[Federal Register Volume 65, Number 68 (Friday, April 7, 2000)]
[Notices]
[Pages 18385-18390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8645]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24374; File No. 812-11888]


Alexander Hamilton Life Insurance Company of America, et al.

April 3, 2000.
AGENCY: Securities and Exchange Commission (the ``Commission'' or 
``SEC'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (the ``1940 Act'') approving a 
substitution of underlying fund shares (the ``Substitution'') and 
pursuant to Section 17(b) of the 1940 Act exempting certain in-kind 
transactions from Section 17(a) of the 1940 Act in connection with the 
Substitution.

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Summary of Application: Applicants request an order to permit certain 
registered unit investment trusts to substitute shares of the S&P 500 
Index Portfolio (the ``JPVF 500 Portfolio'') of the Jefferson Pilot 
Variable Fund, Inc. (``JPVF'') for shares of the Fidelity Index 500 
Portfolio (the ``Fidelity 500 Portfolio'') of the Fidelity Variable 
Insurance Products Fund II (``FVIPF II'') currently held by those unit 
investment trusts, and to permit certain in-kind redemptions of 
portfolio securities in connection with the Substitution.

Applicants: Alexander Hamilton Life Insurance Company of America (``AH 
Life''), Alexander Hamilton Variable Annuity Separate Account (``AH 
Separate Account''), Jefferson Pilot Financial Insurance Company 
(``Jefferson Pilot Financial''), JPF Separate Account A (``JPF Account 
A''), JPF Separate Account C (``JPF Account C''), Jefferson Pilot 
LifeAmerica Insurance Company (``JP LifeAmerica''), JPF Separate 
Account B (``JPF Account B''), Jefferson-Pilot Life Insurance Company 
(``JP Life''), Jefferson-Pilot Separate Account A (``JP Life Account 
A'') and Jefferson Pilot Investment Advisory Corporation (``Jefferson 
Pilot Advisory'')(collectively, the ``Applicants'').

Filing Date: The application was filed on December 15, 1999, and 
amended and restated on March 8, 2000.

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 should be received by the 
Commission by 5:30 p.m. on April 27, 2000, 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 notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street NW 20549-0609. Applicants: c/o Jefferson Pilot Financial 
Insurance Company, One Granite Place, Concord, New Hampshire 03301, 
Attn: Shari J. Lease, Esq.

FOR FURTHER INFORMATION CONTACT: Kevin P. McEnery, Senior Counsel, or 
Susan M. Olson, 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 is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. AH Life is a stock life insurance company organized under the 
insurance laws of the State of Michigan in 1963. AH Life commenced 
operations on October 31, 1964, and is engaged primarily in the sale of 
annuity contracts and life insurance policies. AH Life is authorized to 
write annuities and life insurance in Canada, the District of Columbia, 
and all states except New York. Jefferson Pilot is a stock life 
insurance company chartered in 1903 in Tennessee. Prior to May 1, 1998, 
Jefferson Pilot Financial was known as Chubb Life Insurance Company of 
America (``Chubb Life''). In 1991 Chubb Life redomesticated from

[[Page 18386]]

Tennessee to New Hampshire and is now a New Hampshire life insurance 
company. Jefferson Pilot Financial is engaged primarily in the sale of 
annuities and life insurance. Jefferson Pilot Financial is authorized 
to write annuities and life insurance in 49 states, Puerto Rico, the 
U.S. Virgin Islands, Guam and the District of Columbia. JP LifeAmerica 
is a stock life insurance company chartered in 1897 in New Jersey. 
Prior to May 1, 1998, JP LifeAmerica was known as Chubb Colonial Life 
Insurance Company. JP LifeAmerica is engaged primarily in the sale of 
annuities and life insurance and writes individual life contracts, as 
well as group life policies. JP LifeAmerica is licensed to sell life 
insurance in all States, Puerto Rico, the U.S. Virgin Islands, Guam and 
the District of Columbia. JP Life is a stock life insurance company 
organized under the insurance laws of North Carolina in 1890. JP Life 
is primarily engaged in the writing of whole life, term, endowment, and 
annuity policies on an individual ordinary basis, plus industrial and 
group insurance. JP Life is authorized to write annuities and other 
insurance in the Virgin Islands, Puerto Rico, the District of Columbia, 
and all States except New York. These four life insurance companies are 
referred to in the application and herein as the ``Life Company 
Applicants,'' and they are affiliated companies wholly-owned by 
Jefferson-Pilot Corporation, a North Carolina corporation.
    2. AH Separate Account is a segregated asset account of AH Life. It 
was established by AH Life pursuant to a resolution of its Board of 
Directors on January 24, 1994, in accordance with the laws of Michigan 
and is registered as a unit investment trust under the 1940 Act. AH 
Life issues certain variable annuity contracts through the AH Separate 
Account.
    3. JPF Account A was established by Jefferson Pilot Financial 
pursuant to a resolution of its Board of Directors on August 20, 1984 
in accordance with laws of New Hampshire and is registered as a unit 
investment trust under the 1940 Act. JPF Account A is used to fund 
certain variable life insurance policies issued by Jefferson Pilot 
Financial.
    4. JPF Account C is a segregated asset account of Jefferson Pilot 
Financial. It was established by Jefferson Pilot Financial pursuant to 
a resolution of its Board of Directors on August 3, 1993, in accordance 
with the laws of New Hampshire and is registered as a unit investment 
trust under the 1940 Act. JPF Account C is used to fund certain 
variable life insurance policies issued by Jefferson Pilot Financial.
    5. JPF Account B is a segregated asset account of JP LifeAmerica. 
It was established by JP LifeAmerica pursuant to a resolution of its 
Board of Directors on March 2, 1994, in accordance with the laws of New 
Jersey and is registered as a unit investment trust under the 1940 Act. 
JPF Account B is used to fund certain variable life insurance policies 
issued by JP LifeAmerica.
    6. JP Life Account A is a segregated asset account of JP Life. Its 
predecessor was established pursuant to a resolution of the Board of 
Directors of JP Life on May 13, 1969. JP Life Account A was established 
under the laws of North Carolina and is registered as a unit investment 
trust under the 1940 Act. JP Life Account A is used to fund certain 
variable annuity contracts issued by JP Life.
    7. The above described segregated asset accounts are referred to in 
the application and herein as the ``Separate Account Applicants.'' The 
variable annuity and variable life contracts issued by the Life Company 
Applicants (through the Separate Account Applicants) that would be 
affected by the Substitution are referred to in the application and 
herein as the ``Contracts.'' \1\ Each of the Contracts permits 
Contractowners to make a number of transfers between and among the sub-
accounts of the respective Separate Account Applicant per contract or 
policy year and does not impose a transfer fee or charge on a number of 
such transfers.
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    \1\ JP Life, through JP Life Account A, issued two forms of 
individual flexible payment variable annuity contracts (the ``Alpha 
Contracts''). Applicants represent that the Alpha Contracts are not 
currently being offered and that JP Life Account A does not file 
updated post-effective amendments consistent with the terms and 
conditions of relevant SEC no-action precedent. See, e.g., Great-
West Life & Annuity and Insurance Company (pub. avail. Oct. 23, 
1990) (``Great-West''). Applicants state that in reliance on such 
precedent, certain information about the Alpha Contracts, JP Life 
Account A, and JPVF is provided to Alpha Contractowners in lieu of 
filing post-effective amendments to the registration statements 
relating to the Alpha Contracts or delivering updated Contract 
prospectuses to those Contractowners.
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    8. Jefferson Pilot Advisory (formerly, Chubb Investment Advisory 
Corporation) is the investment adviser to the Jefferson Pilot Variable 
Fund, Inc. (``JPVF''), which is registered as an open-end management 
investment company under the 1940 Act and which was incorporated in 
Maryland on October 19, 1984, and each of its portfolios. One of these 
portfolios is the S&P 500 Index Portfolio (the ``JPVF 500 Portfolio''). 
Jefferson Pilot Advisory is a corporation organized under the laws of 
Tennessee in 1984 and is registered as an investment adviser under the 
Investment Advisers Act of 1940. Jefferson Pilot Advisory is a wholly-
owned subsidiary of Jefferson-Pilot Corporation. Jefferson Pilot 
Advisory has obtained an SEC order granting relief from Section 15(a) 
of the 1940 Act and certain other provisions (the ``JPVF Order'') 
permitting it to manage JPVF's portfolios pursuant to a ``manager-of-
managers'' arrangement.\2\ Pursuant to the JPVF Order, Jefferson Pilot 
Advisory may, subject to certain conditions, including approval of the 
Board of JPVF, and without the approval of shareholders, (a) employ a 
new sub-adviser or sub-advisers for any portfolio of JPVF pursuant to 
terms of a new investment advisory agreement, in each case either as a 
replacement for an existing sub-adviser or as an additional sub-
adviser; (b) change the terms of any investment advisory agreement 
pertaining to a sub-adviser; and (c) continue the employment of an 
existing sub-adviser on the same contract terms where a contract has 
been assigned because of a change of control of the sub-adviser. In 
such circumstances, Contractowners would receive notice of any such 
action, including information concerning any new sub-adviser that 
normally is provided in proxy materials.
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    \2\ In the Matter of Jefferson Pilot Variable Fund, Inc. and 
Jefferson Pilot Advisory Corporation, Investment Company Act Rel. 
Nos. 23301 (July 1, 1998) (Order) and 23242 (June 5, 1998) (Notice). 
Applicants state that, because the JPVF 500 Portfolio is a series of 
JPVF, it will be entitled to rely on the JPVF Order. As a condition 
to the application, Applicants state that they will take no action 
in reliance on the JPVF Order with respect to the JPVF 500 Portfolio 
unless and until the operation of the Portfolio in the manner 
contemplated by the JPVF Order is approved, following the 
Substitution, by the holders of a ``majority of the outstanding 
voting securities'' of the Portfolio within the meaning of the 1940 
Act.
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    9. The Fidelity Index 500 Portfolio (``Fidelity 500 Portfolio'' or 
the ``Replaced Fund'') is a series of the Fidelity Variable Insurance 
Products Fund II (``FVIPF II''), an open-end management investment 
company established as a Massachusetts business trust under a 
Declaration of Trust dated March 21, 1988. Shares of the Fidelity 500 
Portfolio are currently available only through the purchase of variable 
annuity and variable life insurance contracts and through certain tax 
qualified retirement plans. Fidelity Management & Research Company 
(``FMR'') acts as the Fidelity 500 Portfolio's investment adviser and 
has retained Bankers Trust Company (``BTC'') to serve as sub-adviser to 
the Fidelity 500 Portfolio. The Fidelity 500 Portfolio is an investment 
option under each of the Contracts.

[[Page 18387]]

    10. Applicants state that the Fidelity 500 Portfolio seeks 
investment results that correspond to the total return of common stocks 
publicly traded in the United States as represented by the Standard & 
Poor's 500 Composite Stock Price Index (`S&P 500 Index''). Under normal 
circumstances, the Fidelity 500 Portfolio intends to invest at least 
80% of its assets in common stocks included in the S&P 500 Index. The 
Fidelity 500 Portfolio seeks to achieve a 98% or better correlation 
between its total return, before fees and expenses, and the total 
return of the S&P 500 Index.
    11. Applicants state that the JPVF 500 Portfolio was established 
pursuant to a resolution of the JPVF's Board of Directors at a Board 
meeting held on February 7, 2000. Applicants represent that JPVF filed 
a post-effective amendment to its registration statement on February 
16, 2000 to register shares of the JPVF 500 Portfolio. The Substitution 
proposed by the application cannot go forward unless and until the 
post-effective amendment relating to JPVF 500 Portfolio's shares 
becomes effective. Upon such effectiveness, shares of JPVF 500 
Portfolio will be offered only to corresponding sub-accounts of 
separate accounts established by the Life Company Applicants and in the 
future may be offered to other insurance companies, including insurance 
companies that are not affiliated with the Life Company Applicants. 
Jefferson Pilot Advisory will serve as investment manager of the JPVF 
500 Portfolio and will retain Barclays Global Investors (`Barclays'') 
to act as sub-adviser to the JPVF 500 Portfolio.
    12. As disclosed in the post-effective amendment, the JPVF 500 
Portfolio's investment objective is to seek to approximate as closely 
as practicable, before fees and expenses, the total rate of return of 
common stock publicly traded in the United States, as represented by 
the S&P 500 Index. The JPVF 500 Portfolio will pursue its objective by 
investing in all the securities that make up the S&P 500 Index and by 
investing in these securities in proportions that match their index 
weights, although the Portfolio reserves the right not to invest in 
every security in the S&P 500 Index if it is not practical to do so 
under the circumstances. The JPVF 500 Portfolio may also invest in 
stock index futures as a substitute for a comparable market position in 
the securities underlying the S&P 500 Index.
    13. Applicants represent that the fees of the Fidelity 500 
Portfolio were as follows. There is an annual management fee of .24%, 
and operating expenses for the fiscal year ending December 31, 1998 
were .11%. Applicants state that since the Fidelity 500 Portfolio is 
subject to an expense cap of .28%, 07% of such expenses were reimbursed 
and shareholders were assessed annual fees of .28% for that fiscal 
year. The Fidelity 500 Portfolio's expense cap is a non-contractual 
voluntary cap which may be terminated at any time. Applicants represent 
that, as to the JPVF 500 Portfolio, like the Fidelity 500 Portfolio, 
there will be an annual management fee of .24%. Annual operating 
expenses are anticipated to be .10%. Like the Fidelity 500 Portfolio, 
the JPVF 500 Portfolio will also be subject to an expense cap of .28%. 
Therefore, Jefferson Pilot Advisory would reimburse the JPVF 500 
Portfolio .06% of its expenses to maintain annual expenses at no 
greater than .28%. Like the Fidelity 500 Portfolio's expense cap, the 
JPVF 500 Portfolio's expense cap will be a non-contractual voluntary 
cap which can be terminated at any time. However, Applicant Jefferson 
Pilot Advisory has represented that it will waive investment management 
fees and reimburse expenses to the extent necessary to keep annual fees 
of the JPVF 500 Portfolio from exceeding .28% of the average daily net 
assets through April 30, 2001.
    14. Applicants represent that, as of June 30, 1999, the Fidelity 
500 Portfolio had assets of approximately $8.3 billion. Since the JPVF 
500 Portfolio will be a newly organized fund, it presently does not 
have any assets and will not have any assets prior to the Substitution. 
Applicants further represent that they anticipate, based on current 
figures, that $150 million in assets attributable to the Contracts 
would be invested in the Replacement Fund upon the consummation of the 
Substitution. Jefferson Pilot Advisory and Barclays have determined 
that the assets that will initially comprise the JPVF 500 Portfolio 
(whether redemptions are effected for cash and/or portfolio securities) 
upon consummation of the Substitution are entirely sufficient for 
purposes of meeting the JPVF 500 Portfolio's objectives and that the 
JPVF 500 Portfolio will not be disadvantaged in any way by virtue of 
its smaller initial asset base as compared with the present asset base 
of the Fidelity 500 Portfolio.
    15. Applicants represent that Barclays presently manages a publicly 
available S&P 500 fund called the Barclays Global Investors S&P 500 
Fund (``Barclays S&P 500 Fund''), a series of Barclays Global Investors 
fund, Inc., that has assets of approximately $2.6 billion as of August 
31, 1999. The Barclays S&P 500 Fund seeks to approximate as closely as 
practicable, before fees and expenses, the capitalization-weighted 
total return of the S&P 500 Index. The Barlcays S&P 500 Fund pursues 
its objectives by investing in all the securities that make up the S&P 
500 Index and by investing in these securities in proportions that 
match their index weights. The Barclays S&P 500 Fund seeks to come 
within 95% of the total return of the S&P 500 Index, before fees and 
expenses, in falling as well as rising markets and does not seek to 
``beat'' the market and does not seek temporary defensive positions 
when markets appear overvalued. It is anticipated that Barclays would 
``bunch'' orders for the purchase and sale of securities for the JPVF 
500 Portfolio with the publicly available Barclays S&P 500 Fund under 
appropriate circumstances, and subject to any regulatory requirements. 
Accordingly, the asset base of the publicly available Barclays S&P 500 
Fund managed by Barclays will afford the JPVF 500 Portfolio certain 
economies of scale and other tangible benefits.
    16. Applicants state that the prospectuses by which the Contracts 
were offered reserve to the respective Life Company Applicants the 
right to replace the shares of any underlying registered investment 
company held by the applicable Separate Account Applicant with shares 
of another registered investment company, provided any such 
substitution is approved by the SEC to the extent required by 
applicable law.
    17. The Life Company Applicants propose to redeem all of the shares 
of the Fidelity 500 Portfolio they currently hold on behalf of the 
Separate Account Applicants at the close of business on the effective 
date of the Substitution. Applicants state that, in connection with 
such redemptions and the purchase of portfolio securities by the JPVF 
500 Portfolio, the Fidelity 500 and JPVF 500 Portfolios would normally 
incur brokerage costs as the Fidelity 500 Portfolio would have to 
dispose of portfolio securities to satisfy redemption requests and the 
JPVF 500 Portfolio would have to purchase securities with the 
redemption proceeds. In order that such costs can be avoided, the 
redemption of shares of the Fidelity 500 Portfolio may be effected in 
whole or in part for portfolio securities (i.e., ``in-kind'' 
redemptions). Applicants state that to this end, at the effective date 
of the Substitution, the Fidelity 500 Portfolio will transfer to the 
Separate Account Applicants portfolio securities held by the Fidelity 
500 Portfolio, and the Separate Account Applicants will purchase shares 
of the JPVF 500

[[Page 18388]]

Portfolio with these portfolio securities. Applicants represent that in 
connection with the proposed in-kind redemption transactions, the JPVF 
500 Portfolio and the Separate Account Applicants will comply with the 
requirements of Rule 17a-7 under the 1940 Act and pertinent SEC no 
action letters and the procedures JPVF and the Separate Account 
Applicants have established thereunder.\3\ Applicants state that, in 
view of the identity of investment objectives and policies of both 
Portfolios and the above noted cost savings anticipated to be derived 
from in-kind redemption transactions, they have determined such 
transactions would be appropriate. Applicants state that the valuation 
of any in-kind redemptions will be made on a basis consistent with the 
normal valuation procedures of the Fidelity 500 Portfolio and the 
normal valuation procedures of the JPVF 500 Portfolio, as provided in 
those Portfolios' established valuation procedures. Applicants state 
that it is presently anticipated that 100% of the redemption orders of 
the Separate Account Applicants will be effected on an in-kind basis, 
and, thus, there will be no brokerage costs. To the extent that the 
Substitution requires the purchase of portfolio securities, the Life 
Company Applicants and/or Jefferson Pilot Advisory will pay the related 
brokerage costs.
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    \3\ As here applicable, Rule 17a-7 exempts transactions between 
registered investment companies or separate series of registered 
investment companies from Section 17(a) of the 1940 Act, provided 
the conditions specified in that Rule are met. Applicants cannot 
literally comply with the terms of Rule 17a-17 because paragraph (a) 
thereof requires that the transaction be ``for no consideration 
other than cash,'' whereas the subject transactions will involve the 
use of portfolio securities as consideration. However, the SEC Staff 
has granted several no-action letters under similar circumstances. 
See, e.g., Federated Investors (pub avail. April 21, 1994); Trust 
Funds Institutional Managers Trust (pub. avail. July 20, 1988); 
Metropolitan Series Fund, Inc. (pub. avail Aug. 29, 1986).
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    18. Applicants state that in all cases, the Life Company Applicants 
on behalf of their respective Separate Account Applicants will 
simultaneously place redemption requests with the Fidelity 500 
Portfolio and purchase orders with the JPVF 500 Portfolio so that 
purchases will be for the exact amount of the redemption proceeds. As a 
result, at all times, monies attributable to Contractowners who have 
allocated value to the Fidelity 500 Portfolio will remain fully 
invested.
    19. Applicants represent that the full net asset value of the 
redeemed shares held by the Separate Account Applicants will be 
reflected in Contractowners' accumulation unit or annuity unit values 
following the Substitution. The Life Company Applicants represent that 
they will assume all transaction costs and expenses relating to the 
Substitution.
    20. The Life Company Applicants have determined, for reasons based 
upon administrative, economic and marketing concerns, to use a 
proprietary mutual fund to serve as the S&P 500 fund that will serve as 
an underlying investment option for the Contracts, as well as other 
variable life and variable annuity contracts which they may offer in 
the future. Applicants state that the proposed Substitution will allow 
the Life Company Applicants to maintain a greater proprietary identity 
between their variable products and the S&P 500 investment option, 
which historically has been one of the most popular investment options 
among Contractowners. The proposed Substitution will afford the Life 
Company Applicants greater control with respect to administrative and 
compliance issues over this investment option and afford Jefferson 
Pilot Advisory the ability to make sub-adviser changes when necessary 
or appropriate as consistent with the above-noted manager-of-managers 
arrangement, subject to the conditions as set forth in the application.
    21. Applicants also believe that Jefferson Pilot Advisory, as an 
affiliate of each Life Company Applicants, will have greater incentive 
to provide superior shareholder services to Contractowners. 
Correspondingly, the Life Company Applicants will have greater 
opportunity to contribute to and review the adequacy of the services 
being provided in connection with this investment option. Given the 
relative simplicity involved in managing an S&P 500 fund, Applicants 
believe that when comparing two S&P 500 funds which have the same fee 
structures and which are managed by experienced and suitable investment 
advisers, the difference between the respective funds lies mainly in 
the nature and quality of the non-advisory services provided by 
management of the respective funds. In this regard, Applicants believe 
Contractowners will be better served if the S&P 500 fund becomes a 
proprietary fund.
    22. Applicants state that their desire to effect the Substitution 
also relates, in part, to BTC's role as sub-adviser to the Fidelity 500 
Portfolio. Applicants represent that BTC has recently experienced 
turnover of portfolio management personnel which included the departure 
of the team which managed the Fidelity 500 Portfolio. Applicants 
believe that these events are the kind of events that can be better 
managed for the benefit of Contractowners by including the JPVF 500 
Portfolio in the funds over which Jefferson Pilot Advisory has overall 
management authority. Applicants further represent BTC recently 
encountered certain compliance problems that will require a permanent 
order to exemption issued by the SEC under Section 9(c) of the 1940 Act 
to permit it to continue to serve as an investment adviser to 
registered mutual funds. Applicants state that the substance of these 
compliance problems presently must be disclosed in the Fidelity 500 
Portfolio's prospectus and will continue to be disclosed therein in the 
future. The Life Company Applicants find this type of disclosure to be 
troubling in connection with underlying mutual funds that serve as 
investment vehicles for their products.
    23. Applicants represent that each of the Life Company Applicants 
supplemented the prospectus for its applicable Separate Account 
Applicant at the time of filing of the original application to reflect 
the proposed Substitution and its essential terms and mailed such 
supplement to Contractowners at that time. The supplement informed 
Contractowners (among other things) that they have the right to 
transfer amounts allocated to the Fidelity 500 Portfolio to any other 
investment option available under the Contracts at any time prior to 
the Substitution, and for a period of 31 days after the Substitution, 
and that any such transfer would not count toward the number of free 
transfers permitted in a Contract year. Within five (5) days after the 
Substitution, the Life Company Applicants will send to their respective 
Contractowners a written notice (``Notice'') of the Substitution, 
identifying the shares of the Replaced Fund that have been eliminated 
and the shares of the Replacement Fund that have been substituted and 
other relevant information. The Applicants will include in such mailing 
the prospectus for the Replacement Fund and the applicable revised 
prospectus or supplement for the Contracts describing the Substitution.
    24. Contractowners will be advised in the Notice that for a period 
of thirty-one (31) days from the mailing of the Notice, Contractowners 
may transfer any substituted assets to any other sub-account available 
under their Contracts without limitation or charge and without any such 
transfer counting as one of the free transfers permitted per

[[Page 18389]]

Contract year (the ``Free Transfer Period'').\4\
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    \4\ Applicants state that they have sent and will continue to 
send to Alpha Contractowners all relevant information about the 
proposed Substitution in accordance with the terms of Great-West. 
Applicants further state that the substance of the disclosures about 
the Substitution that they have made or will make to Alpha 
Contractowners was or will be essentially identical to the 
disclosures about the Substitution that have already been made or 
will be made to all other affected Contractowners. Applicants state 
that certain of these disclosures have already been delivered and 
that all such further disclosures will be sent at approximately the 
same time to owners of Alpha Contracts as to all other affected 
Contractowners.
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    25. Prior to effecting the Substitution, Applicants state that they 
will have satisfied themselves, based on advice of counsel familiar 
with insurance laws, that the Contracts allow the Substitution as 
described in the application, and that the transactions can be 
consummated as described therein under applicable insurance laws and 
under the Contracts.
    26. Applicants further state that, prior to effecting the 
Substitution, they will have complied with any regulatory requirements 
they believe are necessary to complete the transactions in each 
jurisdiction where the Contracts are qualified for sale.

Applicants' Legal Analysis

    1. Section 26(b) of the 1940 Act provides that ``[i]t shall be 
unlawful for any depositor or trustee of a registered unit investment 
trust holding the security of a single issuer to substitute another 
security for such security unless the [SEC] shall have approved such 
substitution.'' Section 26(b) of the 1940 Act was enacted as part of 
the Investment Company Act Amendments of 1970. Prior to the enactment 
of these 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 (5) days after 
the substitution. In 1966, the SEC, concerned with the high sales 
charges then common to most unit investment trusts and the 
disadvantageous position in which such charges placed investors who did 
not want to remain invested in the substituted security, recommended 
that Section 26 be amended to require that a proposed substitution of 
the underlying investments of a trust receive prior SEC approval. 
Congress responded to the SEC'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. As the legislative 
history makes clear, Congress intended Section 26(b) to provide SEC 
scrutiny of proposed substitutions which could otherwise, 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 purchase payments, an additional sales load 
upon reinvestment of the proceeds of redemption, or both.
    2. Applicants submit that the purposes, terms, and conditions of 
the Substitution are consistent with the principles and purposes of 
Section 26(b) and do not entail any of the abuses that Section 26(b) is 
designed to prevent. Applicants assert that, simply put, Contractowners 
will be assessed no charges whatsoever in connection with the 
Substitution and their annual fund level charges will not increase. In 
addition, to the extent a Contractowner does not wish to participate in 
the Substitution, he or she is free to transfer to any other option 
available under the relevant Contract prior to the Substitution and 
after the Substitution during the Free Transfer Period, without such 
transfer counting toward the number of free transfers permitted per 
year under a Contract. Applicants assert that Contractowners will be 
substituted into a fund whose investment objectives, policies and 
expenses are substantially identical in all material respects to those 
of the Replaced Fund. Finally, Applicants have concluded that it would 
be appropriate and in the best interests of Contractowners to have a 
proprietary S&P 500 mutual fund underlying their variable products.
    3. Applicants submit that the Substitution presents none of the 
harms that Section 26(b) was intended to guard against and is 
consistent with the protection of investors and the purposes fairly 
intended by the 1940 Act for the following reasons:
    (1) the Replacement Fund has objectives, policies, and restrictions 
substantially identical in all material respects to the objectives, 
policies, and restrictions of the Replaced Fund so as to continue to 
fulfill the Contractowners' objectives and risk expectations;
    (2) after receipt of the Notice informing a Contractowner of the 
Substitution, a Contractowner may request that his or her assets be 
reallocated to another subaccount at any time during the Free Transfer 
Period. The Free Transfer Period provides sufficient time for 
Contractowners to consider their reinvestment options;
    (3) the Substitution will be at net asset value of the respective 
shares, without the imposition of any transfer or similar charge;
    (4) the Life Company Applicants have undertaken to assume all 
expenses and transaction costs (or ensure that an affiliate assumes 
such expenses and costs), in connection with the Substitution;
    (5) the Substitution will in no way alter the contractual 
obligations of the Life Company Applicants or the rights and privileges 
of Contractowners under the Contracts;
    (6) Applicants anticipate that the JPVF 500 Portfolio will seek to 
rely upon the JPVF Order. Applicants will take no action in reliance on 
the JPVF Order with respect to JPVF 500 Portfolio unless and until the 
operation of JPVF 500 Portfolio in the manner contemplated by the JPVF 
Order, is approved by the holders of a majority of the outstanding 
voting securities of JPVF 500 Portfolio within the meaning of the 1940 
Act, by vote obtained following the Substitution in a manner consistent 
with all outstanding relief granted by the SEC;
    (7) the Substitution will in no way alter the tax benefits to 
Contractowners;
    (8) Contractowners will not incur any fees or charges as a result 
of the proposed Substitution, nor will the Contractowners' rights or 
the Life Company Applicants' obligations under the Contracts be altered 
in any way. The Life Company Applicants will bear all expenses incurred 
in connection with the proposed Substitution and related filings and 
notices, including legal, accounting, and other fees and expenses. The 
proposed Substitution will not cause Contract fees and charges 
currently being paid by existing Contractowners to be greater after the 
proposed Substitution than before the proposed Substitution; and
    (9) Contractowners may withdraw amounts under the Contracts or 
terminate their interest in a Contract, under the conditions that 
currently exist, including payment of any applicable withdrawal or 
surrender charge.
    4. Applicants maintain that the Replacement Fund and the Replaced 
Fund will have investment objectives and policies that are 
substantially the same in all material respects. Accordingly, Life 
Company Applicants have specifically made the determination that the 
Replacement fund is a suitable and appropriate investment vehicle for 
Contractowners who have allocated value to the Replaced Fund and that 
the Substitution will be consistent with Contractowners' investment 
expectations.
    5. Applicants assert that the fees and expenses of the Replacement 
Fund will be equal to (or less than) those of the Replaced Fund and 
that the Replacement Fund will receive comparable (or better) overall 
services.

[[Page 18390]]

Accordingly, Applicants argue that the proposed Substitution poses no 
concerns in connection with the fees and expenses that will arise 
therefrom.
    6. Applicants state that the prospectuses by which the Contracts 
were offered reserve to the respective Life Company Applicants the 
right to replace the shares of any underlying registered investment 
company held by the applicable Separate Account Applicant with shares 
of another registered investment company, provided any such 
substitution is approved by the SEC to the extent required by 
applicable law.
    7. Applicants submit that, for all the reasons stated in the 
application, that their request for approval meets the standard set 
forth in Section 26(b) of the 1940 Act and is consistent with 
applicable precedent and should, therefore, be granted.
    8. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or an affiliated person of such an 
affiliated person, from selling any security or other property to such 
registered investment company. Section 17(a)(2) of the 1940 Act 
prohibits any of the persons described above from purchasing any 
security or other property from such registered investment company.
    9. Applicants state that the proposed transactions first involve a 
transfer of portfolio securities by the Fidelity 500 Portfolio to the 
Separate Account Applicants; immediately thereafter, the Separate 
Account Applicants purchase shares of the JPVF 500 Portfolio with the 
portfolio securities received from the Fidelity 500 Portfolio. Since 
the Separate Account Applicants and the JPVF 500 Portfolio could be 
affiliated persons under Section 2(a)(3)(C) of the 1940 Act due to 
their common control, Applicants submit that this aspect of the 
Substitution could be prohibited by Section 17(a). Accordingly, 
Applicants believe that it is prudent to seek relief from Section 
17(a).
    10. Section 17(b) of the 1940 Act provides that the SEC may grant 
an order exempting transactions prohibited by Section 17(a) of the 1940 
Act upon application if 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 investment 
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.
    11. Applicants represent that the terms of the proposed 
transactions: Are reasonable and fair, including the consideration to 
be paid and received; do not involved overreaching; are consistent with 
the policies of the affected registered investment companies; and are 
consistent with the general purposes of the 1940 Act.
    12. Applicants maintain that the Substitution transactions, 
including the redemption of the Fidelity 500 Portfolio shares on an in-
kind basis and the purchase of the JPVF 500 Portfolio shares, will be 
effected in conformity with Section 22(c) of the 1940 Act and Rule 22c-
1 thereunder. Applicants also maintain that Contractowners will not 
incur any fees or charges as a result of the transfer of account 
values. Contractowners' rights and privileges under the Contracts and 
the Life Company Applicants' obligations thereunder will not be 
affected by the Substitution. Applicants assert that the Substitution 
will not increase Contract or separate account fees and charges after 
the Substitution. Expenses incurred in connection with the 
Substitution, including legal, accounting and other expenses, will not 
be borne by Contractowners. Contract values will remain unchanged and 
fully invested following the consummation of the Substitution. 
Accordingly, Applicants represent that Contractowner interests after 
the Substitution, in practical economic terms, will not differ in any 
measurable way from such interests immediately prior to the 
Substitution. Applicants asserts that in each case, the consideration 
to be received and paid is, therefore, reasonable and fair.
    13. Applicants assert that the investment objectives and policies 
of the JPVF 500 Portfolio are substantially similar to the investment 
objectives and policies of the Fidelity 500 Portfolio. Applicants 
maintain that, in this regard, the Substitution is consistent with the 
findings required under Section 17(b) of the 1940 Act.
    14. Applicants assert that the proposed Substitution is consistent 
with the general purposes of the 1940 Act and that the proposed 
transactions do not present any of the issues or abuses that the 1940 
Act is designed to prevent.
    15. Applicants submit that the proposed in-kind redemption 
transactions meet all of the requirements of Section 17(b) of the 1940 
Act and that their request for an order pursuant to that section 
exempting the transactions from the provisions of Section 17(a) of the 
1940 Act, to the extent necessary, should be granted.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the substitutions and related in-kind 
transactions should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-8645 Filed 4-6-00; 8:45 am]
BILLING CODE 8010-01-M