17720 Federal Register / Vol. 76, No. 61 / Wednesday, March 30, 2011 / Notices 

1File No. 811–10097 (the Life Account); File No. 

811–10121 (the Annuity Account). 

10. An Adviser will provide general 

management services to each Fund, 

including overall supervisory 

responsibility for the general 

management and investment of each 

Fund’s assets and, subject to review and 

approval of the Board, will: (a) Set each 

Fund’s overall investment strategies; (b) 

evaluate, select and recommend 

Subadvisers to manage all or a part of 

each Fund’s assets; (c) allocate and, 

when appropriate, reallocate each 

Fund’s assets among one or more 

Subadvisers; (d) monitor and evaluate 

the performance of Subadvisers; and (e) 

implement procedures reasonably 

designed to ensure that the Subadvisers 

comply with each Fund’s investment 

objective, policies and restrictions. 

11. No Director or officer of the 

Company or a Fund, or director, 

manager, or officer of an Adviser, will 

own directly or indirectly (other than 

through a pooled investment vehicle 

that is not controlled by such person), 

any interest in a Subadviser, except for 

(a) ownership of interests in the Adviser 

or any entity that controls, is controlled 

by, or is under common control with the 

Adviser or (b) ownership of less than 

1% of the outstanding securities of any 

class of equity or debt of any publicly 

traded company that is either a 

Subadviser or an entity that controls, is 

controlled by, or is under common 

control with a Subadviser. 

12. Each Fund will disclose in its 

registration statement the Aggregate Fee 

Disclosure. 

13. In the event the Commission 

adopts a rule under the Act providing 

substantially similar relief to that in the 

order requested in the application, the 

requested order will expire on the 

effective date of that rule. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–7417 Filed 3–29–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Rel. No. IC–29617; File No. 812–13842] 

American Family Life Insurance 

Company, et al. 

March 24, 2011. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of application for an 

order under Section 26(c) of the 

Investment Company Act of 1940, as 

amended (the ‘‘1940 Act’’). 

APPLICANTS: American Family Life 

Insurance Company (the ‘‘Company’’), 

American Family Variable Account I 

(the ‘‘Life Account’’), and American 

Family Variable Account II (the 

‘‘Annuity Account’’) (together, the 

‘‘Applicants’’). 

SUMMARY OF APPLICATION: Applicants 

request an order of the Commission, 

pursuant to Section 26(c) of the 1940 

Act, approving the substitution of shares 

of the Vanguard Capital Growth 

Portfolio (‘‘Replacement Portfolio’’) of 

the Vanguard Variable Insurance Fund 

(‘‘Vanguard Fund’’) for Service Class 2 

Shares of the Fidelity Variable 

Insurance Products Growth Portfolio 

(‘‘Replaced Portfolio’’) of the Fidelity 

Variable Insurance Products Fund 

(‘‘Fidelity Fund’’), currently held by the 

Life Account and the Annuity Account 

(each an ‘‘Account,’’ together, the 

‘‘Accounts’’) to support variable life 

insurance and annuity contracts issued 

by the Company (collectively, the 

‘‘Contracts’’). 

DATES: Filing Date: The application was 

filed on November 10, 2010 and 

amended and restated on February 28, 

2011. 

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 April 20, 2011, 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: Secretary, Securities and 

Exchange Commission, 100 F Street, 

NE., Washington, DC 20549–1090. 

Applicants, c/o David C. Holman, Esq., 

American Family Life Insurance 

Company, 6000 American Parkway, 

Madison, Wisconsin 53783–0001. Copy 

to Thomas E. Bisset, Esq., Sutherland 

Asbill & Brennan LLP, 1275 

Pennsylvania Ave., NW., Washington, 

DC 20004–2415. 

FOR FURTHER INFORMATION CONTACT: 

Michael L. Kosoff, Branch Chief, at (202) 

551–6754 or Harry Eisenstein, Senior 

Special Counsel, 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’ Representation 

1. The Company is a stock life 

insurance company organized under 

Wisconsin law. The Company conducts 

a conventional life insurance business 

and is authorized to transact the 

business of life insurance, including 

annuities, in nineteen States. For 

purposes of the 1940 Act, the Company 

is the depositor and sponsor of each of 

the Accounts as those terms have been 

interpreted by the Commission with 

respect to variable life insurance and 

variable annuity separate accounts. 

2. Under the insurance law of 

Wisconsin, the assets of each Account 

attributable to the Contracts issued 

through that Account are owned by the 

Company, but are held separately from 

the other assets of the Company for the 

benefit of the owners of, and the persons 

entitled to payment under, those 

Contracts. Each Account is a ‘‘separate 

account’’ as defined by Rule 0–1(e) 

under the 1940 Act, and is registered 

with the Commission as a unit 

investment trust.1 Each Account is 

comprised of a number of subaccounts 

and each subaccount invests exclusively 

in one of the insurance dedicated 

mutual fund portfolios made available 

as investment vehicles underlying the 

Contracts. Currently, the Replaced 

Portfolio is available as an investment 

option under the Company’s variable 

life insurance and variable annuity 

Contracts. 

3. The Life Account is currently 

divided into nine (9) subaccounts. The 

assets of the Life Account support 

variable life insurance contracts and 

interests in the Account offered through 

such contracts have been registered 

under the Securities Act of 1933, as 

amended (the ‘‘1933 Act’’), on Form N– 

6 (File Nos. 333–44956 and 333– 

147408). 

4. The Annuity Account is currently 

divided into nine (9) subaccounts. The 

assets of the Annuity Account support 

variable annuity contracts and interests 

in the Account offered through such 

contracts have been registered under the 

1933 Act on Form N–4 (File No. 333– 

45592). 

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Federal Register / Vol. 76, No. 61 / Wednesday, March 30, 2011 / Notices 17721 

2Because only fixed annuity payment options are 

available under the Contracts, the substitution will 

not affect Contracts that have been annuitized. 

5. The Fidelity Fund is registered as 

an open-end management investment 

company under the 1940 Act (File No. 

811–03329) and currently offers six (6) 

investment portfolios, each with 

multiple share classes. The Fidelity 

Fund issues a series of shares of 

beneficial interest in connection with 

each portfolio and has registered such 

shares under the 1933 Act on Form N– 

1A (File No. 002–75010). 

6. Each portfolio of the Fidelity Fund 

has entered into an advisory agreement 

with Fidelity Management & Research 

Company (‘‘FMR’’) under which FMR 

acts as investment adviser for the 

portfolio. Under each investment 

advisory agreement, and subject to the 

supervision of the Fidelity Fund board 

of trustees, FMR has overall 

responsibility for the selection of 

investments in accordance with the 

investment objective, policies, and 

limitations of the portfolio and for 

handling the portfolio’s business affairs. 

FMR or its affiliates, subject to the 

supervision of the Fidelity Fund board 

of directors, provide the management 

and administrative services necessary 

for the operation of each portfolio. Each 

portfolio of the Fidelity Fund does, 

however, pay for the typesetting, 

printing, and mailing of its proxy 

materials to shareholders, legal 

expenses, and the fees of the custodian, 

auditor, and independent trustees, 

among other fees and expenses. 

7. FMR Co., Inc. (‘‘FMRC’’), an 

investment adviser affiliate of FMR, has 

entered into a sub-advisory agreement 

with FMR under which FMRC acts as 

sub-adviser for certain of the portfolios 

of the Fidelity Fund, including the 

Replaced Portfolio. FMRC has day-today responsibility for choosing 

investments for the Replaced Portfolio. 

FMR pays FMRC for providing subadvisory services. 

8. Fidelity Research & Analysis 

Company (‘‘FRAC’’), an affiliate of FMR, 

also serves as sub-adviser for the 

Fidelity Fund and may provide 

investment research and advice for the 

Fidelity Fund, including the Replaced 

Portfolio. Fidelity Management & 

Research (U.K.) Inc. (‘‘FMR U.K.’’), 

Fidelity Management & Research (Hong 

Kong) Limited (‘‘FMR H.K.’’), Fidelity 

Management & Research (Japan) Inc. 

(‘‘FMR Japan’’), FIL International 

Investment Advisors (‘‘FIIA’’), FIL 

Investment Advisors (U.K.) Ltd. 

(‘‘FIIA(U.K.)L’’), and FIL Investments 

(Japan) Limited (‘‘FIJ’’), all investment 

adviser affiliates of FMR, assist FMR 

with foreign investments of the 

Replaced Portfolio. 

9. Neither the Fidelity Fund, any of its 

portfolios, FMR, FMRC, FRAC, FMR 

U.K., FMR H.K., FMR Japan, FIIA, 

FIIA(U.K.)L, nor FIJ are affiliated with 

the Applicants. The Fidelity Fund does 

not have manager-of-manager relief for 

the Replaced Portfolio. 

10. The Vanguard Variable Insurance 

Fund is registered as an open-end 

management investment company 

under the 1940 Act (File No. 811– 

05962) and currently offers fifteen (15) 

portfolios, including the Replacement 

Portfolio. The Vanguard Fund issues a 

series of shares of beneficial interest in 

connection with each portfolio and has 

registered such shares under the 1933 

Act on Form N–1A (File No. 33–32216). 

11. Pursuant to an investment 

advisory agreement between the 

Replacement Portfolio and PRIMECAP 

Management Company (‘‘PRIMECAP’’), 

PRIMECAP provides investment 

advisory services to the Replacement 

Portfolio. PRIMECAP manages the 

Replacement Portfolio subject to the 

supervision and oversight of the 

Vanguard Group, Inc. (‘‘Vanguard’’) and 

the Replacement Portfolio’s board of 

directors. PRIMECAP employs a multiportfolio manager approach to managing 

the Replacement Portfolio. Six (6) 

portfolio managers are primarily 

responsible for the day-to-day 

management of the Replacement 

Portfolio and each portfolio manager is 

a principal of PRIMECAP. Each 

portfolio manager manages a particular 

segment of the Replacement Portfolio 

autonomously; there is no decisionmaking by committee with respect to 

the management of those segments of 

the Replacement Portfolio. A small 

portion of the Replacement Portfolio’s 

assets is co-managed by individuals in 

PRIMECAP’s research department. The 

Replacement Fund pays PRIMECAP an 

investment advisory fee quarterly and 

the fee is a percentage of the average 

daily net assets of the Replacement 

Fund during the most recent fiscal 

quarter. 

12. Neither the Vanguard Fund, any of 

its portfolios, nor PRIMECAP are 

affiliated with the Applicants. The 

Vanguard Fund does not have managerof-manager relief for the Replacement 

Portfolio. 

13. The Contracts are flexible 

premium variable annuity and variable 

life insurance contracts. The variable 

annuity Contracts provide for the 

accumulation of values on a variable 

basis, fixed basis, or both, during the 

accumulation period, and provide 

settlement or annuity payment options 

on a fixed basis.2 The variable life 

insurance Contracts provide for the 

accumulation of values on a variable 

basis, fixed basis, or both, throughout 

the insured’s life, and for a substantial 

death benefit upon the death of the 

insured. Under each of the Contracts, 

the Company reserves the right to 

substitute shares of one fund for shares 

of another, or of another investment 

portfolio, including a portfolio of a 

different management company. 

14. For as long as a variable life 

insurance Contract remains in force or 

a variable annuity Contract has not yet 

been annuitized, a Contract owner may 

transfer all or any part of the Contract 

value from one subaccount to another 

subaccount or to a fixed account. Other 

than the Company’s right to impose 

certain limitations to deter market 

timing activity, the Contracts do not 

limit the number of transfers between 

the subaccounts or transfers from the 

subaccounts to the fixed account for any 

period of time. The Company does, 

however, assess a charge of $25 per 

transfer for transfers in excess of twelve 

per contract year. Guaranteed living 

benefit rider features are not available 

with the Contracts. 

15. The Company proposes to 

substitute shares of the Replacement 

Portfolio for Service Class 2 shares of 

the Replaced Portfolio currently held in 

the Accounts (the ‘‘proposed 

substitution’’). As of December 31, 2010, 

1.05% of the Replaced Portfolio’s assets 

were invested in the Accounts and 

would be subject to the proposed 

substitution if so invested on the date of 

the substitution. 

16. Applicants assert that the 

proposed substitution is part of an effort 

by the Company to provide a portfolio 

selection within the Contracts that: (1) 

Provides a more competitive fee 

structure relative to other funds in the 

asset class peer group; (2) provides more 

competitive long-term returns relative to 

other funds in the asset class peer 

group; and (3) maintains the goal of 

offering a mix of investment options 

covering basic categories in the risk/ 

return spectrum. 

17. In year 2000 when the Company 

first selected the Replaced Portfolio, the 

Replaced Portfolio met its desire for a 

large cap growth equity investment 

option. The Replaced Portfolio is 

positioned on the aggressive end of the 

risk/return spectrum for large cap 

growth investment options and offered 

Contract owners a large cap growth 

investment option with significant risk. 

Over the past nine years, the Replaced 

Portfolio has significantly 

underperformed its peers, as discussed 

below, leading the Company to reassess 

the position of its large cap growth 

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17722 Federal Register / Vol. 76, No. 61 / Wednesday, March 30, 2011 / Notices 

investment option. In an attempt to 

improve overall returns for the large cap 

growth investment option while 

providing for a relatively lower level of 

risk, the Company decided to select an 

alternative large cap growth investment 

option. Applicants believe the 

Replacement Portfolio meets these 

goals. 

18. The Company believes that an 

important consideration for the 

selection and retention of an investment 

option under the Contracts is that the 

long-term performance (5 years and 

longer) of the investment option be 

competitive as compared to its asset 

class peer group, particularly given the 

limited selection of subaccounts 

available under the Contracts. In the 

Company’s judgment, the Replaced 

Portfolio has not demonstrated portfolio 

performance of the standard desired by 

the Company. Performance of the 

Replaced Portfolio has been in the third 

or bottom quartile for comparable funds 

over the last five years, except for 2007 

where performance of the Replaced 

Portfolio fell within the first quartile. 

Further, absolute performance of the 

Replaced Portfolio ranks in the bottom 

quartile for comparable funds over the 

last 3- and 5-year periods and in the 

third quartile, close to the bottom 

quartile, for the 1-year period. 

19. Replacing the Replaced Portfolio 

with the Replacement Portfolio is 

appropriate and in the best interest of 

Contract owners because the stated 

investment objective, principal 

investment strategies, and principal 

investment risks of the Replacement 

Portfolio are substantially similar to 

those of the Replaced Portfolio, so that 

Contract owners will have continuity in 

investment expectations with somewhat 

lower risk. In addition, Applicants note 

that the net expenses of the 

Replacement Portfolio are substantially 

less than those for the Replaced 

Portfolio for the year ended December 

31, 2009. 

20. The following charts set out the 

investment objectives, principal 

investment strategies, and principal 

investment risks of the Replaced 

Portfolio and Replacement Portfolio, as 

stated in their respective prospectuses. 

Replaced portfolio Replacement portfolio 

Fidelity VIP Growth Portfolio (Service Class 2 Shares) ..................... Vanguard VIF Capital Growth Portfolio 

Investment Objective ............................................................................. Investment Objective 

Capital appreciation. ................................................................................. Long-term capital appreciation. 

Principal Investment Strategies ............................................................ Principal Investment Strategies 

FMR normally invests the fund’s assets primarily in common stocks of 

companies FMR believes have above-average growth potential. 

Companies with high growth potential tend to be companies with 

higher than average price/earnings (P/E) or price/book (P/B) ratios. 

FMR may invest the fund’s assets in securities of foreign issuers in 

addition to securities of domestic issuers.

The Portfolio invests in stocks considered to have above-average earnings growth potential that is not reflected in their current market 

prices. The Portfolio consists predominantly of large- and mid-capitalization stocks. 

In buying and selling securities for the fund, FMR relies on fundamental 

analysis, which involves a bottom-up assessment of a company’s potential for success in light of factors including its financial condition, 

earnings outlook, strategy, management, industry position, and economic and market conditions.

FMR may lend the fund’s securities to broker-dealers or other institutions to earn income for the fund. FMR may also use various techniques, such as buying and selling futures contracts and exchange 

traded funds, to increase or decrease the fund’s exposure to changing security prices or other factors that affect security values.

Principal Investment Risks .................................................................... Principal Investment Risks 

Stock Market Volatility. The value of equity securities fluctuates in response to issuer, political, market, and economic developments. 

Fluctuations can be dramatic over the short as well as long term, 

and different parts of the market and different types of equity securities can react differently to these developments.

Stock Market Risk. Stock market risk is the risk that stock prices overall will decline. Stock markets tend to move in cycles, with periods of 

rising prices and periods of falling prices. 

Investment Style Risk. Investment style risk is the risk that returns from 

mid- and large-capitalization growth stocks will trail returns from the 

overall stock market. Historically, mid-cap stocks have been more 

volatile in price than the large-cap stocks that dominate the overall 

market, and they often perform quite differently. 

Manager Risk. Manager risk is the risk that poor security selection or 

focus on securities in a particular sector, category, or group of companies will cause the Portfolio to underperform relevant benchmarks 

or other funds with a similar investment objective. 

Foreign Exposure. Foreign securities, foreign currencies, and securities 

issued by U.S. entities with substantial foreign operations can involve 

additional risks relating to political, economic, or regulatory conditions 

in foreign countries. These risks include fluctuations in foreign currencies; withholding or other taxes; trading, settlement, custodial, and 

other operational risks; and the less stringent investor protection and 

disclosure standards of some foreign markets. All of these factors 

can make foreign investments, especially those in emerging markets, 

more volatile and potentially less liquid than U.S. investments. In addition, foreign markets can perform differently from the U.S. market.

Issuer-Specific Changes. Changes in the financial condition of an 

issuer or counterparty, changes in specific economic or political conditions that affect a particular type of security or issuer, and changes 

in general economic or political conditions can increase the risk of 

default by an issuer or counterparty, which can affect a security’s or 

instrument’s value. The value of securities of smaller, less wellknown issuers can be more volatile than that of larger issuers.

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Federal Register / Vol. 76, No. 61 / Wednesday, March 30, 2011 / Notices 17723 

3With regard to the Replaced Portfolio, the 

principal underwriter for the Portfolio has entered 

into an agreement with the principal underwriter 

for the Contracts, a wholly-owned subsidiary of the 

Company, for the payment of a fee equal to an 

annual percentage of the assets of the Replaced 

Portfolio attributable to the Contracts for the 

performance of certain distribution and shareholder 

services. With regard to the Replacement Portfolio, 

neither the principal underwriter for the Portfolio 

nor any of the Replacement Portfolio’s other 

affiliates have entered into a similar agreement with 

the Company, the principal underwriter for the 

Contracts or any of the Company’s other affiliates. 

As such, neither the Company nor any of its 

affiliates will receive revenue sharing payments 

from the principal underwriter of the Replacement 

Portfolio or from any other affiliates of the 

Replacement Portfolio. 

Replaced portfolio Replacement portfolio 

‘‘Growth’’ Investing. ‘‘Growth’’ stocks can react differently to issuer, political, market, and economic developments than the market as a 

whole and other types of stocks. ‘‘Growth’’ stocks tend to be more 

expensive relative to their earnings or assets compared to other 

types of stocks. As a result, ‘‘growth’’ stocks tend to be sensitive to 

changes in their earnings and more volatile than other types of 

stocks.

In response to market, economic, political, or other conditions, FMR 

may temporarily use a different investment strategy for defensive 

purposes. If FMR does so, different factors could affect the fund’s 

performance and the fund may not achieve its investment objective.

21. The following charts compare 

advisory fees, other expenses, total 

operating expenses, and portfolio 

turnover rates for the year ended 

December 31, 2009, expressed as an 

annual percentage of average daily net 

assets, of the Replaced Portfolio and the 

Replacement Portfolio. The Replaced 

Portfolio is subject to a distribution plan 

or shareholder service plan adopted 

under Rule 12b–1 of the 1940 Act; the 

Replacement Portfolio is not subject to 

such a plan.3 Neither the Replaced 

Portfolio nor the Replacement Portfolio 

impose a redemption fee. 

Replaced 

portfolio 

Replacement 

portfolio 

Fidelity VIP 

Growth Portfolio 

(Service Class 2) 

(percent) 

Vanguard Capital 

Growth Portfolio 

(percent) 

As of 12/31/09 As of 12/31/09 

Advisory Fees .................................................................................................................................................. 0.56 0.41 

12b–1 Fee ........................................................................................................................................................ 0.25 N/A 

Other Expenses ............................................................................................................................................... 0.13 0.04 

Total Expenses ......................................................................................................................................... 0.94 0.45 

Less Contractual Fee, Waivers and Expense Reimbursements .................................................................... N/A N/A 

Net Expenses ........................................................................................................................................... 0.94 0.45 

Portfolio Turnover ............................................................................................................................................ 134 8 

22. The following tables compare the 

respective asset levels, expenses ratios 

and performance data for the Replaced 

Portfolio and the Replacement Portfolio 

for fiscal years 2007, 2008 and 2009 

ended December 31. 

Fidelity VIP Growth Portfolio (Service Class 2 Shares) 

Net assets at 

end of period 

(dollars) 

Expense ratio 

(percent) 

Total return 

(percent) 

2007 ....................................................................................................................................... 898,204,000 0.90 26.66 

2008 ....................................................................................................................................... 447,530,000 0.93 (47.31) 

2009 ....................................................................................................................................... 528,819,000 0.94 27.97 

Vanguard Capital Growth Portfolio 

Net assets at 

end of period 

(dollars) 

Expense ratio 

(percent) 

Total return 

(percent) 

2007 ....................................................................................................................................... 344,000,000 0.42 12.48 

2008 ....................................................................................................................................... 251,000,000 0.42 (30.36) 

2009 ....................................................................................................................................... 313,000,000 0.45 34.30 

23. The following table shows average 

annual total returns as of December 31, 

2009 for the Replaced Portfolio and the 

Replacement Portfolio: 

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4Although both the Replaced Portfolio and the 

Replacement Portfolio retain the flexibility to invest 

in derivative instruments, historically neither 

Portfolio appears to have emphasized investment in 

such instruments. In that regard, the semi-annual 

report dated June 30, 2010 and the annual reports 

dated December 31, 2009 and 2008 for each 

Portfolio indicate that the Portfolio did not invest 

any assets in derivative instruments as of the date 

of those reports. 

5Subaccount expenses refer to those asset-based 

fees and charges that are deducted on a daily basis 

from subaccount assets and are reflected in the 

calculation of subaccount unit values. The mortality 

and expense risk charge is an example of such 

asset-based fees and charges. 

Fund 1 year 

(percent) 

5 year 

(percent) 

Since inception 

(percent) 

Inception 

date 

Fidelity VIP Growth Portfolio (Service Class 2) ....................................................................... 27.97 ¥0.81 ¥3.73 1/12/00 

Vanguard Capital Growth Portfolio .......................................................................................... 34.30 4.80 9.63 12/3/02 

24. Applicants believe that the 

Replacement Portfolio is an appropriate 

replacement for the Replaced Portfolio 

for each Contract, and that the 

Replacement Portfolio represents an 

investment option that is more 

compatible with the Replaced Portfolio 

than are any investment options under 

the Contracts. The Replacement 

Portfolio has an investment objective 

substantially identical to that of the 

Replaced Portfolio. Both pursue their 

investment objective by investing, under 

normal market conditions, in a 

diversified portfolio of stocks of 

companies with above average earnings 

growth potential. Each relies upon a 

fundamental analysis of companies in 

determining whether to purchase and 

sell securities. Each retains the 

flexibility to invest in the securities of 

foreign issuers and in derivative 

instruments, such as options, futures 

and swap agreements.4 There are, 

however, some distinctions between the 

way in which the principal investment 

strategies are pursued by the Replaced 

Portfolio and the Replacement Portfolio. 

25. The primary differences in the 

investment strategies of the Replaced 

Portfolio and the Replacement Portfolio 

manifest in the extent to which the 

advisers may invest in smallcapitalization companies and their 

investment time horizons. For example, 

the adviser for the Replacement 

Portfolio seeks capital appreciation 

predominately through investment in 

mid- and large-capitalization stocks, 

whereas the Replaced Portfolio also 

seeks capital appreciation but does not 

in any manner restrict its investment to 

mid- and large-capitalization 

companies. Instead, there is no 

limitation on the amount of assets the 

Replaced Portfolio may invest in smallcapitalization companies. 

26. The adviser for the Replacement 

Portfolio also invests with a long-term 

view of three to five years while the 

adviser for the Replaced Portfolio does 

not necessarily invest with such a longterm view in mind. In each such 

instance where the Replaced Portfolio’s 

investment strategy differs from that of 

the Replacement Portfolio, the Replaced 

Portfolio takes on more risk than does 

the Replacement Portfolio. 

27. There also is a strong similarity in 

the principal investment risks for the 

Replacement Portfolio and the Replaced 

Portfolio. The prospectuses and 

statements of additional information for 

both the Replacement Portfolio and the 

Replaced Portfolio mention each 

portfolio’s exposure to stock market 

risk, risks associated with investment in 

foreign issuers and use of derivative 

instruments, as well as volatility 

associated with investment in growth 

stocks. 

28. Although only the prospectus for 

the Replacement Portfolio lists manager 

risk (i.e., the risk that poor security 

selection or focus on securities in a 

particular sector, category or group of 

companies would cause the Portfolio to 

underperform relevant benchmarks or 

other funds with similar investment 

objectives), and investment style risk 

(i.e., the risk that returns from mid- and 

large-capitalization growth stocks would 

underperform the overall stock market), 

the Replaced Portfolio invests in the 

same manner in such securities 

resulting in identical risks. In addition, 

although only the prospectus for the 

Replaced Portfolio lists the risk of 

issuer-specific changes (i.e., the risk that 

changes in the financial condition of an 

issuer or counterparty, changes in 

specific economic or political 

conditions that affect a particular type 

of security or issuer, and changes in 

general economic or political conditions 

can increase the risk of default by an 

issuer or counterparty, which can affect 

a security’s or instrument’s value), the 

Replacement Portfolio also invests in 

the same manner resulting in similar if 

not identical risk. 

29. The Replaced Portfolio, however, 

may invest a larger portion of its assets 

in the securities of small-capitalization 

companies than the Replacement 

Portfolio. The value of securities of 

small-capitalization companies can be 

more volatile than that of large- and 

mid-capitalization companies. 

Accordingly, notwithstanding some 

different investment risk disclosure in 

the prospectus for the Replacement 

Portfolio, an investment in the 

Replacement Portfolio should not 

necessarily entail any greater risk than 

an investment in the Replaced Portfolio, 

and most likely would entail less risk. 

30. In addition, although the 

Replacement Portfolio has not yet 

achieved a level of assets equal to or 

greater than the Replaced Portfolio, the 

Replacement Portfolio has a 

significantly lower expense ratio than 

the Replaced Portfolio. Also, historically 

the Replacement Portfolio has had a 

significantly lower portfolio turnover 

rate than the Replaced Portfolio, which 

over time may contribute to lower costs 

for Contract owners who allocate 

Contract value to the Replacement 

Portfolio subaccount. 

31. For those who are Contract owners 

on the date of the proposed substitution, 

the Company will reimburse, on the last 

business day of each fiscal period (not 

to exceed a fiscal quarter) during the 

twenty-four months following the date 

of the proposed substitution, the 

subaccount investing in the 

Replacement Portfolio such that the sum 

of the Replacement Portfolio’s total 

annual fund operating expenses after fee 

waiver and/or expense reimbursement 

and subaccount expenses 5 for such 

period will not exceed, on an 

annualized basis, the sum of the 

Replaced Portfolio’s total annual fund 

operating expenses after fee waiver and/ 

or expense reimbursement and 

subaccount expenses for the fiscal year 

preceding the date of the proposed 

substitution. In addition, for twenty-four 

months following the proposed 

substitution, the Company will not 

increase asset-based fees or charges for 

Contracts outstanding on the date of the 

proposed substitution. 

32. Currently, each Account makes 

available nine subaccounts as 

investment options under the variable 

life insurance contracts or variable 

annuity contracts, as applicable, funded 

by the Accounts. Following the 

proposed substitution, each Account 

will continue to make available nine 

subaccounts as investment options 

under the variable life insurance 

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Federal Register / Vol. 76, No. 61 / Wednesday, March 30, 2011 / Notices 17725 

contracts or variable annuity contracts it 

funds. 

33. By the May 1, 2011 prospectuses 

for the Contracts and the Accounts, the 

Company will notify owners of the 

Contracts of their intention to take the 

necessary actions, including seeking the 

order requested by this amended and 

restated application, to carry out the 

proposed substitution as described 

herein. The current prospectus for the 

Replacement Portfolio, as well as the 

current prospectuses for all other 

portfolios available as investment 

options available under the Contracts, 

will be bound together with the May 1, 

2011 prospectuses for the Contracts and 

the Accounts. 

34. Applicants represent that the 

prospectuses for the Contracts will 

describe the proposed substitution and 

the Replaced Portfolio and Replacement 

Portfolio, including the fees and 

expenses of each Portfolio, and advise 

the Contract owners that from the date 

of the prospectus until the date of the 

proposed substitution, the Company 

will not exercise any rights reserved by 

it under any Contract to impose 

additional charges for transfers until at 

least 30 days after the proposed 

substitution. Similarly, the prospectuses 

will disclose that, from May 1, 2011 

until the date of the proposed 

substitution, the Company will permit 

Contract owners to transfer Contract 

value out of the subaccount currently 

holding shares of the Replaced Portfolio 

to other subaccounts and the fixed 

account without those transfers being 

treated as transfers for purposes of 

determining the remaining number of 

transfers that may be permitted in the 

Contract year without a transfer charge. 

The prospectuses will also advise 

Contract owners that if the proposed 

substitution is carried out, then each 

Contract owner affected by the 

substitution will be sent a written notice 

(described immediately below) 

informing them of the facts and details 

of the substitution. 

35. Applicants represent that within 

five days after the proposed 

substitution, Contract owners who are 

affected by the substitution will be sent 

a written notice informing them that the 

substitution was carried out. The notice 

will also reiterate the facts that the 

Company: (1) Will not exercise any 

rights reserved by it under any of the 

Contracts to impose additional charges 

for transfers until at least 30 days after 

the proposed substitution, and (2) will, 

for at least 30 days following the 

proposed substitution, permit such 

Contract owners to transfer Contract 

values out of the subaccount holding 

shares of the Replacement Portfolio to 

other subaccounts and the fixed account 

without those transfers being treated as 

transfers for purposes of determining 

the remaining number of transfers 

permitted in the Contract year without 

a transfer charge. The notice as 

delivered in certain jurisdictions may 

also explain that the right of a Contract 

owner to make transfers following the 

procedures described above (in 

connection with the proposed 

substitution) will not affect such 

Contract owner’s right, under insurance 

regulations in those jurisdictions, to 

exchange his or her Contract for a fixedbenefit life insurance contract or a fixedbenefit annuity Contract during the 60 

days following the substitution. 

36. Applicants state that the Company 

will carry out the proposed substitution 

by redeeming shares of the Replaced 

Portfolio held by the Accounts for cash 

and applying the proceeds to the 

purchase of shares of the Replacement 

Portfolio. The proposed substitution 

will take place at relative net asset value 

with no change in the amount of any 

Contract owner’s Contract value or 

death benefit or in the dollar value of 

his or her investment in either of the 

Accounts. Contract owners will not 

incur any fees or charges as a result of 

the proposed substitution, nor will their 

rights or the Company’s obligations 

under the Contracts be altered in any 

way. All applicable expenses incurred 

in connection with the proposed 

substitution, including brokerage 

commissions and legal, accounting, and 

other fees and expenses, will be paid by 

the Company. In addition, the proposed 

substitution will not impose any tax 

liability on Contract owners. The 

proposed substitution will not cause the 

Contract fees and charges currently 

being paid by existing Contract owners 

to be greater after the proposed 

substitution than before the proposed 

substitution. 

37. Applicants represent that the 

proposed substitution will not be 

treated as a transfer of Contract value for 

the purpose of assessing transfer charges 

or for determining the number of 

remaining ‘‘free’’ transfers in a Contract 

year. The Company will not exercise 

any right it may have under the 

Contracts to impose additional charges 

for Contract value transfers under the 

Contracts for a period of at least 30 days 

following the proposed substitution. 

Similarly, from May 1, 2011 until the 

date of the proposed substitution, the 

Company will permit Contract owners 

to make transfers of Contract value out 

of the Replaced Portfolio subaccount to 

other subaccounts or the fixed account 

without those transfers being treated as 

transfers for purposes of determining 

the remaining number of transfers 

permitted in the Contract year without 

a transfer charge. Likewise, for at least 

30 days following the proposed 

substitution, the Company will permit 

Contract owners affected by the 

substitution to transfer Contract value 

out of the Replacement Portfolio 

subaccount to other subaccounts or the 

fixed account without those transfers 

being treated as transfers for purposes of 

determining the remaining number of 

transfers permitted in the Contract year 

without a transfer charge. 

38. Applicants acknowledge that 

reliance on the exemptive relief 

requested herein, if granted, depends 

upon compliance with all of the 

representations and conditions set forth 

in this amended and restated 

application. 

39. Applicants represent that the 

Company is also seeking approval of the 

proposed substitution from any State 

insurance regulators whose approval 

may be necessary or appropriate. 

40. The Applicants request that the 

Commission issue an order pursuant to 

Section 26(c) of the 1940 Act approving 

the substitution by the Company of 

shares of the Replacement Portfolio for 

Service Class 2 Shares of the Replaced 

Portfolio currently held by the 

Accounts. 

41. Section 26(c) of the 1940 Act 

requires the depositor of a registered 

unit investment trust holding securities 

of a single issuer to receive Commission 

approval before substituting the 

securities held by the trust. Specifically, 

Section 26(c) states: 

It shall be unlawful for any depositor or 

trustee of a registered unit investment trust 

holding the security of a single issuer to 

substitute another security for such security 

unless the Commission shall have approved 

such substitution. The Commission shall 

issue an order approving such 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 this title. 

Section 26(c) was added to the 1940 

Act by the Investment Company 

Amendments of 1970 (the ‘‘1970 

Amendments’’). Prior to the enactment 

of the 1970 Amendments, a depositor of 

a unit investment trust could substitute 

new securities for those held by the 

trust by notifying the trust’s security 

holders of the substitution within five 

days of the substitution. In 1966, the 

Commission, concerned with high sales 

charges then common to most unit 

investment trusts and the 

disadvantageous position in which such 

charges placed investors who did not 

want to remain invested in the 

substituted fund, recommended that 

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17726 Federal Register / Vol. 76, No. 61 / Wednesday, March 30, 2011 / Notices 

6 In the years leading up to its 1966 

recommendation, the Commission took the position 

that the substitution of portfolio securities of a unit 

investment trust constituted an offer of exchange 

under Section 11 of the [1940] Act requiring prior 

Commission approval. The Commission proposed 

Section 26(c) in order to specifically address 

substitutions by unit investment trusts which 

previously had been scrutinized under Section 11 

of the [1940] Act. See House Committee on 

Interstate and Foreign Commerce, Report of the 

Securities and Exchange Commission on the Public 

Policy Implications of Investment Company 

Growth, H.R. Rep. No. 2337, 89th Cong., 2d Sess. 

337 (1966). 

7S. Rep. No. 184, 91st Cong., 1st Sess. 41 (1969), 

reprinted in 1970 U.S. Code Cong. & Admin. News 

4897, 4936 (1970). 

8While Section 26(c), by its terms, applies only 

to a unit investment trust holding the securities of 

one issuer, the Commission has interpreted Section 

26(c) to apply to ‘‘a substitution of securities in any 

subaccount of a registered separate account.’’ 

Adoption of Permanent Exemptions from Certain 

Provisions of the Investment Company Act of 1940 

for Registered Separate Accounts and Other 

Persons, Investment Company Act Rel. No. 12678 

(Sept. 21, 1982) (emphasis added). 

Section 26 be amended to require that 

a proposed substitution of the 

underlying investments of a trust 

receive prior Commission approval.6

Congress responded to the 

Commissioners’ concerns by enacting 

Section 26(c) to require that the 

Commission approve all substitutions 

by the depositor of investments held by 

unit investment trusts. The Senate 

Report on the bill explained the purpose 

of the amendment as follows: 

The proposed amendment recognizes that 

in the case of the unit investment trust 

holding the securities of a single issuer 

notification to shareholders does not provide 

adequate protection since the only relief 

available to shareholders, if dissatisfied, 

would be to redeem their shares. A 

shareholder who redeems and reinvests the 

proceeds in another unit investment trust or 

in an open-end company would under most 

circumstances be subject to a new sales load. 

The proposed amendment would close this 

gap in shareholder protection by providing 

for Commission approval of the substitution. 

The Commission would be required to issue 

an order approving the substitution if it finds 

the substitution consistent with the 

protection of the investors and provisions of 

the [1940] Act.7

42. Applicants represent that the 

proposed substitution appears to 

involve the substitution of securities 

within the meaning of Section 26(c) of 

the 1940 Act.8 Applicants therefore 

request an order from the Commission 

pursuant to Section 26(c) approving the 

proposed substitution. 

43. Applicants represent that all the 

Contracts expressly reserve for the 

Company the right, subject to 

compliance with applicable law, to 

substitute shares of one fund or 

portfolio held by a subaccount of an 

Account for another. The prospectuses 

for the Contracts and the Accounts 

contain appropriate disclosure of this 

right. The Company has reserved this 

right of substitution both to protect itself 

and its Contract owners in situations 

where it believes an underlying fund is 

no longer appropriate for Contract 

owners or where either might be harmed 

or disadvantaged by circumstances 

surrounding the issuer of the shares 

held by one or more of its separate 

accounts, and to afford the opportunity 

to replace such shares where to do so 

could benefit itself and Contract owners. 

44. Applicants maintain that Contract 

owners will be better served by the 

proposed substitution and that the 

proposed substitution is appropriate 

given the Replacement Portfolio, the 

Replaced Portfolio, and other 

investment options available under the 

Contracts. In the last four (4) out of the 

last five (5) years, the Replacement 

Portfolio has had investment 

performance superior to that of the 

Replaced Portfolio. In addition, for each 

one-year, five-year and since inception 

periods ended December 31, 2009, the 

Replacement Portfolio has had 

investment performance superior to that 

of the Replaced Portfolio. The 

Replacement Portfolio has also had 

substantially lower expenses than the 

Replaced Portfolio over these same 

periods. 

45. Applicants believe that the 

Replacement Portfolio and the Replaced 

Portfolio are substantially the same in 

their stated investment objectives and 

principal investment strategies as to 

afford investors continuity of 

investment and risk. In addition, 

Applicants generally submit that the 

proposed substitution meets the 

standards that the Commission and its 

staff have applied to similar 

substitutions that have been approved 

in the past. 

46. Applicants believe that Contract 

owners will be better off with the 

Replacement Portfolio than with the 

Replaced Portfolio. The proposed 

substitution retains for Contract owners 

the investment flexibility that is a 

central feature of the Contracts. If the 

proposed substitution is carried out, all 

Contract owners will be permitted to 

allocate purchase payments and transfer 

Contract values between and among the 

remaining subaccounts as they could 

before the proposed substitution. 

47. Applicants assert that the 

proposed substitution is not the type of 

substitution that Section 26(c) was 

designed to prevent. Unlike traditional 

unit investment trusts where a depositor 

could only substitute an investment 

security in a manner which 

permanently affected all the investors in 

the trust, the Contracts provide each 

Contract owner with the right to 

exercise his or her own judgment and 

transfer Contract values into other 

subaccounts and the fixed account. 

Moreover, the Contracts will offer 

Contract owners the opportunity to 

transfer amounts out of the affected 

subaccount into any of the remaining 

subaccounts without cost or 

disadvantage. The proposed 

substitution, therefore, will not result in 

the type of costly forced redemption 

that Section 26(c) was designed to 

prevent. 

48. Applicants state that the proposed 

substitution is also unlike the type of 

substitution that Section 26(c) was 

designed to prevent in that by 

purchasing a Contract, Contract owners 

select much more than a particular 

investment company in which to invest 

their Contract values. They also select 

the specific type of coverage offered by 

the Company under the Contracts, as 

well as numerous other rights and 

privileges set forth in the Contracts. 

Contract owners may also have 

considered the size, financial condition, 

type, and reputation for service of the 

Company, from whom they purchased 

their Contract in the first place. These 

factors will not change because of the 

proposed substitution. 

Conclusion 

Applicants request an order of the 

Commission pursuant to Section 26(c) 

of the 1940 Act approving the proposed 

substitution by the Company. 

Applicants submit that, for all the 

reasons stated above, the proposed 

substitution is consistent with the 

protection of investors and the purposes 

fairly intended by the policy and 

provisions of the 1940 Act. 

For the Commission, by the Division of 

Investment Management pursuant to 

delegated authority. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–7418 Filed 3–29–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[File No. 500–1] 

In the Matter of Euro Solar Parks, Inc.; 

Order of Suspension of Trading 

March 28, 2011. 

It appears to the Securities and 

Exchange Commission that there is a 

lack of current and accurate information 

concerning the securities of Euro Solar 

Parks, Inc. (‘‘Euro Solar’’) because of 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES