[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1195-1199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-380]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24229; File No. 812-11732]
December 30, 1999.


Provident Mutual Life Insurance Company; Notice of Application

AGENCY: Securities and exchange Commission (the ``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(b) 
and Section 17(b) of the Investment Company Act of 1940 (the ``1940 
Act'').

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SUMMARY OF APPLICATION: Provident Mutual Life Insurance Company 
(``PMLIC''), Providentmutual Life and Annuity Company of America 
(``PLACA''), Provident Mutual Variable Annuity Separate Account 
(``PMLIC Annuity Account''), Provident Mutual Variable Separate Account 
(``PMLIC Account''), Providentmutual Variable Annuity Separate Account 
(``PLACA Annuity Account''), and Providentmutual Variable Life Separate 
Account (``PLACA Life Account'') (together, the ``Applicants'') are 
requesting an order of approval for the proposed substitution of shares 
of the Equity 500 Index Portfolio (the ``New Portfolio'' of the Market 
Street Fund, Inc. (``Market Street''), a management investment company 
advised by an affiliate of PMLIC and PLACA, for shares of the Index 500 
Portfolio (the ``Replaced Portfolio'') of the Variable Insurance 
Products Fund II (``VIP II''), which is currently used as a variable 
funding option under variable annuity and variable life contracts 
(together, the ``Contracts'') issued by PMLIC or PLACA. Applicants also 
seek an order pursuant to Section 17(b) of the 1940 Act to permit 
Applicants to effect the substitution by redeeming shares of the 
Replaced Portfolio in kind and using the proceeds to purchase shares of 
the New Portfolio.

APPLICANTS: PMLIC, PLACA, PMLIC Annuity Account, PMLIC Account, PLACA 
Annuity Account, and PLACA Life Account.

FILING DATE: The application was filed on August 2, 1999, and amended 
on December 20, 1999.

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 Commission's Secretary 
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 January 24, 2000, and must 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 requests notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, c/o James G. 
Potter, Esq., Provident Mutual Life Insurance Company, 1000 
Chesterbrook Boulevard, Berwyn, Pennsylvania 19312-1181. Copies to 
Jeffrey A. Dalke, Esq. and Cori E. Daggett, Esq., Drinker Biddle & 
Reath LLP, One Logan Square, 18th and Cherry Streets, Philadelphia, PA 
19103-6996.

FOR FURTHER INFORMATION CONTACT: Rebecca M. Marquigny, Senior Counsel, 
or Keith E. Carpenter, Branch Chief, Office of Insurance Products, 
Division of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 450 Fifth Street, NW, 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. PMLIC, a mutual life insurance company chartered by the 
Commonwealth of Pennsylvania, is authorized to transact life insurance 
and annuity business in Pennsylvania and in 50 other jurisdictions. 
PMLIC is the depositor and sponsor of the PMLIC Annuity Account and the 
PMLIC Account.
    2. PLACA is a stock life insurance company originally incorporated 
under the laws of the Commonwealth of Pennsylvania in 1958, and 
redomiciled as a Delaware insurance company in 1992. It is a wholly 
owned subsidiary of PMLIC. PLACA is licensed to do business in 48 
states and the District of Columbia. PLACA is the depositor and sponsor 
of the PLACA Annuity Account and the PLACA Life Account.
    3. PMLIC established the PMLIC Annuity Account on October 19, 1992 
and the PMLIC Account on June 7, 1993 as segregated investment accounts 
under Pennsylvania law. PLACA established the PLACA Annuity Account on 
May 9, 1991 as a segregated investment account under Pennsylvania law, 
and established the PLACA Life Account on June 30, 1994 as a segregated 
investment account under Delaware law. 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.
    4. The PMLIC Account is divided into twenty subaccounts. Each 
subaccount invests exclusively in shares representing an interest in a 
separate corresponding Portfolio of one of five series-type management 
companies. The assets of the PMLIC Account support variable life 
insurance Contracts, and interests in the PMLIC Account offered through 
such Contracts have been registered under the Securities Act of 1933 
(the ``1933 Act'') on Form S-6.
    5. The PMLIC Annuity Account is divided into thirty-one 
subaccounts. Each subaccount invests exclusively in shares representing 
an interest in a separate corresponding Portfolio of one of seven 
series-type management companies. The assets of the PMLIC Annuity 
Account support variable annuity Contracts, and interests in the PMLIC 
Annuity Account offered through such Contracts have been registered 
under the 1933 Act on Form N-4.
    6. The PLACA Annuity Account is divided into thirty-one 
subaccounts. Each subaccount invests exclusively in a Portfolio of one 
of seven series-type registered investment management companies. The 
assets of the PLACA

[[Page 1196]]

Annuity Account support variable annuity Contracts, and interests in 
the PLACA Annuity Account offered through such Contracts have been 
registered under the 1933 Act on Form N-4.
    7. The PLACA Annuity Account is divided into twenty-five 
subaccounts. Each subaccount invests in a Portfolio of one of six 
series-type management companies. The assets of the PLACA Life Account 
support variable life Contracts, and interests in the PLACA Life 
Account offered through such Contracts have been registered under the 
1933 Act on Form S-6.
    8. The PMLIC Annuity Account, the PMLIC Account, the PLACA Annuity 
Account and the PLACA Life Account, either directly or through their 
subaccounts, invest in shares of various investment portfolios (the 
``Portfolios''), including the Replaced Portfolio.
    9. The Contracts are modified premium and flexible premium variable 
life insurance contracts and individual flexible premium deferred 
variable annuity contracts. PMLIC issues five of the variable life 
insurance Contracts and one of the variable annuity Contracts that 
would participate in the proposed substitution. PLACA issues three of 
the variable life insurance Contracts and two variable annuity 
Contracts that would participate in the proposed substitution. The 
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. PMLIC or PLACA, 
under each of the Contracts, reserves the right to substitute shares of 
one Portfolio for shares of another, including a Portfolio of a 
different registered management investment company.
    10. Generally, the variable life insurance Contracts provide for 
twelve free transfers within one policy year, with a charge of $25 
thereafter for any additional transfer within that policy year. Some 
Contracts require a minimum transfer amount of $1,000. Another Contract 
provides for four free transfers in a minimum amount of $100.
    11. Three variable annuity Contracts provide for twelve free 
transfers within one policy year, with a charge of $25 thereafter for 
any additional transfer within that policy year. The remaining variable 
annuity Contracts provide for a minimum transfer amount of $500 with no 
limit on the number of transfers, except a limit of one transfer per 
policy year from the Guaranteed Account.
    12. VIP II was organized as a Massachusetts business trust on March 
21, 1988. VIP II is registered under the 1940 Act as an open-end 
diversified management investment company. VIP II is a series 
investment company as defined by Rule 18f-2 under the 1940 Act and 
currently comprises five portfolios. VIP II issues a separate series of 
shares of beneficial interest in connection with each portfolio and has 
registered these shares under the 1933 Act on Form N-1A. One of these 
portfolios is the Replaced Portfolio. The investment adviser, 
subadviser and distributor of the Replaced Portfolio are not affiliated 
with PMLIC or PLACA. Shares of the Replaced Portfolio are held by the 
Accounts either directly or indirectly through certain of their 
subaccounts.
    13. The Market Street Fund, Inc. (``Market Street'') was 
incorporated in Maryland on March 21, 1985. Market Street is registered 
under the 1940 Act as an open-end diversified management investment 
company. Market Street is a series investment company as defined by 
Rule 18f-2 under the Act and currently comprises eleven Portfolios. 
Market Street issues a separate series of shares in connection with 
each Portfolio and has registered these shares under the 1933 Act on 
Form N-1A. Providentmutual Investment Management Company (``PIMC''), an 
indirect subsidiary of PMLIC, serves as investment adviser to certain 
of the Market Street Portfolios.
    14. Market Street and PIMC are organizing the New Portfolio. PIMC 
will serve as the investment adviser of the New Portfolio. PIMC will 
enter into a contract with State Street Global Advisers (``State 
Street''), a division of State Street Bank and Trust Company, under 
which State Street will manage the New Portfolio as subadviser.
    15. PMLIC, on its behalf and on behalf of the PMLIC Annuity Account 
and the PMLIC Account, and PLACA, on its behalf and on behalf of the 
PLACA Annuity Account and the PLACA Life Account, propose to substitute 
shares of the New Portfolio for shares of the Replaced Portfolio. The 
Applicants believe that by making the proposed substitutions in each of 
the Accounts, they can better serve the interests of owners of their 
Contracts as described below.
    16. The Replaced Portfolio and the New Portfolio have substantially 
the same investment objective. Both are passively managed portfolios 
that seek investment results that correspond to the total return of 
common stocks publicly traded in the United States, as represented by 
the Standard & Poor's Composite Index of 500 Stocks (the ``S&P 500''). 
Both invest substantially all of their assets in the common stocks that 
are included in the S&P 500, and both attempt to minimize the 
difference (``tracking error) between their investment performance and 
the investment performance of the S&P 500. As a result of their similar 
investment objectives and policies, the Replaced Portfolio and the New 
Portfolio present substantially the same investment risk, which is the 
risk of investing in the stocks of large U.S. issuers that are included 
in the S&P 500.
    17. At least until May 1, 2001, PMLIC and PLACA intend to maintain 
the same total expense ratio for the New Portfolio as the Replaced 
Portfolio has experienced. Total expenses as a percentage of net assets 
are .28% for the Replaced Portfolio. This rate reflects a voluntary 
reimbursement by the investment adviser for total operating expenses in 
excess of .28% of average net assets. This arrangement may be 
terminated at any time. Contractual total management fees for the 
Replaced Portfolio are .24% of average net assets. Total annual 
operating expenses without reimbursements would have been .35% of 
average net assets for the fiscal year ended December 31, 1998. 
Contractual total management fees for the New Portfolio will be .24% of 
average net assets. Total annual operating expenses for the New 
Portfolio are expected to be .39% of average net assets; however, total 
expenses as a percentage of net assets for the New Portfolio will be 
.28% as the result of the reimbursement of expenses.
    18. Currently, approximately $300 million of Contract owner funds 
are allocated to the Replaced Portfolio. PMLIC and PLACA intend to 
reallocate the entire amount currently invested in the Replaced 
Portfolio, less Contract owner reallocations to other currently 
existing investment options, to the New Portfolio. The Applicants 
believe that the amount of such Contract owner reallocations will be 
insubstantial, and that the New Portfolio will have more than enough 
assets to replicate the investment structure and performance of the S&P 
500 Index.
    19. The Applicants believe that it is in the interests of Contract 
owners that PMLIC and PLACA control, to the extent practicable, the 
underlying Portfolios in which the Accounts invest. The Applicants also 
believe that Contract owners are benefited to the extent the PMLIC and 
PLACA are able to improve their efficiency in administering the 
products they offer and increase their oversight over the investment 
options that are available to Contract owners.
    20. Control, administrative efficiency and oversight are important 
to Contract

[[Page 1197]]

owners because they help ensure the quality of PMLIC's and PLACA's 
products and help reduce unnecessary costs. For example, because the 
Replaced Portfolio is available as a portfolio in other variable 
insurance products offered by unaffiliated companies, PMLIC and PLACA 
do not have nearly as much influence over matters relating to the 
Replaced Portfolio as they will have with respect to the New Portfolio. 
In particular, by being able to interact directly with Market Street's 
board of directors, PMLIC and PLACA will better be able to have 
meaningful input on matters relating to the New Portfolio, such as the 
use of particular investment techniques by the New Portfolio and the 
level of Portfolio expenses. Furthermore, the substitution of the New 
Portfolio will give PMLIC and PLACA greater ability to coordinate 
events requiring communications to Contract owners. Changes to the 
management or structure of Portfolios that are offered through the 
Contracts but are managed by firms that are unaffiliated with PMLIC or 
PLACA (such as the Replaced Portfolio) can result in costly, off-cycle 
communications and mailings to Contract owners that might otherwise be 
avoided. In addition, to the extent that the investment management of a 
Portfolio is unsatisfactory for any reason, correction of the matter is 
often less complicated and cheaper in situations where the investment 
manager of the Portfolio is affiliated with the sponsor of the Accounts 
than in situations where the investment manager is unaffiliated. In the 
latter case, regulatory approval of the substitution of another 
Portfolio may be the only available alternative.
    21. The proposed substitution will thus enhance PMLIC's and PLACA's 
ability to control both their costs and the costs of their products 
(through administrative efficiencies and the greater ability to control 
the costs of the New Portfolio), and in this way will be able to ensure 
their continued competitiveness over time. Furthermore, the proposed 
substitution will increase PMLIC's and PLACA's ability to monitor the 
investment performance of the New Portfolio (including the accuracy of 
its tracking the performance of the S&P 500), to react quickly to any 
issues that may arise in connection with the New Portfolio's operations 
and to ensure that the management of the New Portfolio is fully 
consistent with both the terms and purposes of the Contracts offered to 
customers and with the other investment options that are available 
through the Contracts.
    22. The proposed substitution reduces the possibility of conflicts 
that can arise in connection with the use of Portfolios that are used 
in ``shared'' funding arrangements by unaffiliated insurance companies.
    23. By supplements to the various prospectuses for the Contracts 
and the Accounts, all owners of the Contracts will be notified of the 
Applicants' intention to take the necessary actions, including seeking 
the order requested by the application, to substitute shares of the 
Portfolio.
    24. The supplements for the Accounts will advise Contract owners 
that from the date of the supplement until 30 days after the date of 
the proposed substitution, Contract owners are permitted to make one 
transfer of all amounts under a Contract invested in any one of the 
affected Accounts or subaccounts to another subaccount or separate 
account available under a Contract without that transfer counting as a 
``free'' transfer permitted under a Contract. The supplements also 
inform Contract owners that PMLIC and PLACA will not exercise any 
rights reserved under any Contract to impose additional restrictions on 
transfers until at least 30 days after the proposed substitution.
    25. The substitution will be effected by redeeming shares of the 
Replaced Portfolio on the date of the substitution at net asset value 
and using the proceeds to purchase shares of the New Portfolio at net 
asset value on the same date. No transfer or similar charges will be 
imposed by PMLIC or PLACA and, at all times, all contracts and policies 
will remain unchanged and fully invested.
    26. While the substitution may be effected in cash, the Applicants 
are contemplating the possibility of a redemption of the shares of the 
Replaced Portfolio partly or entirely in kind. If a redemption in kind 
is effected, the cash and securities received as payment in kind would 
then be used to purchase shares of the New Portfolio. Redemption and 
contribution in kind would reduce the brokerage costs that would 
otherwise be charged in connection with the redemption. In kind 
redemption and contribution would be done in a manner consistent with 
the investment objectives and policies and diversification requirements 
of the New Portfolio, and PIMC and the New Portfolio's subadviser would 
review the in kind redemption to assure that the assets proposed for 
the substitution are suitable for the New Portfolio. The assets subject 
to the in kind redemption and contribution would be valued based on the 
normal valuation procedures of the Replaced Portfolio and the New 
Portfolio. Any inconsistencies in valuation procedures between the 
Replaced Portfolio and the New Portfolio would be reconciled so that 
the redeeming and purchasing values are the same. It is expected that 
any inconsistencies in valuation would be minimal because both the 
Replaced Portfolio and the New Portfolio invest primarily in common 
stocks listed on the S&P 500 Composite Price Index, securities with a 
readily ascertainable market value. Both the Replaced Portfolio and the 
New Portfolio value an equity security at its last sale price before 
valuation, or if no sale price is available, at its closing bid price. 
In effecting the substitution, the redemption requests and the purchase 
orders will be placed simultaneously so that the purchases will be 
effected for the exact amounts of the redemption proceeds. Consistent 
with Rule 17a-7(d) under the 1940 Act, no brokerage commissions, fees 
(except customary transfer fees) or other remunerations would be paid 
in connection with any in kind transaction. In addition, no transfer 
fees will be borne by the Contract owners.
    27. The proposed substitution will take place at relative net asset 
value 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 Contract. Contract owners will not incur any fees or charges as 
a result of the proposed substitution, nor will their rights or PMLIC's 
or PLACA's obligations under the Contracts be altered in any way. All 
expenses incurred in connection with the proposed substitution, 
including legal, accounting and other fees and expenses, including 
brokerage expenses, will be paid by PMLIC or PLACA. 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.
    28. In addition to the prospectus supplements distributed to owners 
of Contracts, within five days after the proposed substitution, any 
Contract owners who were affected by the substitution will be sent a 
written notice informing them that the substitution was carried out and 
that for a period of 30 days following the substitution they may make 
one transfer of all account value under a Contract invested in any one 
of the affected Accounts or

[[Page 1198]]

subaccounts to another subaccount or separate account available under 
their Contract without that transfer counting as one of any limited 
number of transfers permitted in a Contract year or as one of a limited 
number of transfers permitted in a Contract year free of charge. The 
notice will also state that PMLIC and PLACA will not exercise any 
rights reserved under any of the Contracts to impose additional 
restrictions on transfers until at least 30 days after the proposed 
substitution. The notice as delivered in certain states also may 
explain that, under the insurance regulations in those states, Contract 
owners who are affected by the substitution may exchange their 
Contracts for fixed-benefit life insurance contracts or annuity 
contracts, as applicable, issued by PMLIC (or one of its affiliates) or 
PLACA (or one of its affiliates) during the 60 days following the 
proposed substitutions. The notices will be accompanied by the current 
prospectus for the New Portfolio.
    29. PMLIC and PLACA also are seeking approval of the proposed 
substitution form any state insurance regulators whose approval may be 
necessary or appropriate.

Applicants' Legal Analysis

    1. Section 26(b) of the Act requires the depositor of a registered 
unit investment trust holding the securities of a single issuer to 
receive commission approval before substituting the securities held by 
the trust. Section 26(b) was added to the Act by the Investment Company 
Amendments of 1970. 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 the high sales charges then common to most 
unit investment trusts and the disadvantage these charges created for 
investors who did not want to remain invested in the substituted fund, 
recommended that Section 26 be amended to require that a proposed 
substitution of the underlying investments of a trust receive prior 
Commission approval. Congress responded to the Commission's concerns by 
enacting Section 26(b) to require that the Commission approve all 
substitutions by the depositor of investments held by unit investment 
trusts.
    2. The proposed substitution involves substitution of securities 
within the meaning of Section 26(b) of the Act. Applicants therefore 
request an order from the Commission pursuant to Section 26(b) 
approving the proposed substitution.
    3. The Contracts expressly reserve for PMLIC or PLACA the right, 
subject to compliance with applicable law, to substitute shares of 
another investment company for shares of an investment company held by 
an Account or a subaccount of an Account. The prospectuses for the 
Contracts and the Accounts contain appropriate disclosure of this 
right. PMLIC and PLACA have each reserved this right of substitution to 
preserve the opportunity to replace such shares in situations where a 
substitution will further the mutual interests of Contract owners and 
themselves.
    4. In the present case, Contract owners will be at least as well 
off after the proposed substitution as they are today. Shares of 
Replaced Portfolio will be replaced by a portfolio with substantially 
the same investment objectives and policies and substantially the same 
expenses. Furthermore, the proposed substitution retains for Contract 
owners the investment flexibility which is a central feature of the 
Contracts. If the proposed substitution is carried out, the Contract 
owners will be permitted to allocate purchase payments and transfer 
account values between and among the same number of separate accounts 
or subaccounts as they could before the proposed substitution. Most 
importantly the proposed substitution provides the benefit of allowing 
the Applicants greater control over the management and administration 
of the Contracts and their underlying investments and reducing the risk 
of harm that can result from less control.
    5. In these respects, the proposed substitution is fully consistent 
with the policies underlying Section 26(b). 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 account values to other 
separate accounts or subaccounts without cost or other disadvantage. 
The proposed substitution will not result in the type of costly forced 
redemption which Section 26(b) was designed to prevent.
    6. The proposed substitution also is unlike the type of 
substitution which Section 26(b) 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 account values. 
They also select the specific type of insurance coverage offered by 
PMLIC or PLACA under their Contracts as well as numerous other rights 
and privileges set forth in the Contracts. Contract owners would 
reasonably have considered PMLIC's or PLACA's size, financial condition 
and reputation for service in selecting their Contracts. These factors 
will not change as a result of the proposed substitution.
    7. The Applicants 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.
    8. Section 17(a) (1) and (2) of the 1940 Act generally prohibit any 
affiliated person of a registered investment company, or an affiliated 
person of an affiliated person, from selling any security or other 
property to such registered investment company and from purchasing any 
security or other property from such registered investment company. 
PMLIC and PLACA anticipate that the proposed substitution will be 
accomplished in whole or in part by redeeming shares of the Replaced 
Portfolio in kind rather than in cash and then using the securities 
received to purchase shares of the New Portfolio.
    9. PMLIC, as depositor of the PMLIC Annuity Account and the PMLIC 
Account, effectively controls those Accounts, and therefore is an 
affiliated person of each of the PMLIC Annuity Account and the PMLIC 
Account. PLACA, as depositor of the PLACA Annuity Account and the PLACA 
Life Account, effectively controls the PLACA Annuity Account and the 
PLACA Life Account, and is therefore an affiliated person of those 
Accounts.
    10. The Accounts, PLACA and PIMC are under the common control of 
PMLIC and therefore may be deemed to be affiliated persons of one 
another. PIMC, as investment adviser to Market Street, is an affiliated 
person of Market Street.
    11. If the Applicants effect the proposed redemption and 
contribution in kind, the Accounts would receive securities upon 
redemption of shares of the Replaced Portfolio. The Accounts would then 
purchase shares of the New Portfolio from Market Street with the 
securities acquired in the redemption. The redemption and contribution 
in kind therefore involve a purchase and sale of property among parties 
which may be deemed to be affiliated persons under Section 17(a) of the 
1940 Act.
    12. Section 17(b) of the 1940 Act provides that the Commission may, 
upon application, grant an order exemption any transaction from the 
prohibitions of Section 17(a) if the

[[Page 1199]]

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 reports filed under the 1940 Act; and (3) 
the proposed transaction is consistent with the general purposes of the 
1940 Act.
    13. The Applicants submit that the terms under which any redemption 
and contribution in kind would be effected are reasonable and fair and 
do not involve overreaching on the part of any person. The Applicants 
further submit that the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of 1940 Act.
    14. If a redemption and contribution in kind is effected, each of 
PMLIC and PLACA, on behalf of its respective Accounts, would 
contemporaneously place a redemption request with the Replaced 
Portfolio and a purchase order with the New Portfolio so that each 
purchase in the New Portfolio would correlate to the amount of the 
redemption proceeds received from the Replaced Portfolio. As a result, 
at all times, monies attributable to Contract owners then invested in 
the Replaced Portfolio would remain fully invested.
    15. Furthermore, the interests of the Contract owners would not be 
diluted by the proposed transaction. The redemption and contribution in 
kind would be done at values consistent with the policies of both the 
Replaced Portfolio and the New Portfolio. In addition, PIMC and the 
proposed subadviser of the New Portfolio would review the asset 
transfers to ensure that the assets meet the objectives of the New 
Portfolio and that they are valued under the appropriate valuation 
procedures of the Replaced Portfolio and the New Portfolio. The in kind 
redemption and contribution would reduce the brokerage costs that would 
otherwise be charged in connection with the full redemption of shares 
and would conform to the provisions of rule 17a-7(d) under the 1940 
Act.
    16. The Applicants believe proposed redemption and contribution in 
kind are consistent with the general purposes of the 1940 Act and do 
not present any of the abuses that the 1940 Act was designed to 
address. The Applicants would carry out the proposed substitution and 
any redemption and purchase in kind in a manner appropriate in the 
public interest and consistent with the protection of investors. The 
Applicants submit that the proposed redemption and contribution in kind 
meets the standards the Commission and its staff have applied to 
applications for orders of exemption for similar redemptions in kind 
that have been granted in the past.
    17. The Applicants request an order of the Commission pursuant to 
Section 26(b) of the 1940 Act approving the proposed substitution by 
PMLIC and PLACA and pursuant to Section 17(b) of the 1940 Act exempting 
any related transaction involving a redemption and contribution in kind 
from Section 17(a). The proposed substitution and related transaction 
will not be completed until after both (1) the Commission has issued an 
Order granting the relief requested in this application and (2) the 
post-effective amendment to the registration statement of Market Street 
registering the New Portfolio and its shares with the Commission is 
effective.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested order meets the standards set forth in Section 26(b) of the 
1940 Act and Section 17(b) of the 1940 Act and should, therefore, be 
granted.
    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-380 Filed 1-6-00; 8:45 am]
BILLING CODE 8010-01-M