[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Notices]
[Pages 20219-20225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9398]



[[Page 20219]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24387; File No. 812-11910]


The Penn Mutual Life Insurance Company, et al.; Notice of 
Application

April 11, 2000.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940, as amended (the ``1940 Act'') 
approving certain substitutions of securities, and pursuant to Section 
17(b) of the 1940 Act exempting related transactions from Section 17(a) 
of the 1940 Act.

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    Summary of Application: Applicants request an order approving the 
substitutions of shares of four new investment portfolios (``New 
Funds'') of Penn Series Funds, Inc. (``Penn Series'') for shares of 
certain unaffiliated registered management investment companies 
(``Replaced Funds'') currently serving as investment options for 
certain variable annuity contracts and variable life insurance 
policies, and to permit certain in-kind redemptions of portfolio 
securities in connection with the substitutes (``Substitutions'').
    Applicants: The Penn Mutual Life Insurance Company (``Penn Mutual 
Life''), The Penn Annuity and Insurance Company (``PIA''), Penn Mutual 
Variable Annuity Account III (``Variable Annuity Account III''), Penn 
Mutual Variable Life Account I (``Variable Life Account I''), PIA 
Variable Annuity Account I (``Variable Annuity Account I,'' and 
together with Variable Annuity Account III and Variable Life Account I, 
``the Separate Accounts''), and Independence Capital Management, Inc. 
(``ICMI'') (collectively, ``Applicants'').
    Filing Date: The application was filed on December 23, 1999, and 
amended and restated on April 10, 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 May 1, 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, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609. Applicants: Franklin L. Best, Esq., Managing Corporate 
Director, The Penn Mutual Life Insurance Company, 600 Dresher Road, 
Horsham, PA 19044. Copies to C. Ronald Rubley, Esq., 1701 Market 
Street, Philadelphia, PA 19103 and Edward J. Meehan, Jr., Esq., 1701 
Market Street, Philadelphia, PA 19103.

FOR FURTHER INFORMATION CONTACT: Paul G. Cellupica, 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 is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549-0102 (202-942-8090).

Applicants' Representations

    1. Penn Mutual Life is a mutual life insurance company organized 
under the laws of Pennsylvania in 1847. It provides life insurance, 
annuity, and investment products. PIA, a wholly owned subsidiary of 
Penn Mutual Life, is a Delaware stock insurance company established in 
1994.
    2. Variable Annuity Account I, sponsored by PIA, is registered 
under the 1940 Act as a unit investment trust. Variable Annuity Account 
I serves as a funding vehicle for variable annuity contracts issued by 
PIA. Variable Annuity Account III, sponsored by Penn Mutual Life, is a 
unit investment trust registered under the 1940 Act. Variable Annuity 
Account III serves as a funding vehicle for variable annuity contracts 
issued by Penn Mutual Life. Variable Life Account I, sponsored by Penn 
Mutual Life, is a unit investment trust registered under the 1940 Act. 
Variable Life Account III serves as a funding vehicle for variable life 
insurance contracts issued by Penn Mutual Life.
    3. Variable Annuity Account I and Variable Annuity Account III 
serves as the funding vehicle for variable annuity contracts (``VA 
Contracts'') issued by Penn Mutual Life and PIA. Variable Life Account 
I serves as the funding vehicle for variable universal life contracts 
(``VUL Contracts'') issued by Penn Mutual Life. Each of the VA 
Contracts and VUL Contracts funded by the Separate Accounts 
(collectively, ``Variable Products'') is registered with the Commission 
under the Securities Act of 1933, as amended, and is offered 
exclusively by means of a prospectus which describes the applicable 
terms and conditions of each such contract. The Separate Accounts are 
each divided into subaccounts (each a ``Subaccount'') and each 
Subaccount invests exclusively in shares of funds of registered 
management investment companies (``Existing Funds'') currently 
available to the holders of the contracts (``Contractholders''.
    4. The Existing funds consists of 18 separate investment options, 
which contain certain investment portfolios issued by Penn Series, 
Neuberger Berman Advisers Management Trust (``Neuberger & Berman 
Portfolios''), Variable Insurance Products Fund and Variable Insurance 
Products Fund II (``Fidelity Portfolios''), American Century Variable 
Portfolios Inc. (``American Century Portfolio'') and Morgan Stanley 
Dean Witter Universal Funds, Inc. (``Morgan Stanley Portfolio''). Each 
of the Existing Funds is registered as a management investment company 
under the 1940 Act. Not all of the Existing Funds are involved in the 
Substitutions. The application contemplates that the American Century 
Portfolio, two of the three Neuberger & Berman Portfolios and one of 
the four Fidelity Portfolios will be replaced by substantially similar 
funds.
    5. Penn Series is registered under the 1940 Act as an open-end 
investment management series. Currently, Penn Series has nine 
investment portfolios (``Current Penn Funds''). Shares of the Current 
Penn Funds are offered only to Penn Mutual Life and PIA (Penn Mutual 
Life and PIA hereinafter referred to collectively as ``Penn Mutual'') 
for the Variable Products.
    6. ICMI, a wholly owned subsidiary of Penn Mutual Life, is a 
registered investment adviser under the Investment Advisers Act of 
1940. ICMI provides investment management services to each of the 
Current Penn Funds.
    7. Penn Series is organizing four New Funds. Each of the New Funds 
will have the same or substantially the same investment objectives and 
policies of one of the Replaced Funds involved in the Substitutions. 
Overall investment management services will be provided to each of the 
newly organized New Funds by ICMI pursuant to an investment advisory 
agreement between ICMI and Penn Series (``ICMI Advisory Agreement''). 
Under the ICMI Advisory Agreement, ICMI will be responsible for the 
management of the business and affairs of each of the New Funds, 
subject to the supervision of the Board of Directors of Penn Series. 
ICMI will also

[[Page 20220]]

be authorized to exercise full investment discretion and make all 
determinations with respect to the investment of the assets of the 
respective New Funds, but may, at its own cost and expense, retain sub-
advisers (``Sub-Advisers'') to provide day-to-day portfolio management 
to each of the New Funds. For its services under the ICMI Advisory 
Agreement, ICMI will receive a fee from each of the New Funds. ICMI, in 
turn, will pay the fees and expenses of any Sub-Adivser retained by 
ICMI or any of the New Funds. It is currently anticipated that ICMI 
will employ Sub-Advisers for three of the New Funds and directly manage 
the assets of the fourth New Fund.
    8. Penn Series and ICMI have applied for exemptive relief from 
Section 15(a) of the 1940 Act (``Manager of Managers Order''). The 
Manager of Managers Order would permit ICMI, as the investment adviser 
for the existing series of Penn 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. Following the 
Substitutions, Applicants anticipate that each of the New Funds will be 
entitled to rely on the Manager of Managers Order. As a condition to 
the application, however, Applicants state that they will take no 
action in reliance on the Manager of Managers Order with respect to any 
one of the New Funds unless and until the operation of that Fund in the 
manner contemplated by the Manager of Managers Order is approved, 
following the Substitutions, by the holders of a majority of the 
outstanding shares of that Fund within the meaning of the 1940 Act.
    9. The purpose of the Substitutions is to provide Contractholders 
with improved investment options through enhanced investment 
performance and reduced expense ratios of investment options available 
under the Variable Products. The Substitutions are the first step in 
establishing a manager of managers structure that will provide 
Applicants with increased ability to affect the administration and 
management of the investment options offered through Variable Products. 
As the investment manager of each of the New Funds, ICMI will be in a 
position to oversee the operations of the New Funds, including the 
performance and portfolio management. Applicants represent that the 
manager of managers structure will give Applicants the means to more 
directly monitor the overall manner in which investment options 
available through the Variable Products are managed and administered.
    10. Applicants seek relief for four Substitutions. The following 
table summarizes the proposed Substitutions. The investment objectives 
of Contractholders with interests in any Subaccount of the Separate 
Account (``Affected Contractholder'') will not be materially affected 
by the Substitutions.

BILLING CODE 8010-01-M

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[GRAPHIC] [TIFF OMITTED] TN14AP00.005

    11. Applicants represent that the investment objectives of each New 
Fund will be the same as, or substantially similar to, the investment 
objectives of the corresponding fund that the New Fund will replace. 
The investment strategies and policies of the Penn Series Limited 
Maturity Bond Fund and the Penn Series Index 500 Fund will be 
substantially the same or substantially similar to the investment 
strategies and policies of the Neuberger Berman Limited Maturity Bond 
Portfolio and the Fidelity Investments' Index 500 Portfolio. The 
investment strategies and policies of the Penn Series Mid Cap Value 
Fund and the Penn Series Mid Cap Growth Fund may differ from the 
investment strategies and policies of Neuberger Berman Partners Fund 
and the American Century Capital Appreciation Portfolio respectively. 
However, the investment strategies and policies of these New Funds will 
be sufficiently similar to their corresponding Replaced Funds so that 
the Affected Contractholders may continue to seek to achieve their 
investment objectives in the substituted funds.
    12. In Substitution No. 1, ICMI will serve as investment adviser 
and Neuberger Berman Investment Management Inc. (``Neuberger Berman'') 
will continue day-to-day portfolio management as Sub-Adviser to the New 
Fund. In Substitutions Nos. 2, 3, and 4, the New Fund will, following 
the substitutions, be advised by investment advisory organizations 
different from the organizations that currently manage the Replaced 
Funds. In Substitution No. 2, ICMI will serve as the investment adviser 
and investment manager of the New Fund. Applicants believe that given 
the below average investment performance for the Neuberger Berman 
Limited Maturity Bond Portfolio, ICMI will achieve improved investment 
results for Contractholders. In Substitution No. 3, ICMI will serve as 
the investment adviser and Wells Capital Management Inc. will serve as 
Sub-Adviser to the Penn Series Index 500 Fund. As in the case of the 
Fidelity Investment's Index 500 Portfolio, investments of Penn Series 
Index 500 Fund are expected to approximate the relative composition of 
the securities in the S&P 500. In Substitution No. 4, the day-to-day 
decisions for Penn Series Mid Cap Growth Fund will be the 
responsibility of Turner Investment Partners, Inc. (``TIP'') as Sub-
Adviser. Applicants believe that TIP is in a position to achieve 
improved investment results for Contractholders who currently have 
contract values allocated to the corresponding Replaced Fund.
    13. Immediately following the Substitutions, the expense ratios of 
the

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New Funds will not exceed the expense ratios of the Replaced Funds. The 
following table shows the total assets in each of the Replaced Funds at 
December 31, 1999 that are attributable to the Variable Products, as 
well as other non-registered insurance products, and compares the 
advisory fees and the expense ratios of the Replaced Funds for the six 
months ended December 31, 1999, with the pro forma advisory fees and 
expense ratios of the New Funds for the same periods. (Pro forma 
expense ratios of the New Funds are based on assets in the Replaced 
Funds attributable to the Variable Products and other non-registered 
insurance products, and estimates of expenses associated with those 
assets had they been invested in the New Funds during the periods).
[GRAPHIC] [TIFF OMITTED] TN14AP00.004

    14. Applicants expect to effect the Substitutions on or about May 
1, 2000 in coordination with the distribution of annual prospectuses to 
Contractholders. As of the effective date of the Substitutions 
(``Effective Date''), shares of the Replaced Funds held by each of the 
Subaccounts of Applicant Separate Accounts will be presented to the 
Replaced Funds for redemption. The proceeds of such redemptions, which 
may be effected through cash or ``in-kind'' transactions, will then be 
used to purchase the appropriate number of shares of the corresponding 
New Funds. The Substitutions will take place at relative net asset 
values, with no change in the contract value of any Affected 
Contractholder, and all redemptions of shares of the Replaced Funds and 
purchases of shares of the corresponding New Funds will be effected in 
accordance with Rule 22c-1 under the 1940 Act.
    15. Penn Mutual will bear the costs of the Substitutions, including 
any legal and/or accounting fees relating to them. Affected 
Contractholders will not incur any additional fees or charges as a 
result of the Substitutions; no current fees or charges applicable 
under any of the Variable Products will be increased as a result of the 
Substitutions; the rights of

[[Page 20223]]

Affected Contractholder under any of the Variable Products, and the 
obligations of Penn Mutual under the Variable Products will not 
diminish in any way.
    16. Applicants state that as soon as practicable after filing the 
Application, a supplement to each of the prospectuses relating to the 
Variable Products will be filed with the Commission. These supplements 
(``Product Supplements'') will reflect all material information 
relating to the Substitutions and the New Funds, including the identity 
of the Replaced Funds, a description of the New Funds and their 
respective investment objectives and policies, the Sub-Adviser for each 
of the New Funds, fees and expenses associated with the New Funds, and 
the impact that the Substitution will have on fees and expenses.
    17. Following the date on which the notice of the Application is 
published in the Federal Register, but before the Effective Date, Penn 
Mutual will send to Affected Contractholders a notice (``Pre-
Substitution Notice''), which will include the Product Supplements. The 
Pre-Substitution Notice will inform Affected Contractholders of: (a) 
The Effective Date of the Substitutions; (b) the right of each Affected 
Contractholder, under the VUL and VA Contracts, to transfer contract 
values among the various Subaccounts; and (c) the fact that any such 
transfer that involves a transfer from any of the Replaced Funds will 
not be subject to any administrative charge and will not count as one 
of the ``free transfers'' to which Affected Contractholders may 
otherwise be entitled.
    18. Within five days after the Effective Date, Affected 
Contractholders will be sent written confirmation (``Confirmation 
Notice'') of the substitution transactions. The Confirmation Notice 
will: (a) Confirm that the Substitutions were carried out; (b) 
reiterate that each Affected Contractholder may make one transfer of 
all of the contract value or cash value under their Variable Products 
that is invested in any one of the Subaccounts that were affected by 
the Substitutions to any other Subaccount available under their 
Variable Products without such transfer being subject to any 
administrative charge, or being counted as one of the ``free 
transfers'' (or one of the limited number of transfers) to which 
Affected Contractholders may be entitled under their Variable Products; 
and (c) state that Penn Mutual will not exercise any rights reserved by 
it under the Variable Products to impose additional restrictions on 
transfers until at least 30 days after the Effective Date. The 
Confirmation Notice will be accompanied by a then-current prospectus 
for the relevant Variable Product, reflecting the inclusion of the New 
Funds, as well as an amended prospectus for the New Funds.
    19. The in-kind redemption proceeds will consist of the same 
securities that are currently held by the Replaced Funds. Redemptions 
in-kind will be done in a manner consistent with the investment 
objectives, policies and diversification requirements of the respective 
New Funds. Further, Applicants represent that the in-kind redemptions 
for each of the New Funds will be reviewed by the Sub-Adviser 
responsible for making day-to-day investment decisions for that 
Portfolio to assure that the investment objective, investment policies 
and diversification requirements set forth in the registration 
statement relating to the relevant New Fund are satisfied. In addition, 
the in-kind asset transfers will be valued in the manner that is 
consistent with the valuation procedures of both the Replaced Fund and 
the relevant New Fund. Applications state that any inconsistencies in 
valuation procedures between the Replaced Fund and the relevant New 
Fund will be reconciled so that the redeeming and purchasing values are 
the same. In addition, and consistent with Rule 17a-7 under the 1940 
Act, no brokerage commissions, fees or other remuneration will be paid 
in connection with the in-kind transactions.
    20. The Variable Products expressly reserve to Penn Mutual the 
right, subject to compliance with applicable law, to substitute shares 
of one open-end investment company for shares of another open-end 
investment company held by a Separate Account.

Applicant's Legal Analysis

    1. Section 26(b) of the 1940 Act provides that it shall be unlawful 
for any depositor or trustee of a registered unit investment trust 
holding the security of a single issuer to substitute another security 
for such security unless the Commission approves such substitution. 
Section 26(b) further provides that the Commission shall issue an order 
approving such substitution if the evidence establishes that it is 
consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the 1940 Act.
    2. Applicants request an order pursuant to Section 26(b) of the 
1940 Act approving the substitutions and related transactions. 
Applicants assert that the purposes, terms, and conditions of the 
Substitutions are consistent with the protection of investors and the 
purposes fairly intended by the 1940 Act. Applicants further assert 
that the Substitutions will not result in the type of forced redemption 
that Section 26(b) was designed to guard against.
    3. Applicants maintain that the substitutions do not represent the 
type of transaction that Section 26(b) was designed to prevent for the 
following reasons: (a) the Substitutions are designed to give Penn 
Mutual more control over investment products it offers to the investing 
and insurance purchasing public; (b) Contractholders involved in 
Substitution Nos. 1, 3 and 4 will have the benefit of ICMI's oversight 
of the Sub-Advisers; and (c) the procedures that Applicants will follow 
in the Substitutions will give Affected Contractholders ample notice of 
the Substitutions and any potential impact. Affected Contractholders 
will have the opportunity to transfer their investments from one of the 
Replaced Funds in anticipation of the Substitutions, or from the New 
Funds following the Substitution. In either case, Applicants represent 
that no administrative fee or transfer charge will be assessed. In 
light of the fact that only four of the 18 investment options currently 
available to Affected Contractholders will be involved in the 
Substitutions, Applicants believe that this ability to ``opt out'' of 
any Substitution affords each Affected Contractholder an effective 
choice of investments.
    4. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or any affiliate of such affiliated 
person, from selling any security or other property to such registered 
investment company. Section 17(a)(2) of the 1940 Act prohibits any 
affiliated person from purchasing any security or other property from 
such registered investment company.
    5. Applicants request an order pursuant to Section 17(b) of the 
1940 Act exempting the in-kind redemptions and purchases from the 
provisions of Section 17(a). Section 17(b) of the 1940 Act provides 
that the Commission may grant an order exempting a proposed transaction 
from Section 17(a) if evidence establishes that: (a) The terms of the 
proposed transaction, including the consideration to be paid or 
received, are fair and reasonable and do not involve overreaching on 
the part of any person concerned; (b) the proposed transaction is 
consistent with the policy of each registered investment company 
concerned; and (c) the proposed

[[Page 20224]]

transaction is consistent with the general purposes of the 1940 Act.
    6. Applicants represent that, if effected in accordance with the 
procedures described in the Application and summarized herein, the 
Substitutions are consistent with the general purposes of the 1940 Act 
and do not present any of the conditions or abuses that the 1940 Act 
was designed to prevent. Applicants state that the consideration to be 
paid by each New Fund, and received by each of the Replaced Funds, will 
be fair and reasonable and will not involve overreaching because the 
Substitutions will not result in the dilution of the interests of any 
Affected Contractholders and will not effect any change in economic 
interest, contract value or the dollar value of any Variable Products 
held by an Affected Contractholder. The in-kind redemptions and 
purchases will be done at values consistent with the policies of both 
the Replaced Funds and the New Funds and will satisfy the procedural 
safeguards of Rule 17a-7. Both ICMI and the Sub-Adviser of a New Fund 
will review all the asset transfers to assure that the assets meet the 
objectives of a New Fund and that they are valued under the appropriate 
valuation procedures of the Replaced Fund and such New Fund. The in-
kind redemption proceeds will consist of the same securities that are 
currently held by the Replaced Funds. Applicants represent that the 
transactions are consistent with the policies of each investment 
company involved and the general purposes of the 1940 Act, and comply 
with the requirements of Section 17(b).
    7. Applicants state that the facts and circumstances in the 
application are sufficient to assure that the Substitutions will be 
carried out in a manner that is consistent with Sections 17(b) and 
26(b) of the 1940 Act and that the terms and conditions to which 
Applicants will be subject hereby are consistent with orders the 
Commission has issued in the past under similar circumstances.

Applicants' Terms

    The significant terms of the substitutions described in the 
application include:
    1. The New Funds have objectives and policies that are 
substantially the same or substantially similar to the objectives and 
policies of the Replaced Funds so that the objectives of the Affected 
Contractholders can continue to be met.
    2. The expense ratios of the New Funds will, immediately following 
the Substitution, not exceed the expense ratios of the Replaced Funds. 
In the event that the expense ratio of a New Fund exceeds that of its 
corresponding Replaced Fund, Penn Mutual will waive its fees and/or 
reimburse expenses such that its expense ratio does not exceed that of 
its corresponding Replaced Fund's expense ratio. Penn Mutual will 
continue any such fee waivers and/or reimbursements, as necessary, 
until April 30, 2001, except that in the case of Substitution No. 2 (of 
the Penn Series Limited Maturity Bond Fund for the Neuberger Berman 
Limited Maturity Bond Portfolio), Penn Mutual will continue any such 
fee waiver and/or expense reimbursements, as necessary, until April 30, 
2003.
    3. Affected Contractholders may, under the terms of the Variable 
Products, transfer assets from any Subaccount of Applicant Separate 
Accounts to any other Subaccount available under the Variable Product. 
Any such transfer that involves a transfer from any of the Replaced 
Funds, from the date of the notice that the Replaced Funds will be 
substituted through a date at least 30 days following the Effective 
Date, will not be subject to any administrative charge, and will not 
count as one of any ``free transfers'' to which Affected Contractholder 
may otherwise be entitled. Affected Contractholders may also withdraw 
amounts under any contract held, or terminate their interest in any 
such contract, in accordance with the terms and conditions of any such 
contract, including but not limited to payment of any applicable 
surrender charge.
    4. The Substitutions will be effected at the net asset value of the 
respective shares in conformity with Section 22(c) of the 1940 Act and 
Rule 22c-1 thereunder, without the imposition of any transfer or 
similar charge by Applicants.
    5. The Substitutions will take place at relative net asset value 
without change in the amount or value of any Variable Products held by 
Affected Contractholders. Affected Contractholders will not incur any 
fees or charges as a result of the Substitutions, nor will their rights 
or the obligations of Penn Mutual under such Variable Products be 
altered in any way. All expenses incurred in connection with the 
Substitutions, including legal, accounting and other fees and expenses, 
will be borne by Applicants, other than Separate Accounts.
    6. Redemptions in kind will be handled in a manner consistent with 
the investment objectives, policies and diversification requirements of 
the New Fund. Consistent with Rule 17a-7(d) under the 1940 Act, no 
brokerage commissions, fees (except customary transfer fees) or other 
remuneration will be paid by the Replaced Funds or New Funds or 
Affected Contractholders in connection with the in-kind transactions. 
In addition, the in-kind asset transfers will be valued in the manner 
that is consistent with the valuation procedures of both the Replaced 
Fund and the relevant New Funds.
    7. The Substitutions will not be counted as transfers in 
determining any limit on the total number of transfers that Affected 
Contractholders are permitted to make under the Variable Products.
    8. The Substitutions will not alter in any way the annuity, life 
insurance, or other benefits afforded under the Variable Products held 
by any Affected Contractholders.
    9. Each of the New Funds may rely upon a Commission order expected 
to be issued to certain affiliates of Penn Series. Applicants will take 
no action in reliance on the Manager of Managers Order with respect to 
any one of the New Funds unless and until the operation of that 
portfolio in the manner contemplated by the Manager of Managers Order 
is approved by the holders of a majority of the outstanding shares of 
that portfolio within the meaning of the 1940 Act by vote obtained 
following the Substitution.

Applicants' Conditions

    Applicants state that they will not complete the Substitutions and 
related transactions described in this Application (other than the 
mailing of the Pre-Substitution Notices) unless all of the following 
conditions are met:
    1. The Commission shall have issued an order (a) approving the 
Substitutions under Section 26(b) of the 1940 Act, and (b) exempting 
the in-kind redemptions from the provisions of Section 17(a) of the 
1940 Act as necessary to carry out the transactions described in this 
Application.
    2. Each Affected Contractholder will have been sent a Pre-
Substitution Notice, which will include the Prospectus Supplements and 
will inform Affected Contractholders of: (a) The Effective Date of the 
Substitutions; (b) the right of each Affected Contractholder, under the 
Variable Products, to transfer contract values among the various 
Subaccounts; and (c) the fact that any such transfer that involves a 
transfer from any of the Replaced Funds will not be subject to any 
administrative charge and will not count as one of any ``free 
transfers'' to

[[Page 20225]]

which Affected Contractholders may otherwise be entitled.
    3. Each Affected Contractholder will receive, within five days 
following the Effective Date of Substitutions, written notice 
(``Confirmation Notice''). The Confirmation Notice will: (a) Confirm 
that the Substitutions were carried out; (b) reiterate that each 
Affected Contractholder may make one transfer to all of the contract 
value or cash value under their Variable Product that is invested in 
any one of the Subaccounts that were affected by the Substitutions to 
any other Subaccount available under their Variable Product without 
such transfer being subject to any administrative charge, or being 
counted as one of any ``free transfers'' (or one of the limited number 
of transfers) to which Affected Contractholders may be entitled under 
their Variable Product; and (c) state that Penn Mutual will not 
exercise any rights reserved by it under the Variable Products to 
impose additional restrictions on transfers until at least 30 days 
after the Effective Date. The Confirmation Notice will be accompanied 
by a then-current prospectus for the relevant Variable Product, 
reflecting the inclusion of the New Funds, as well as an amended 
prospectus for the New Funds.
    4. Penn Mutual shall have satisfied itself, that: (a) The Variable 
Products allow the substitution of investments in the manner 
contemplated by the Substitutions and related transactions described 
herein; (b) the transactions can be consummated as described in this 
Application under the applicable insurance laws; and (c) that any 
regulatory requirements in each jurisdiction where the Variable 
Products are qualified for sale, have been complied with to the extent 
necessary to complete the transactions.

Conclusion

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


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-9398 Filed 4-12-00; 10:11 am]
BILLING CODE 8010-01-M