
[Federal Register: October 29, 2010 (Volume 75, Number 209)]
[Notices]               
[Page 66806-66811]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29oc10-135]                         

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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.

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    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 http://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\
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    \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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    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:

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                                                                                           Advisor                    Other       Waiver/       Total
                 No.                        New/Old fund                 Class               fees      12b-1 Fees    expenses    reimburs't    expenses
                                                                                          (percent)    (percent)    (percent)    (percent)    (percent)
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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

