before the
Substitution. Further, Applicants have agreed to certain expense limits
to ensure affected Contractowners do not incur higher expenses as a
result of a Substitution for a period of twenty four (24) months after
the Substitution.
4. Applicants submit that the proposed Substitutions meet the
standards set forth in Section 26(c) and assert that replacement of the
Old Portfolios with the New Portfolios is consistent with the
protection of Contractowners and the purposes fairly intended by the
policy and provisions of the Act. Specifically, they argue that the
Substitutions will not result in the type of costly forced redemption
that Section 26(c) was designed to prevent. Rather, Applicants conclude
that ``[a]ny impact on the investment programs of affected
Contractowners should be negligible,'' and affirm the Substitutions
will have no impact on other aspects of the Contracts including the
annuity, life, or tax benefits they afford affected Contractowners.
5. Section 17(b) Applicants request that the Commission issue an
order pursuant to Section 17(b) of the 1940 Act exempting them from the
provisions of Section 17(a) of the 1940 Act to the extent necessary to
permit them to carry out the in-kind Substitution transactions (``In-
Kind Transactions'').
6. Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling any
security or other property to that company. Section 17(a)(2) of the Act
generally prohibits the persons described above, acting as principal,
from knowingly purchasing any security or other property from the
registered company. Pursuant to Section 17(a)(1) of the Act, the
Section 17(b) Applicants may be considered affiliates of one or more of
the portfolios involved in the Substitutions. Because the Substitutions
may be effected, in whole or in part, by means of in-kind redemptions
and subsequent purchases of shares and by means of In-Kind
Transactions, the Substitutions may be deemed to involve one or more
purchases or sales of securities or property between affiliates.
7. Section 17(b) of the Act provides that the Commission may, upon
application, grant an order exempting any transaction from the
prohibitions of Section 17(a) if the evidence establishes that: 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; the proposed
transaction is consistent with the policy of each registered investment
company concerned, as recited in its registration statement and records
filed under the Act; and the proposed transaction is consistent with
the general purposes of the Act.
8. Based on the facts presented above, Section 17(b) Applicants
submit that the terms of the In-Kind Transactions, including the
consideration to be paid and received, are reasonable, fair, and do not
involve overreaching because: (i) The Contractowners' Contract values
will not be adversely impacted or diluted; and (ii) Section 17(b)
Applicants agree to carry out the In-Kind Transactions in conformity
with all of the conditions of Rule 17a-7 and the procedures adopted
thereunder, except that the consideration paid for the securities being
purchased or sold may not be entirely cash. Thus, Section 17(b)
Applicants conclude that the purposes intended by implementation of the
rule are met by the terms of the In-Kind Transactions.
9. In support of this position Section 17(b) Applicants assert that
the proposed In-Kind Transactions will be effected based upon the
independent current market price of the portfolio
[[Page 66811]]
securities as specified in Rule 17a-7(b) and will include only
securities for which market quotations are readily available on the
Substitution Date. In accordance with Rule 17a-7(c), Section 17(b)
Applicants assert that the proposed In-Kind Transactions will be
consistent with the policy of each registered investment company and
separate series thereof participating in the In-Kind Transactions, as
recited in the relevant registered investment company's registration
statement and reports. As specified in Rule 17a-7(d), the Application
states that no brokerage commission, fee (except for any customary
transfer fees), or other remuneration will be paid in connection with
the proposed In-Kind Transactions. Likewise, Section 17(b) Applicants
represent that Trust's Board of Trustees has adopted and implemented
the fund governance and oversight procedures as required by Rule 17a-
7(e) and (f). The Application also states, ``pursuant to Rule 17a-
7(e)(3), during the calendar quarter following the quarter in which any
In-Kind Transactions occur, the Trust's Board of Trustees will review
reports submitted by NFA in respect of such In-Kind Transactions in
order to determine that all such In-Kind Transactions made during the
preceding quarter were effected in accordance with the representations
stated herein.'' Finally, Applicants represent that a written record of
the procedures for the proposed In-Kind Transactions will be maintained
and preserved in accordance with Rule 17a-7(g).
Conclusions
Section 26 Applicants submit that for the reasons summarized above
the proposed Substitutions meet the standards of Section 26(c) of the
1940 Act and request that the Commission issue an order of approval
pursuant to Section 26(c) of the 1940 Act. Section 17 Applicants submit
that the proposed In-Kind Transactions meet the standards of Section
17(b) of the 1940 Act and request that the Commission issue an order of
exemption pursuant to Section 17(b) of the 1940 Act.
For the Commission, by the Division of Investment Management
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27367 Filed 10-28-10; 8:45 am]
BILLING CODE 8011-01-P
