[Federal Register Volume 62, Number 26 (Friday, February 7, 1997)]
[Notices]
[Pages 5867-5869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3064]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22488; 812-10504]


Nationwide Financial Services, Inc., et al.; Notice of 
Application

February 3, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANTS: Nationwide Financial Services, Inc. (the ``Company''), 
Nationwide Life Insurance Company (``NLIC''), and Nationwide Life and 
Annuity Insurance Company (collectively with NLIC, ``Nationwide 
Life'').

RELEVANT ACT SECTIONS: Exemption requested under sections 6(c) and 
17(b) of the Act from section 17(a).

SUMMARY OF APPLICATION: Applicants seek an order that would permit the 
Company to sell securities of which it is the issuer to registered 
investment companies that are affiliated persons of certain registered 
investment companies funded by the separate accounts of Nationwide 
Life.

FILING DATES: The application was filed on January 17, 1997, and 
amended on January 31, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on February 24, 
1997, 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 writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request such notification by writing to 
the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, One Nationwide Plaza, Columbus, Ohio 43215.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, or Mercer E. Bullard, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The Company is an entity that recently has been formed to hold 
all the outstanding shares of Nationwide Life, an Ohio domiciled life 
insurance company, and other companies within the Nationwide Insurance 
Enterprise, a group of insurance and financial services organizations 
that includes Nationwide Corporation (``Nationwide Corp.''). Nationwide 
Corp. will own all the Class B shares of the Company and, as a result, 
will have voting control of the Company.
    2. Nationwide Life, a provider of long-term savings and retirement 
products to domestic retail and institutional customers, offers several 
variable annuity and variable life insurance products. Certain of these 
products permit a customer to choose among multiple investment options, 
including shares of registered open-end management investment companies 
(the ``Variable Product Funds'').\1\ At present, the Variable Product 
Funds include funds managed by investment advisers such as Mellon 
Equity Associates, Strong Capital Management, Inc., Fidelity Management 
& Research Company, Neuberger & Berman

[[Page 5868]]

Management Incorporated, Oppenheimer Management Corporation, Van Eck 
Associates Corporation, Van Kampen American Capital Asset Management, 
Inc., and Warburg Pincus Counsellors, Inc., each of whom is independent 
of applicants (the ``Independent Advisers''). The Independent Advisers 
also serve as advisers or subadvisers to many other registered 
investment companies, most of which are offered to the general public 
(the ``Retail Funds'').
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    \1\ Other investment options include series of registered 
investment companies managed, advised, or sponsored by applicants. 
These investment companies are not included in the definition of 
Variable Product Fund and are not covered by this application.
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    3. The variable annuity and variable life insurance products are 
funded by the separate accounts of Nationwide Life (the ``Separate 
Accounts''), each of which has been established as a unit investment 
trust registered under the Act. Under Ohio law, Nationwide Life is the 
owner of all assets held in the Separate Accounts, although the income, 
gains, and losses on assets in the Separate Accounts are allocated to 
the Accounts for the benefits of the related variable contracts. Each 
Separate Account is divided into multiple subaccounts, and the assets 
of each subaccount are invested in shares of a specific Variable 
Product Fund. Although the Variable Product Funds initially are 
selected by Nationwide Life (which may add or remove Funds from time to 
time), investments in those Funds are determined by Nationwide Life 
policyholders, who select the subaccounts and thereby the Variable 
Product Funds in which to invest.
    4. In order to allow Nationwide Life's variable policies to be 
treated as insurance products for tax purposes, the Variable Product 
Funds are held solely by the Separate Accounts or by the separate 
accounts of other insurance companies.\2\ Although the Variable Product 
Funds are available to other insurance companies, the number of 
potential participating companies is limited. Thus, in many cases, the 
Separate Accounts own, in the aggregate, more than 25% of the voting 
securities of a Variable Product Fund (a ``Controlled Variable Product 
Fund''). In other cases, the Separate Accounts hold less than 5% of the 
voting securities of a Variable Product Fund (a ``Remote Variable 
Product Fund''). Neither the Retail Funds nor the Remote Variable 
Product Funds are affiliated persons or affiliated persons of 
affiliated persons of the Company except to the extent they share a 
common investment adviser with the Controlled Variable Product Funds.
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    \2\ To be treated as insurance products for tax purposes, the 
Separate Accounts must be adequately diversified in accordance with 
section 817(h) of the Internal Revenue Code of 1986. An investment 
in a registered investment company will satisfy this requirement 
only if shares of the fund are not available to the general public, 
but may be acquired only through the ownership of an insurance 
policy or an interest in a pension plan contract.
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    5. The Company proposes to make a number of securities offerings 
within the next year and from time to time thereafter (the 
``Offerings''). The Offerings will include Class A shares of the 
Company's common stock, 30 year senior notes, and capital securities of 
a trust established by the Company (collectively, the ``Securities''). 
All Offerings will have certain characteristics in common: (a) The 
Securities will be sold to registered investment companies as part of 
the offering to the public; (b) the Securities will be registered under 
the Securities Act of 1933 (the ``Securities Act''); (c) all sales will 
be underwritten on a firm commitment basis by members of the National 
Association of Securities Dealers (``NASD''); (d) there will be no 
special arrangement to induce fund managers to deviate from normal fund 
investment policies, as stated in its prospectus; and (e) registered 
investment companies will invest in the Offerings on the same terms as 
all other public investors.

Applicants' Legal Analysis

    1. Applicants request an order to permit the sale by the Company of 
Securities to the Retail Funds and the Remote Variable Product Funds in 
one or more Offerings at various times in the future. Section 17(a)(1) 
of the Act prohibits an affiliated person of an investment company, or 
an affiliated person of an affiliated person, acting as principal, from 
selling any security or property to such company. Applicants believe 
that the Company may be deemed to be an affiliated person of affiliated 
persons of the Retail Funds and the Controlled Variable Product Funds.
    2. Section 2(a)(3) of the Act defines an affiliated person of 
another person to include the investment adviser or depositor of an 
investment company and any person directly or indirectly controlling, 
controlled by, or under common control with such other person. Section 
2(a)(9) defines control as the power to exercise a controlling 
influence over the management or policies of a company. Thus, an 
investment company may be considered to be controlled by its investment 
adviser. Section 2(a)(9) further provides that a person owning 
beneficially, directly or indirectly through controlled subsidiaries, 
more than 25% of the voting securities of a company is presumed to 
control such company.
    3. The Company controls Nationwide Life, a wholly-owned subsidiary 
of the Company. Because a life insurance company owns the assets of its 
separate accounts under Ohio insurance law, both the Company and 
Nationwide Life are presumed to control (and thus be affiliated persons 
of) any Variable Product Fund of which Nationwide Life owns more than 
25% of the voting securities (i.e., the Controlled Variable Product 
Funds). The Retail Funds and the Remote Variable Product Funds may be 
deemed to be affiliated persons of the Controlled Variable Product 
Funds because they are under the common control of common investment 
advisers. As an affiliated person of the Controlled Variable Product 
Funds, and therefore an affiliated person of affiliated persons of the 
Retail Funds and the Remote Variable Product Funds, the Company would 
be prohibited by section 17(a)(1) from selling Securities to the Retail 
Funds and the Remote Variable Product Funds absent an exemption.
    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the prohibitions of section 17(a) if 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, and the proposed transaction is 
consistent with both the policy of each registered investment company 
concerned and the general purpose of the Act. Applicants submit that 
the proposed sales of Securities to the Retail Funds and the Remote 
Variable Product Funds meet the requirements for an exemption under 
section 17(b). Applicants state that the Retail Funds and the Remote 
Variable Product Funds will purchase the Securities on the same basis 
as all other public investors and at the public offering price stated 
in the prospectus. This price will be determined by negotiations 
between the Company and the underwriters of the Offerings, who will be 
subject to the NASD Rules of Fair Practice. Applicants therefore do not 
believe that the proposed transactions will involve any overreaching on 
the part of the Company or any of its affiliated persons. In addition, 
the Independent Advisers will decide whether to purchase the Securities 
for the Retail Funds and the Remote Variable Product Funds, and 
applicants will have no influence or control over such decisions. 
Accordingly, applicants assert that the proposed transactions are 
consistent with the general purposes of the Act.
    5. Section 6(c) of the Act provides that the SEC may conditionally 
or unconditionally exempt any person,

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security, or transaction, or any class or classes of persons, 
securities, or transactions, from any provisions of the act, if and to 
the extent such exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.\3\ 
Applicants believe that the proposed transactions are necessary or 
appropriate in the public interest because they allow the Retail Funds 
and the Remote Variable Product Funds and their shareholders the 
opportunity to participate in investment opportunities that meet the 
Funds' investment objectives and avoid a reduction in or possible loss 
of investment opportunities. Applicants also assert that the types of 
abuses the Act was intended to prevent are unlikely to occur in the 
proposed transactions for the reasons discussed above. Accordingly, 
applicants submit that the proposed transactions meet the requirements 
for an exemption under section 6(c).
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    \3\ Applicants seek relief under section 6(c) as well as section 
17(b) because section 17(b) could be interpreted as giving the SEC 
power to exempt only a single transaction from section 17(a), as 
opposed to a class of transactions. See Keystone Custodian Funds, 
Inc., 21 S.E.C. 295 (1945).
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Retail Funds and the Remote Variable Product Funds will 
purchase Securities of the Company in an Offering only if such 
Securities are part of an issue registered under the Securities Act 
that is being offered to the public. All such purchases will be 
effected at the public offering price stated in the prospectus and in 
the same manner as sales to the general public.
    2. All Offerings will be underwritten on a firm commitment basis by 
members of the NASD.
    3. No registered investment company that is an affiliated person or 
an affiliated person of an affiliated person of the Company, other than 
by reason of sharing a common investment adviser with a Controlled 
Variable Product Fund, will be permitted to purchase Securities in an 
Offering, including Securities issued pursuant to the underwriters' 
over-allotment option.
    4. Applicants will not offer any incentives to the investment 
advisers of the Retail Funds or the Remote Variable Product Funds to 
purchase Securities of the Company, and will take no action to induce 
fund managers to deviate from the Funds' stated investment policies.
    5. No investment adviser to a Retail Fund or a Remote Variable 
Product Fund will be an affiliated person of applicants other than by 
reason of being an investment adviser to a Variable Product Fund.

    For the SEC, by the Division of Investment Management, under 
delegated authority
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3064 Filed 2-6-97; 8:45 am]
BILLING CODE 8010-01-M