[Federal Register Volume 72, Number 69 (Wednesday, April 11, 2007)]
[Notices]
[Pages 18284-18290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-6867]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27779; File No. 812-13342]


Jefferson National Life Insurance Company, et al.

April 6, 2007
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'') approving certain substitutions of securities 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: Jefferson National Life Insurance Company (``JNL''), 
Jefferson National Life Annuity Account C (``Separate Account C''), 
Jefferson National Life Annuity Account E (``Separate Account E''), 
Jefferson National Life Annuity Account F (``Separate Account F''), 
Jefferson National Life Annuity Account G (``Separate Account G''), 
Jefferson National Life Annuity Account H (``Separate Account H''), 
Jefferson National Life Annuity Account I (``Separate Account I''), 
Jefferson National Life Annuity Account J (``Separate Account J''), 
Jefferson National Life Annuity Account K (``Separate Account K''), 
Conseco Variable Insurance--Separate Account L (``Separate Account L'', 
and together with Separate Account C, Separate Account E, Separate 
Account F, Separate Account G, Separate Account H, Separate Account I, 
Separate Account J, and Separate Account K, the ``Separate Accounts'' 
and, collectively with JNL, the ``Applicants''), Northern Lights 
Variable Trust (``NLVT'' and collectively with Applicants, the 
``Section 17 Applicants'').

[[Page 18285]]


Summary of Application: Applicants seek an order approving the proposed 
substitution of shares of the 40[verbar]86 Series Trust Equity 
Portfolio and 40[verbar]86 Series Trust Balanced Portfolio (the 
``Replaced Funds'') with shares of the JNF Equity Portfolio and JNF 
Balanced Portfolio (the ``Replacement Funds''), (the 
``Substitutions''). Section 17 Applicants seek an order exempting them 
from the provisions of Section 17(a) of the Act to the extent necessary 
to permit JNL to carry out each of the Substitutions (``Application'').

Filing Date: The application was originally filed on November 9, 2006, 
and was amended and restated on January 17, 2007, and April 2, 2007.

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 27, 2007, 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, 9920 Corporate Campus 
Drive, Suite 1000, Louisville, Kentucky 40223.

FOR FURTHER INFORMATION CONTACT: Patrick Scott, Senior Counsel, Office 
of Insurance Products, Division of Investment Management, at (202) 551-
6763, or Harry Eisenstein, Branch Chief, at (202) 661-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 100 F Street, NE., 
Washington, D.C. 20549 (202-942-8090).

Applicants' and Section 17 Applicants' Representations

    1. JNL is a stock life insurance company originally organized in 
1937 under the laws of Texas. JNL was formerly a subsidiary of Conseco 
Variable Insurance Company. JNL is currently an affiliate of Inviva, 
Inc., which purchased JNL in 2002.
    2. Separate Account C was established in 1980. Separate Account C 
is registered under the Act as a unit investment trust (File No. 811-
04819) and is used to fund variable annuity contracts issued by JNL. 
Two variable annuity contracts funded by Separate Account C are 
affected by the Substitutions.
    Separate Account E was established in 1993. Separate Account E is 
registered under the Act as a unit investment trust (File No. 811-
08288) and is used to fund variable annuity contracts issued by JNL. 
One variable annuity contract funded by Separate Account E is affected 
by the Substitutions.
    Separate Account F was established in 1997. Separate Account F is 
registered under the Act as a unit investment trust (File No. 811-
08483) and is used to fund variable annuity contracts issued by JNL. 
One variable annuity contract funded by Separate Account F is affected 
by the Substitutions.
    Separate Account G was established in 1996. Separate Account G is 
registered under the Act as a unit investment trust (File No. 811-
07501) and is used to fund variable annuity contracts issued by JNL. 
Three variable annuity contracts funded by Separate Account G are 
affected by the Substitutions.
    Separate Account H was established in 1999. Separate Account H is 
registered under the Act as a unit investment trust (File No. 811-
09693) and is used to fund variable annuity contracts issued by JNL. 
One variable annuity contract funded by Separate Account H is affected 
by the Substitutions.
    Separate Account I was established in 2000. Separate Account I is 
registered under the Act as a unit investment trust (File No. 811-
10213) and is used to fund variable annuity contracts issued by JNL. 
One variable annuity contract funded by Separate Account I is affected 
by the Substitutions.
    Separate Account J was established in 2003. Separate Account J is 
registered under the Act as a unit investment trust (File No. 811-
21498) and is used to fund variable annuity contracts issued by JNL. 
One variable annuity contract funded by Separate Account J is affected 
by the Substitutions.
    Separate Account K was established in 2003. Separate Account K is 
registered under the Act as a unit investment trust (File No. 811-
21500) and is used to fund variable annuity contracts issued by JNL. 
One variable annuity contract funded by Separate Account K is affected 
by the Substitutions.
    Separate Account L was established in 2000. Separate Account L is 
registered under the Act as a unit investment trust (File No. 811-
10271) and is used to fund variable universal life contracts issued by 
JNL. One variable universal life contract funded by Separate Account L 
is affected by the Substitutions (all eleven variable annuity contracts 
and the one variable universal life contract affected by the 
Substitutions are collectively referred to as the ``Contracts'').
    3. NLVT was organized in Delaware as a statutory trust on November 
2, 2005 and is registered under the Act as an open-end management 
investment company.
    4. 40/86 Advisors, Inc. (``Advisors'') is the investment adviser to 
the Replaced Funds, and is a subsidiary of Conseco Inc., JNL's former 
parent. The two Replaced Funds are portfolios of the 40/86 Series 
Trust, formerly known as the Conseco Series Trust (``CST''). JNF 
Advisors, Inc. (``JNF Advisor'') is a newly formed investment adviser 
under common control with JNL. JNF Advisor will serve as investment 
adviser to the Replacement Funds, which will be portfolios of NLVT. 
Chicago Equity Partners (``CEP'') is a registered investment adviser 
and is currently 40/86 Series Trust Equity Portfolio's sub-adviser. CEP 
is also currently the 40/86 Series Trust Balanced Portfolio's sub-
adviser for the equity portion of the fund. After the Substitutions, 
CEP will be sub-adviser for both Replacement Funds, including the fixed 
income portion of the JNF Balanced Portfolio. There are no corporate 
affiliations between any of these three investment advisers.
    5. Purchase payments under the Contracts may be allocated to one or 
more sub-accounts of the Separate Accounts (the ``Sub-Accounts''). 
Income, gains and losses, whether or not realized, from assets 
allocated to the Separate Accounts are, as provided in the Contracts, 
credited to or charged against the Separate Accounts without regard to 
other income, gains or losses of JNL. The assets maintained in the 
Separate Accounts will not be charged with any liabilities arising out 
of any other business conducted by JNL. Nevertheless, all obligations 
arising under the Contracts, including the commitment to make annuity 
payments or death benefit payments, are general corporate obligations 
of JNL. Accordingly, all of the assets of JNL are available to meet its 
obligations under the Contracts.

[[Page 18286]]

    6. The Contracts permit allocations of account value to available 
Sub-Accounts that invest in specific investment portfolios of 
underlying registered investment companies (each a ``Fund'' and, 
collectively, the ``Mutual Funds''). The Mutual Funds are registered 
under the Act as open-end management investment companies.
    7. The Contracts permit transfers of accumulation value from one 
Sub-Account to another Sub-Account at any time subject to certain 
restrictions. No sales charge applies to such a transfer of 
accumulation value among Sub-Accounts.
    8. The Contracts reserve the right, upon notice to contract owners 
(the ``Contract Owners''), to substitute shares of another mutual fund 
for shares of a Fund held by a Sub-Account.
    9. Account C was established in 1980 as a management investment 
company. Effective May 1, 1993, Account C was restructured into a unit 
investment trust, pursuant to Commission exemptive relief. As a 
condition of this exemptive relief, certain Contract Owners' contracts 
were endorsed to limit the advisory fees the Contract Owner paid on 
investments in the 40/86 Series Trust Equity Portfolio. Investments by 
those Contract Owners in the corresponding Replacement Fund will 
continue to benefit from the advisory fee limitations which were a 
condition of the prior exemptive relief.
    10. The Replaced Funds involved in the Substitutions include 2 
separate 4086 Series Trust portfolios. After the Substitutions, the 
investment objective and policies of each Replacement Fund will be the 
same as or substantially similar to the investment objective and 
policies of the corresponding Replaced Fund. The Substitutions are 
being proposed for several reasons. First, the accumulated assets in 
the Replaced Funds were derived from an earlier time, prior to 2002, 
when Conseco Inc., JNL's former parent, formed a large commissioned 
broker-dealer network that was familiar with, and loyal to, the CST 
funds. That broker-dealer network dissolved after Conseco experienced 
financial difficulties in the summer of 2002. Today JNL, as an 
affiliate of Inviva, Inc. (which purchased JNL (f/k/a Conseco Variable 
Insurance Company)), has almost no access to the broker-dealer network 
that was responsible for the growth in assets in the CST funds. In 
addition, JNL has developed its own, very different target audience: 
the fee-based and fee-only adviser, as opposed to the traditional 
commission-based representative. Second, as part of the discussions 
related to the Substitutions of the Replaced Funds, Advisors has 
indicated to JNL that sponsoring an insurance-dedicated mutual fund 
complex did not have a place in its parent corporation's long-term 
business plan. Advisors intends to continue to serve in its current 
capacity with respect to the Replaced Funds to facilitate a smooth 
transition. The Board of Trustees of 40/86 Series Trust voted to 
liquidate, on or about March 23, 2007, the Trust's three other 
portfolios, the Fixed Income, Government Securities and Money Market 
Portfolios, and these portfolios have been liquidated.
    Currently all of the Mutual Funds are unaffiliated investment 
companies and changes due to investment performance, style drift, or 
management practice issues require substantial systems, filing, and 
printing resources, which slows the process to make changes, if 
necessary. Because it is anticipated the Replacement Funds and JNF 
Advisors will have ``manager of managers'' exemptive relief, JNF 
Advisor, as investment adviser, will be able to act more quickly and 
efficiently to protect Contract Owners' interests if the investment 
strategy, management team or performance of a sub-adviser does not meet 
expectations. JNF Advisor plans to file an application for ``manager of 
managers'' exemptive relief within 6 months from the date that the 
Substitutions are effected. The ``manager of managers'' exemptive 
relief would permit JNF Advisor, as the investment adviser for the 
existing series, to replace any sub-adviser or to employ a new sub-
adviser without submitting such actions for the approval of 
shareholders of the affected series. Before a Replacement Fund relies 
on any Commission order or rule that would permit the Replacement Fund 
to enter into contracts with subadvisers without obtaining shareholder 
approval, the Replacement Fund's reliance on the order or rule will be 
approved, following the Substitutions, by a majority of the Replacement 
Fund's outstanding voting securities.
    11. JNF Advisor will serve as the investment adviser for each 
Replacement Fund. However, the management of each Replacement Fund will 
be sub-advised as described below. Additional information, including 
the investment objective, fee structure and expenses for the fiscal 
year ending in 2006 for each of the Replaced and each Replacement Fund, 
is shown in the tables that follow:
    12. Substitution 1

------------------------------------------------------------------------
                                  Replaced fund       Replacement fund
------------------------------------------------------------------------
Fund Name...................  40/86 Series Trust    JNF Equity;
                               Equity Portfolio.     subadvised by CEP
Investment Objective........  Seeks to provide a    Seeks to provide a
                               high total return     high total return
                               consistent with       consistent with
                               preservation of       preservation of
                               capital and a         capital and a
                               prudent level of      prudent level of
                               risk. Normally        risk. Normally
                               invests at least      invests at least
                               80% of its assets     80% of its assets
                               in U.S. common        in U.S. common
                               stocks. May also      stocks. May also
                               invest in other       invest in other
                               U.S. and foreign      U.S. and foreign
                               securities,           securities,
                               including             including
                               convertible           convertible
                               securities and        securities and
                               warrants. Is          warrants. Is
                               normally widely       normally widely
                               diversified by        diversified by
                               industry and          industry and
                               company, with a       company, with a
                               focus on small and    focus on small and
                               medium-size           medium-size
                               companies. Uses a     companies. Uses a
                               proprietary multi-    proprietary multi-
                               factor model to       factor model to
                               select securities.    select securities.
                               The model includes    The model includes
                               momentum, value and   momentum, value and
                               quality factors.      quality factors.
                               The process focuses   The process focuses
                               on security           on security
                               selection while       selection while
                               remaining industry,   remaining industry,
                               sector, style and     sector, style and
                               capitalization        capitalization
                               neutral.              neutral.
Principal Risks.............  <bullet> Market Risk  <bullet> Market
                                                     Risk.
                              <bullet> Small-       <bullet> Small-
                               Company Risk.         Company Risk.
                              <bullet> Price        <bullet> Price
                               Volatility.           Volatility.
Adviser/Subadviser..........  40/86 Advisors        JNF Advisor/CEP.
                               Partners/CEP.
Fund Asset Level as of 9/30/  $169,387,929........  $0
 06.
Mgmt. Fee...................  0.79%\*\............  0.79%\*\
12b-1 Fee...................  0.25%...............  0.25%
Other Expenses..............  0.12%...............  0.20%
                             -------------------------------------------

[[Page 18287]]

 
    Total Annual Operating    1.16%...............  1.24%
     Expns..
                             -------------------------------------------
    Fee Reduction...........  -0.06%..............  -0.14%
                             ===========================================
    Net Total Annual          1.10%...............  1.10%
     Expenses.
------------------------------------------------------------------------
\*\ The advisory fee schedule does not contain breakpoints.

    The Applicants believe that the Replacement Fund is an appropriate 
substitute for the Replaced Fund because the investment objective and 
policies of the Replacement Fund are nearly identical to those of the 
Replaced Fund. Additionally, the Replacement Fund will be managed by 
the same sub-adviser as the Replaced Fund, and will continue using the 
same style and strategy as is used in managing the Replaced Fund.
    13. Substitution 2

------------------------------------------------------------------------
                                  Replaced fund       Replacement fund
------------------------------------------------------------------------
Fund Name...................  40/86 Series Trust    JNF Balanced;
                               Balanced Portfolio.   subadvised by CEP.
Investment Objective........  Seeks a high total    Seeks a high total
                               investment return     investment return
                               consistent with the   consistent with the
                               preservation of       preservation of
                               capital and prudent   capital and prudent
                               investment risk.      investment risk.
                               Normally, invests     Normally, invests
                               approximately 50-     approximately 50-
                               65% of assets in      65% of assets in
                               equities, and the     equities, and the
                               remainder in a        remainder in a
                               combination of        combination of
                               fixed income          fixed income
                               securities, or cash   securities, or cash
                               equivalents. The      equivalents. The
                               equity portion of     equity portion of
                               the Portfolio is      the Portfolio is
                               invested primarily    invested primarily
                               in U.S. common        in U.S. common
                               stocks but may also   stocks but may also
                               invest in other       invest in other
                               U.S. and foreign      U.S. and foreign
                               securities,           securities,
                               including             including
                               convertible           convertible
                               securities and        securities and
                               warrants. Normally,   warrants. Normally,
                               the equity portion    the equity portion
                               will be widely        will be widely
                               diversified by        diversified by
                               industry and          industry and
                               company. It will      company. It will
                               focus on large and    focus on large and
                               medium-size           medium-size
                               companies.            companies.
                              The fixed income      The fixed income
                               portion of the        portion of the
                               Portfolio will        portfolio will
                               normally maintain     normally maintain
                               at least 25% of the   at least 25% of the
                               value of the          value of the
                               Portfolio's assets    Portfolio's assets
                               in a wide range of    in a wide range of
                               domestic and          domestic and
                               foreign fixed-        foreign fixed-
                               income securities,    income securities,
                               including non-U.S.    including non-U.S.
                               dollar denominated    dollar denominated
                               securities. The       securities. The
                               majority of foreign   majority of foreign
                               investments will be   investments will be
                               in Yankee Bonds.      in Yankee Bonds.
                               These fixed-income    These fixed-income
                               securities will       securities will
                               have primarily        have primarily
                               intermediate and/or   intermediate and/or
                               long-term             long-term
                               maturities. The       maturities. The
                               Portfolio may also    Portfolio may also
                               invest in below       invest in below
                               investment grade      investment grade
                               fixed-income          fixed-income
                               securities that are   securities that are
                               not believed to       not believed to
                               involve undue risk    involve undue risk
                               to income or          to income or
                               principal. The        principal. The
                               lowest rating         lowest rating
                               categories in which   categories in which
                               the Portfolio will    the Portfolio will
                               invest are rated      invest are rated
                               Caa/CCC by Moody's/   Caa/CCC by Moody's/
                               S&P.                  S&P.
Principal Risks.............  <bullet> Market Risk  <bullet> Market
                                                     Risk.
                              <bullet> Midsize      <bullet> Midsize
                               Company Risk.         Company Risk.
                              <bullet> Price        <bullet> Price
                               Volatility.           Volatility.
                              <bullet> Principal    <bullet> Principal
                               Loss.                 Loss.
                              <bullet> Credit Risk  <bullet> Credit
                                                     Risk.
                              <bullet> Interest     <bullet> Interest
                               Rate Risk.            Rate Risk.
                              <bullet> Foreign      <bullet> Foreign
                               Risk.                 Risk.
                              <bullet> Leverage     <bullet> Leverage
                               Risk.                 Risk.
Adviser/Subadviser..........  40/86/CEP--Equity...  JNF Advisor/CEP.
                              40/86 Advisors--
                               Fixed Income
Fund Asset Level as of 9/30/  $42,161,064.........  $0
 06.
Mgmt. Fee...................  0.79%*..............  0.79%*
12b-1 Fee...................  0.25%...............  0.25%
Other Expenses..............  0.16%...............  0.23%
                             -------------------------------------------
    Total Annual Operating    1.20%...............  1.27%
     Expenses.
                             -------------------------------------------
    Fee Reduction...........  -0.10%..............  -0.17%
                             ===========================================
    Net Total Annual          1.10%...............  1.10%
     Expenses.
------------------------------------------------------------------------
\*\ The advisory fee schedule does not contain breakpoints.

    The Applicants believe that the Replacement Fund is an appropriate 
substitute for the Replaced Fund because the investment objective and 
policies of the Replacement Fund are substantially similar to those of 
the Replaced Fund. Additionally, the Replacement Fund will be managed 
by the same sub-adviser as the Replaced

[[Page 18288]]

Fund, and will continue using the same style and strategy as is used in 
managing the Replaced Fund.
    14. The Substitutions will take place at the Funds' relative net 
asset values determined on the date of the Substitutions in accordance 
with Section 22 of the Act and Rule 22c-1 thereunder with no change in 
the amount of any Contract Owner's account value or death benefit or in 
the dollar value of his or her investment in any of the Sub-Accounts. 
Accordingly, there will be no financial impact on any Contract Owner. 
The Substitutions will generally be effected by having each of the Sub-
Accounts that invests in the Replaced Funds redeem its shares at the 
net asset value calculated on the date of the Substitutions and 
purchase shares of the respective Replacement Funds at the net asset 
value calculated on the same date.
    15. In the alternative, should a Replaced Fund determine that a 
cash redemption would adversely affect its shareholders, it may redeem 
the interest ``in-kind.'' In that case, the Substitutions will be 
effected by the Sub-Account contributing all the securities it receives 
from the Replaced Fund for an amount of Replacement Fund shares equal 
to the fair market value of the securities contributed. All in-kind 
redemptions from a Replaced Fund of which any of the Applicants is an 
affiliated person will be effected in accordance with the conditions 
set forth in the Commission's no-action letter issued to Signature 
Financial Group, Inc. (available December 28, 1999).
    16. The Substitutions will be described in a supplement to the 
prospectuses for the Contracts (``Supplements'') filed with the 
Commission and mailed to Contract Owners. The Supplements will provide 
Contract Owners with notice of the Substitutions and describe the 
reasons for engaging in the Substitutions. The Supplements also will 
inform Contract Owners with assets allocated to a Sub-Account investing 
in the Replaced Funds that the Replaced Funds will not be an available 
investment option after the date of the Substitutions and that Contract 
Owners will have the opportunity to reallocate account value once:
    <bullet> Prior to the Substitutions, from the Sub-Accounts 
investing in the Replaced Funds, and
    <bullet> For 30 days after the Substitutions, from the Sub-Accounts 
investing in the Replacement Funds to Sub-Accounts investing in other 
Funds available under the respective Contracts, without diminishing the 
number of free transfers that may be made in a given contract year and 
without the imposition of any transfer charge or limitation, other than 
any applicable limitations in place to deter potentially harmful 
excessive trading. To the extent a Contract Owner has account value 
allocated to both Sub-Accounts investing in a Replaced Fund, the 
Contract Owner will be permitted one reallocation from each Sub-
Account. If a Contract Owner reallocates from both Sub-Accounts on the 
same day, they will have exhausted the number of permitted 
reallocations.
    17. The prospectuses for the Contracts will contain the substance 
of the information contained in the Supplements concerning the 
Substitutions. Each Contract Owner will be provided with a prospectus 
for the Replacement Funds before the Substitutions, except that with 
respect to Replacement Funds that become effective contemporaneously 
with the Substitutions, a prospectus will be sent to affected Contract 
Owners with the written confirmation. Within five days after the 
Substitutions, JNL will send affected Contract Owners written 
confirmation that the Substitutions have occurred and notice that 
Contract Owners will have the opportunity to reallocate account value, 
for 30 days after the Substitutions, from the Sub-Accounts investing in 
the Replacement Funds to Sub-Accounts investing in other Funds 
available under the respective Contracts, without diminishing the 
number of free transfers that may be made in a given contract year and 
without the imposition of any transfer charge or limitation, other than 
any applicable limitations in place to deter potentially harmful 
excessive trading.
    18. JNL will pay all direct and indirect expenses and transaction 
costs of the Substitutions, including all legal, accounting and 
brokerage expenses relating to the Substitutions. No costs will be 
borne by Contract Owners. Affected Contract Owners will not incur any 
fees or charges as a result of the Substitutions, nor will their rights 
or the obligations of the Applicants under the Contracts be altered in 
any way. The Substitutions will not cause the fees and charges under 
the Contracts currently being paid by Contract Owners to be greater 
after the Substitutions than before the Substitutions. The 
Substitutions will have no adverse tax consequences to Contract Owners 
and will in no way alter the tax benefits to Contract Owners.
    19. Applicants believe that their request satisfies the standards 
for relief pursuant to Section 26(c) of the Act, as set forth below, 
because the affected Contract Owners will have:
    (1) Account values allocated to a Sub-Account invested in a 
Replacement Fund with an investment objective and policies 
substantially similar to the investment objective and policies of the 
Replaced Fund; and
    (2) Replacement Funds whose current total annual expenses will be 
no higher than those of the Replaced Funds for their 2006 fiscal year, 
because as described below, JNL has agreed to, for a period of 24 
months following the Substitutions, limit the total net expenses of a 
Replacement Fund to those of the Replaced Fund for the 2006 fiscal 
year. At the end of the 24-month period it is possible that the 
expenses of the Replacement Funds may be higher.

Applicants' and Section 17 Applicants' Legal Analysis

    1. 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 will 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.
    2. The purpose of Section 26(c) is to protect the expectation of 
investors in a unit investment trust that the unit investment trust 
will accumulate shares of a particular issuer by preventing 
unscrutinized substitutions that might, in effect, force shareholders 
dissatisfied with the substituted security to redeem their shares, 
thereby possibly incurring either a loss of the sales load deducted 
from initial premium payments, an additional sales load upon 
reinvestment of the redemption proceeds, or both. Moreover, in the 
insurance product context, a Contract Owner forced to redeem may suffer 
adverse tax consequences. Section 26(c) affords this protection to 
investors by preventing a depositor or trustee of a unit investment 
trust that holds shares of one issuer from substituting for those 
shares the shares of another issuer, unless the Commission approves 
that substitution.
    3. Applicants assert that the purposes, terms and conditions of the 
Substitutions are consistent with the principles and purposes of 
Section 26(c) and do not entail any of the abuses that Section 26(c) is 
designed to prevent. Applicants have reserved the right to make such a 
substitution under the Contracts and this reserved right is disclosed 
in the prospectus for the Contracts.

[[Page 18289]]

    4. In both Substitutions, Applicants maintain, the investment 
objectives and policies of the Replacement Funds are sufficiently 
similar to those of the corresponding Replaced Funds that Contract 
Owners will have reasonable continuity in investment expectations. 
Accordingly, the Replacement Funds are appropriate investment vehicles 
for those Contract Owners who have account values allocated to the 
Replaced Funds.
    5. Applicants state that, for the 24-month period following the 
date of the Substitutions, JNL agrees to limit the total operating 
expenses of a Replacement Fund (taking into account any expense waiver 
or reimbursement) on an annualized basis to the net expense level of 
the corresponding Replaced Fund for the 2006 fiscal year. In addition, 
for 24 months following the Substitutions, JNL will not increase asset-
based fees or charges for Contracts outstanding on the day of the 
Substitutions. JNL represents that the Substitutions and the selection 
of the Replacement Funds were not motivated by any financial 
consideration paid or to be paid by the Replacement Funds, their 
advisers or underwriters, or their respective affiliates.
    6. Applicants submit that, the Substitutions will not result in the 
type of costly forced redemption that Section 26(c) was intended to 
guard against and, for the following reasons, is consistent with the 
protection of investors and the purposes fairly intended by the Act:
    (1) Each of the Replacement Funds is an appropriate fund to which 
to move Contract Owners with account values allocated to the Replaced 
Funds because the new funds have substantially similar investment 
objectives and policies.
    (2) The costs of the Substitutions, including any brokerage costs, 
will be borne by JNL and will not be borne by Contract Owners. No 
charges will be assessed to effect the Substitutions.
    (3) The Substitutions will be at the net asset values of the 
respective shares without the imposition of any transfer or similar 
charge and with no change in the amount of any Contract Owner's account 
value.
    (4) The Substitutions will not cause the fees and charges under the 
Contracts currently being paid by Contract Owners to be greater after 
the Substitutions than before the Substitutions and will result in 
Contract Owners' account values being moved to a Fund with the same or 
lower current total annual expenses.
    (5) All Contract Owners will be given notice of the Substitutions 
prior to the Substitutions and will have an opportunity before, and for 
30 days after, the Substitutions to reallocate account value among 
other available Sub-Accounts without diminishing the number of free 
transfers that may be made in a given contract year and without the 
imposition of any transfer charge or limitation, other than any 
applicable limitations in place to deter potentially harmful excessive 
trading or disintermediation involving the fixed accounts available 
with the variable annuity contracts.
    (6) Within five days after a Substitution, JNL will send to its 
affected Contract Owners written confirmation that a Substitution has 
occurred.
    (7) The Substitutions will in no way alter the insurance benefits 
to Contract Owners or the contractual obligations of JNL.
    (8) The Substitutions will have no adverse tax consequences to 
Contract Owners and will in no way alter the tax benefits to Contract 
Owners.
    (9) Before a Replacement Fund relies on any Commission order or 
rule that would permit the Replacement Fund to enter into contracts 
with sub-advisers without obtaining shareholder approval, the 
Replacement Fund's reliance on the order or rule will be approved, 
following the Substitutions, by a majority of the Replacement Fund's 
outstanding voting securities.
    7. The Section 17 Applicants request an order under Section 17(b) 
exempting them from the provisions of Section 17(a) to the extent 
necessary to permit JNL to carry out each of the proposed 
Substitutions. 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.
    8. Applicants state that, JNL, as depositor of the Separate 
Accounts, is an affiliate of the Separate Accounts and also JNF 
Advisor, which serves as investment adviser for the affected NLVT 
series. As such, JNF Advisor could be deemed to control the affected 
NLVT series and be an affiliate of the affected NLVT series. Assuming, 
for this or other reasons, that an affected NLVT series is an affiliate 
of an affiliate of JNL, to the extent the Separate Accounts each use 
assets received in-kind to purchase Replacement Fund Shares, the 
Substitutions would involve one or more purchases or sales of 
securities or property between persons who are affiliates of 
affiliates. Accordingly, the Section 17 Applicants are seeking relief, 
to the extent necessary, from Section 17(a) for the in-kind purchases 
and sales of Replacement Fund Shares.
    9. 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:
    (1) 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;
    (2) 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
    (3) the proposed transaction is consistent with the general 
purposes of the Act.
    10. The Section 17 Applicants submit that, for all the reasons set 
forth in paragraphs 3-9 above, the terms of the proposed in-kind 
purchases of shares of the Replacement Funds by the Separate Accounts, 
including the consideration to be paid and received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned. The Section 17 Applicants also submit that the proposed in-
kind purchases by the Separate Accounts are consistent with the 
policies of JNL and the affected NLVT series. Finally, the Section 17 
Applicants submit that the proposed substitutions are consistent with 
the general purposes of the Act.
    11. To the extent the Separate Account's in-kind purchases of 
Replacement Fund shares are deemed to involve principal transactions 
between entities which are affiliates of affiliates, the procedures 
described below, Applicants and Section 17 Applicants contend, should 
be sufficient to assure that the terms of the proposed transactions are 
reasonable and fair to all participants. The Section 17 Applicants 
maintain that the terms of the proposed in-kind purchase transactions, 
including the consideration to be paid and received by each Fund 
involved, are reasonable, fair and do not involve overreaching. In 
addition, although not applicable, the in-kind transactions will 
conform with all except one of the conditions enumerated in Rule 17a-7. 
The proposed transactions will take place at relative net asset value 
in conformity with the requirements of Section 22(c) of the Act and 
Rule 22c-1 thereunder

[[Page 18290]]

with no change in the amount of any Contract Owner's account value or 
death benefit or in the dollar value of his or her investment in any 
Sub-Account. Contract Owners will not suffer any adverse tax 
consequences as a result of the substitutions. The fees and charges 
under the Contracts will not increase because of the substitutions. 
Even though they may not rely on Rule 17a-7, the Section 17 Applicants 
believe that the Rule's conditions outline the type of safeguards that 
result in transactions that are fair and reasonable to registered 
investment company participants and preclude overreaching.
    12. The Section 17 Applicants state that they will carry out the 
proposed in-kind purchases in conformity with all of the conditions of 
Rule 17a-7 and each Fund's procedures thereunder, except that the 
consideration paid for the securities being purchased or sold may not 
be entirely cash. Nevertheless, they contend, the circumstances 
surrounding the proposed Substitutions will be such as to offer the 
same degree of protection to each Replacement Fund from overreaching 
that Rule 17a-7 provides to them generally in connection with their 
purchase and sale of securities under that Rule in the ordinary course 
of their business. In particular, JNL (or any of its affiliates) cannot 
effect the proposed transactions at a price that is disadvantageous to 
any of the Replacement Funds. Although the transactions may not be 
entirely for cash, each will be effected based upon (1) the independent 
market price of the portfolio securities valued as specified in 
paragraph (b) of Rule 17a-7, and (2) the net asset value per share of 
each Fund involved valued in accordance with the procedures disclosed 
in its registration statement and as required by Rule 22c-1 under the 
Act. No brokerage commission, fee (except for customary transfer fees), 
or other remuneration will be paid to any party in connection with the 
proposed in-kind transactions.
    13. Applicants state that the sale of shares of Replacement Funds 
for investment securities, as contemplated by the proposed in-kind 
transactions, is consistent with the investment policy and restrictions 
of the Replacement Funds because (1) the shares are sold at their net 
asset value, and (2) the portfolio securities are of the type and 
quality that the Replacement Funds would each have acquired with the 
proceeds from share sales had the shares been sold for cash. To assure 
that the second of these conditions is met, each Replacement Funds' 
sub-adviser will examine the portfolio securities being offered to each 
Replacement Fund and accept only those securities as consideration for 
shares that it would have acquired for each such fund in a cash 
transaction.
    14. The proposed in-kind transactions, Applicants state, are 
consistent with the general purposes of the Act as stated in the 
Findings and Declaration of Policy in Section 1 of the Act. The 
proposed transactions do not present any of the conditions or abuses 
that the Act was designed to prevent. In particular, Sections 1(b)(2) 
and (3) of the Act state, among other things, that the national public 
interest and the interest of investors are adversely affected ``when 
investment companies are organized, operated, managed, or their 
portfolio securities are selected in the interest of directors, 
officers, investment advisers, depositors, or other affiliated persons 
thereof, or in the interests of other investment companies or persons 
engaged in other lines of business, rather than in the interest of all 
classes of such companies' security holders; * * * when investment 
companies issue securities containing inequitable or discriminatory 
provisions, or fail to protect the preferences and privileges of the 
holders of their outstanding securities * * *''. For all the reasons 
stated in the Application, the Section 17 Applicants state that, the 
abuses described in Sections l(b)(2) and (3) of the Act will not occur 
in connection with the proposed in-kind purchases.
    15. The Commission has previously granted exemptions from Section 
17(a) in circumstances substantially similar in all material respects 
to those presented in this Application to applicants affiliated with an 
open-end management investment company that proposed to purchase shares 
issued by the company with investment securities of the type that the 
company might otherwise have purchased for its portfolio. In these 
cases, the Commission issued an order pursuant to Section 17(b) of the 
Act where the expense of liquidating such investment securities and 
using the cash-proceeds to purchase shares of the investment company 
would have reduced the value of investors' ultimate investment in such 
shares.

Conclusions

    1. Applicants request an order of the Commission pursuant to 
Section 26(c) of the 1940 Act approving the Substitutions. Section 
26(c), in pertinent part, provides that the Commission shall issue an 
order approving a substitution of securities 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 1940 
Act. For the reasons and upon the facts set forth in the Application, 
the Applicants state that the requested order meets the standards set 
forth in Section 26(c) and should, therefore, be granted.
    2. Section 17 Applicants request that the Commission issue an order 
pursuant to Section 17(b) of the Act exempting the Separate Accounts, 
JNL and the affected NLVT series from the provisions of Section 17(a) 
of the Act to the extent necessary to permit, as part of the 
Substitutions, the in-kind purchase of shares of the Replacement Funds 
which may be deemed to be prohibited by Section 17(a) of the Act. The 
Section 17 Applicants represent that the proposed in-kind transactions 
meet all of the requirements of Section 17(b) of the Act and that an 
exemption should be granted, to the extent necessary, from the 
provisions of Section 17(a).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6867 Filed 4-10-07; 8:45 am]
BILLING CODE 8010-01-P