[Federal Register Volume 66, Number 72 (Friday, April 13, 2001)]
[Notices]
[Pages 19256-19260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9192]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24933; File No. 812-12362]


USAA Life Insurance Company, et al.

April 9, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant Section 26(b) of 
the Investment Company Act of 1940 (the ``Act'') approving certain 
substitutions of securities.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants request an order to permit unit 
investment trusts to substitute: (a) shares of Vanguard Variable 
Investment Trust (``Vanguard VIT'') Equity Index Portfolio for shares 
of Deutsche VIT Funds (``Deutsche VIT'') Equity 500 Index; (b) shares 
of Vanguard VIT Small Company Growth Portfolio for Shares of Deutsche 
VIT Small Cap Index; (c) shares of Vanguard VIT International Portfolio 
for shares of USAA Life Investment Trust (``LIT'') International Fund 
and shares of Deutsche VIT EAFE Equity Index; and (d) shares 
of Vanguard VIT Money Market Portfolio for shares of LIT Money Market 
Fund. The shares to be replaced are currently held by USAA Life 
Insurance Company Variable Annuity Separate Account and USAA Life 
Variable Universal Life Insurance Separate Account to support certain 
variable annuity contracts (``Contracts'') and variable universal life 
insurance policies (``Policies'').

APPLICANTS: USAA Life Insurance Company (``USAA Life''); USAA Life 
Insurance Company Variable Annuity Separate Account (``VA Separate 
Account'') and USAA Life Variable Universal Life Insurance Separate 
Account (``VUL Separate Account'') VA Separate Account and VUL Separate 
Account are referred to collectively as the ``Accounts'').

FILING DATE: The application was filed on December 13, 2000 and amended 
on April 5, 2001.

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 30, 2001 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 may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants: Cynthia A. Toles, 
Esq., General Counsel, C-3-W, USAA Life Insurance Company, 9800 
Fredericksburg Road, San Antonio, Texas 78288-3051, and Diane E. 
Ambler, Esq., Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, 
N.W., Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT: Kenneth C. Fang, Attorney, or Keith E. 
Carpenter, Branch Chief at (202) 942-0670, Office of Insurance 
Products, Division of Investment Management.

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

Applicants' Representations:

    1. USAA Life is a stock life insurance company organized under 
Texas law. USAA Life is a wholly-owned subsidiary of United Services 
Automobile Association.
    2. The Accounts are registered under the Act as unit investment 
trusts (File Nos. 811-08670 (the VA Account) and 811-08625 (the VUL 
Account)). The assets of the VA Account support certain VA Contracts. 
The assets of the VUL Account support certain VUL Policies. Units of 
interest under the Contracts have been registered under the Securities 
Act of 1933 (``1933 Act'') on Form N-4 and interests in the Policies 
have been registered under the 1933 Act on Form S-6.
    3. Each Account is divided into twelve ``Variable Fund Accounts,'' 
each of which invests in a different investment portfolio 
(``Portfolio''). Seven of these Portfolios are series of LIT, one is a 
series of Scudder Variable Life Investment Fund, one is a series of 
Alger American Fund and three are series of Deutsche VIT.
    4. USAA Life has reserved the right under the Contracts and the 
Policies to substitute shares of another eligible investment fund for 
any of the current Portfolios.
    5. USAA Life and the Accounts proposes to substitute: (a) shares of 
the Vanguard VIT Equity Index Portfolio (``Equity Index Replacement 
Portfolio'') for shares of the Deutsche VIT Equity 500 Index (``Equity 
500 Index Eliminated Fund''); (b) shares of the Vanguard VIT Small 
Company Growth Portfolio (``Small Company Growth Replacement 
Portfolio'') for shares of the Deutsche VIT Small Cap Index (``Small 
Cap Index Eliminated Fund''); (c) shares of the Vanguard VIT 
International Portfolio (``International Replacement Portfolio'') for 
shares of the LIT International Fund (``International Eliminated 
fund'') and shares of Deutsche VIT EAFE Equity Index 
(``EAFE Equity Index Eliminated Fund''); and (d) shares of 
Vanguard VIT Money Market Portfolio (``Money Market Replacement 
Portfolio'') for shares of LIT Money Market Fund (``Money Market 
Eliminated Fund''). Each of the Equity 500 Index Eliminated Fund, Small 
Cap Index Eliminated Fund, International Eliminated Fund, 
EAFE Equity Index Eliminated Fund, and Money Market 
Eliminated Fund also may be referred to herein as an ``Eliminated 
Portfolio.'' Each of the Equity Index Replacement Portfolio, Small 
Company Growth Replacement Portfolio, International Replacement 
Portfolio and Money Market Replacement Portfolio also may be referred 
to herein as a ``Replacement Portfolio.''
    6. The investment objectives, strategies and risks of the Equity 
Index Replacement Portfolio and the Equity 500 Index Eliminated Fund 
are substantially similar. Both funds are passively managed index funds 
which seek to replicate the performance of the S&P 500 Index by 
investing primarily in the stocks of large U.S. companies listed on the 
S&P 500 Index. Both funds are subject to market, investment style and

[[Page 19257]]

tracking error risk, as well as the risks associated with the use of 
futures and options. An investor in the Equity Index Replacement 
Portfolio is generally attempting to achieve the same long-term goals 
through the same investments as an investor in the Equity 500 Index 
Eliminated Fund. Thus, after the proposed Substitution, an Owner who 
allocated value to the Equity 500 Index Eliminated Fund will continue 
to have value allocated to a Variable Fund Account that seeks to 
replicate the performance of the S&P 500 Composite Price Index and 
would have assumed a similar level of risk.
    7. The investment objectives, policies and risks of the Small 
Company Growth Replacement Portfolio and the Small Cap Index Eliminated 
Fund are substantially similar. Both funds seek long-term capital 
appreciation. Although their investment strategies differ, in that the 
Small Company Growth Replacement Portfolio is actively managed and the 
Small Cap Index Eliminated Fund is passively managed, the Small Company 
Growth Replacement Portfolio and the Small Cap Index Eliminated Fund 
have similar investment portfolios as both funds invest primarily in 
the stocks of small companies with median market capitalizations below 
$1 billion. Additionally, both funds are subject to market risk and 
investment style risk, as well as the risks associated with investments 
in small companies and use of futures and options. Given the 
differences in their investment strategies, the Small Company Growth 
Replacement Portfolio is subject to manager risk while the Small Cap 
Index Eliminated Fund is subject to tracking error risk. Nevertheless, 
an investor in the Small Company Growth Replacement Portfolio is 
generally attempting to achieve the same long-term goals through the 
same investments as an investor in the Small Cap Index Eliminated Fund. 
Thus, after the proposed Substitution, an Owner who allocated value to 
the Small Cap Index Eliminated Fund would continue to have value 
allocated to a Variable Fund Account that seeks long-term capital 
appreciation through investment in small company stocks, and would have 
assumed a similar level of risk.
    8. The investment objectives, policies and risks of the 
International Replacement Portfolio, the International Eliminated Fund 
and the EAFE Equity Index Eliminated Fund are substantially 
similar. The International Replacement Portfolio, the EAFE 
Equity Index Eliminated Fund and the International Eliminated Fund all 
seek long-term capital appreciation. Although their investment 
strategies differ in that the International Replacement Portfolio and 
the International Eliminated Fund are actively managed funds, and the 
EAFE Equity Index Eliminated Fund is passively managed, the 
International Replacement Portfolio, the EAFE Equity Index 
Eliminated Fund and the International Eliminated Fund all have 
investment portfolios comprised primarily of the stocks of seasoned 
foreign companies. Moreover, all three funds are subject to market 
risk, as well as the risks associated with investment in foreign 
securities, though the International Replacement Portfolio and the 
International Eliminated Fund, which are actively managed, are subject 
to manager risk, rather than tracking error risk, like the 
EAFE Equity Index Eliminated Fund, which is passively 
managed. Given the similarity of their investment objectives, 
investment portfolios and risks, the Applicants have determined to 
substitute only the International Replacement Portfolio for both the 
EAFE Equity Index Eliminated Fund and the International 
Eliminated Fund. An investor in either the International Eliminated 
Fund or the EAFE Equity Index Eliminated Fund is generally 
attempting to achieve the same long-term goals through the same 
investments as an investor in the International Replacement Portfolio.
    9. The investment objectives, policies and risks of the Money 
Market Replacement Portfolio and the Money Market Eliminated Fund are 
substantially similar. Both funds seek to provide income and maintain 
liquidity through investments in money market instruments and are 
subject to interest rate risk and credit risk. An investor in the Money 
Market Replacement Portfolio is generally attempting to achieve the 
same long-term goals through the same investments as an investor in the 
Money Market Eliminated Fund. Thus, after the proposed Substitution, an 
Owner who allocated value to the Money Market Eliminated Fund would 
continue to have value allocated to a Variable Fund Account that seeks 
to provide income and maintain liquidity through investments in money 
market instruments and would have assumed a similar level of risk.
    10. Applicants assert that they can better serve the interests of 
Contract owners and Policy owners (collectively, ``Owners'') by 
replacing certain existing Portfolios with portfolios having comparable 
investment objectives, policies and risks, lower expenses (in all but 
one case, where the difference is negligible) and more favorable 
performance on a historical basis.
    11. The advisory fees, total expenses and net assets of the 
Eliminated Portfolios and the Replacement Portfolios for the period 
ending December 31, 2000, are set forth in the table below. In each 
case, the advisory fee paid by each Replacement Portfolio is lower than 
that of the Eliminated Portfolio that it replaces. The total expenses 
paid by the Replacement Portfolios for the period ending December 31, 
2000, are lower than the total expenses of the Eliminated Portfolios, 
other than with respect to the Small Company Growth Replacement 
Portfolio, with total expenses of .01% in excess of the total expenses 
of the Small Cap Index Eliminated Fund.
    12. As further set forth below, the proposed Substitutions would 
replace each Eliminated Portfolio with a Replacement Portfolio of a 
substantially larger asset size. Generally speaking, larger funds tend 
to have lower expenses than comparable funds that are substantially 
smaller. This is because, with a larger asset size, fixed fund expenses 
are spread over a larger base, lowering the expense ratios. Also, 
larger funds may have lower trading expenses, potentially resulting in 
higher returns.

------------------------------------------------------------------------
                                     Advisory      Total
               Fund                    fee       expenses*    Net assets
                                    (percent)    (percent)       ($M)
------------------------------------------------------------------------
Equity Index Replacement                  .01%         .16%       $1,387
 Portfolio.......................
Equity 500 Index Eliminated Fund.          .20          .30          428
Small Company Growth Replacement           .15          .46          467
 Portfolio.......................
Small Cap Index Eliminated Fund..          .35          .45          104
International Replacement                 .125          .38          350
 Portfolio.......................
EAFE  Equity Index               .45          .65           80
 Eliminated Fund.................
International Eliminated Fund....          .65         1.10           27
Money Market Replacement                   .01          .17          872
 Portfolio.......................

[[Page 19258]]

 
Money Market Eliminated Fund.....          .20          .35          27
------------------------------------------------------------------------
* The data reflects an expense cap currently in effect for each of the
  Eliminated Portfolios, and actual expenses are higher. The Replacement
  Portfolios have no expense cap. Vanguard represents that it provides
  its services on an ``at-cost'' basis, the Replacement Portfolios'
  expense ratios reflect only these costs, and the Replacement
  Portfolios do not impose fees for Rule 12b-1 Plans.

    13. As illustrated in the table below, the actual expenses of the 
Replacement Portfolios fall well below the actual fees incurred by the 
Eliminated Portfolios, for the period ending December 31, 2000. The 
actual expenses of the Replacement Portfolios also fall well below the 
capped fees of the Eliminated Portfolios for the same period, other 
than in the case of the Small Company Growth Replacement Portfolio, 
with actual expenses of .01% higher than the capped expenses of the 
Small Cap Index Eliminated Fund.

----------------------------------------------------------------------------------------------------------------
                                               Actual                                                   Actual
                                              expenses                                                 expenses
                 Portfolio                   as of  12/  Expense cap            Portfolio             as of  12/
                                               31/00                                                    31/00
                                             (percent)                                                (percent)
----------------------------------------------------------------------------------------------------------------
Equity 500 Index Eliminated Fund..........          .34          .30  Equity Index Replacement               .16
                                                                       Portfolio.
Small Cap Index Eliminated Fund...........          .69          .45  Small Company Growth                   .46
                                                                       Replacement Portfolio.
International Eliminated Fund.............         1.39         1.10  International Replacement              .38
                                                                       Portfolio.
EAFE  Equity Index Eliminated             .92          .65  International Replacement              .38
 Fund.                                                                 Portfolio.
Money Market Eliminated Fund..............          .63          .35  Money Market Replacement               .17
                                                                       Portfolio.
----------------------------------------------------------------------------------------------------------------

    14. The actual expenses of the Small Cap Index Eliminated Fund were 
.69% for the period ending December 31, 2000. When compared against the 
actual expenses of the Small Company Growth Replacement Portfolio for 
the same period, the Small Company Growth Replacement Portfolio's 
expenses are .23% lower, as shown on the chart above. Applicants assert 
that the relatively insignificant amount of the increase in fund 
expenses over that of the Small Cap Index Eliminated Fund, as currently 
capped, and the more significant amount of the decrease in fund 
expenses from the Small Cap Index Eliminated fund's actual expenses 
indicates no harm to investors related to fee levels.
    15. For the period ending December 31, 2000, the Small Company 
Growth Replacement Portfolio has an expense ratio that is only .01% 
higher than the Small Cap Index Eliminated Fund, a difference that 
Applicants believe is offset by the Small Company Growth Replacement 
Portfolio's more favorable performance. As illustrated in the chart 
below, the Small Company Growth Replacement Portfolio's historical 
performance exceeded that of the Small Cap Index Eliminated Fund by 
19.67 points for one year and by 13.88 points since inception for the 
period ending December 31, 2000.
    16. The more favorable performance of the Small Company Growth 
Replacement Portfolio also suggests that this fund would provide better 
overall investment returns for Owners. The Applicants believe that the 
Small Company Growth Replacement Portfolio's performance also suggests 
possible future growth and the potential decline in the Small Company 
Growth Replacement Portfolio's expense ratio as fixed fund expenses are 
spread over a larger asset base.
    17. The chart below compares the average annual total returns for 
the Replacement Portfolios and the Eliminated Portfolios for one year, 
five years, and since inception for the period ending December 31, 
2000. In each case, other than the return of the Money Market 
Replacement Portfolio since inception, the historical performance of 
the Replacement Portfolio is more favorable than or comparable to that 
of the corresponding Eliminated Portfolio. Applicants believe that the 
difference in historical performance since the inception of the Money 
Market Replacement Portfolio and the Money Market Eliminated Fund is 
offset by the one year and five year performance of the Money Market 
Replacement Portfolio, with returns exceeding those of the Money Market 
Eliminated Fund.

------------------------------------------------------------------------
                                                 One year ending  12/31/
                                   Performance        00  (percent)
                                   NAV average -------------------------
               Fund                   annual     Five year
                                      total     ending  12/     Since
                                    return as      31/00      inception
                                   of 12/31/00   (percent)    (percent)
------------------------------------------------------------------------
Equity Index Replacement                 -9.04        18.31        16.26
 Portfolio.......................
Equity 500 Index Eliminated Fund.        -9.24  ...........        11.71
Small Company Growth Replacement         15.80  ...........        19.13
 Portfolio.......................
Small Cap Index Eliminated Fund..        -3.87  ...........         5.25
International Replacement                -6.70        10.49        10.59
 Portfolio.......................
Deutsche EAFEEquity           -16.66  ...........         5.78
 Index Eliminated Fund...........
International Eliminated Fund....       -10.08  ...........         5.59
Money Market Replacement                  6.47         5.62         5.02
 Portfolio.......................
Money Market Eliminated Fund.....         6.22         5.41         5.46
------------------------------------------------------------------------


[[Page 19259]]

    18. By supplements to the prospectuses for the Contracts and the 
Policies, USAA Life has notified affected owners of the VA Contracts 
and the VUL Policies of its intention to take the necessary actions, 
including seeking the order requested by this application, to 
substitute shares of the funds as described therein. The prospectus 
supplements for the Contracts and the Policies inform Owners that, for 
a period beginning 30 days before May 1, 2001 (the ``Substitution 
Date''), and ending no earlier than 60 days after the Substitutions, 
Owners will be permitted to transfer value among the Variable Fund 
Accounts and from the Variable Fund Accounts to the Fixed Fund Account 
without limitation and free of any otherwise applicable transfer 
charges.
    19. Within five business days after the proposed substitutions, 
USAA will mail a written notice to all Owners affected by the 
Substitutions informing them that the Substitutions were completed 
(``Notice''), as well as a current prospectus and a confirmation of the 
transaction.
    20. The proposed substitutions will take place at relative net 
asset value with no change in the amount of any Owners's Contract or 
Policy value, cash value or death benefit or in the dollar value of his 
or her investment in any of the Variable Fund Accounts.
    21. The process for accomplishing the transfer of assets from an 
Eliminated Portfolio to a Replacement Portfolio will be determined on a 
case-by-case basis. It is expected that the Substitutions will be 
effected by redeeming shares of an Eliminated Portfolio for cash and 
using the cash to purchase shares of a Replacement Portfolio.
    22. In certain cases, Substitutions may be effected in whole or in 
part by redeeming the shares of an Eliminated Portfolio in-kind and 
contributing those assets in-kind to the corresponding Replacement 
Portfolio for the purchase of fund shares. All in-kind redemptions from 
an Eliminated Portfolio, of which any of the Applicants is an 
affiliated person within the meaning of Section 2(a)(3) of the Act, 
will be effected in accordance with the conditions set forth in the no-
action letter issued to Signature Financial Group (available December 
28, 1999) by the Commission staff.
    23. Owners will not incur any fees or charges as a result of the 
substitutions, nor will their rights or USAA's obligations under the 
Contracts or the Policies be altered in any way. All expenses incurred 
in connection with the proposed substitutions, including brokerage, 
legal, accounting and other fees and expenses, will be repaid by USAA 
Life. In addition, the proposed substitutions will not impose any tax 
liability on Owners.

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 
obtain Commission approval before substituting the securities held by 
the trust. Specifically, Section 26(b) states:

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 shall have 
approved such substitution. 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 policy and purposes of this title.

    2. The Applicants state that the proposed substitutions involve 
substitutions of securities within the meaning of Section 26(b) of the 
Act and request that the Commission issue an order pursuant to Section 
26(b) of the Act approving the proposed substitutions.
    3. USAA Life has reserved the right under the Contracts and the 
Policies to substitute shares of another eligible investment fund for 
any of the current Portfolios.
    4. The Applicants request an order of the Commission pursuant to 
Section 26(b) of the Act approving the proposed substitutions by USAA 
Life. The Applicants assert that the proposed substitutions are 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.
    5. The Applicants assert that each of the proposed substitutions is 
not the type of substitution which Section 26(b) was designed to 
prevent. Unlike traditional unit investment trusts where a depositor 
could only substitute investment securities in a manner which 
permanently affected all investors in the trust, the Contracts and 
Policies provide each Owner with the right to exercise his or her own 
judgment, and transfer Contract or Policy values and cash values into 
and among the Variable Fund Accounts. Moreover, for a period beginning 
30 days before the Substitution Date, and ending no earlier than 60 
days after the Substitutions, Owners will be permitted to transfer 
value among the Variable Fund Accounts and from the Variable Fund 
Accounts to the Fixed Fund Account, without limitation and free of any 
otherwise applicable transfer charges. The Applicants assert that the 
proposed substitutions, therefore, will not result in the type of 
costly forced redemption which Section 26(b) was designed to prevent.
    6. The Applicants assert that the proposed substitutions also are 
unlike the type of substitution which Section 26(b) was designed to 
prevent in that by purchasing a Contract or a Policy, Owners select 
much more than a particular investment company in which to invest their 
account values. They select the specific type of insurance coverage 
offered by USAA Life under a Contract or a Policy as well as numerous 
other rights and privileges set forth in the Contract or Policy. Owners 
may also have considered USAA Life's size, financial condition, and its 
reputation for service in selecting their Contract and/or Policy. These 
factors will not change as a result of the proposed substitutions.

Terms

    The significant terms of the proposed Substitutions described above 
are as follows:
    1. The investment objectives and risks of the Replacement 
Portfolios are substantially similar to the investment objectives and 
risks of the Eliminated Portfolios, providing Owners with a means to 
continue their investment goals and risk expectations. Additionally, 
the Substitutions are expected to confer economic benefits to Owners as 
the Replacement Portfolios generally afford Owners lower advisory fees, 
lower total expenses and more favorable performance on an historical 
basis. Accordingly, the Applicants anticipate that Owners will be 
better off with the array of Variable Fund Accounts offered after the 
proposed Substitutions than they have been with the array of Variable 
Fund Accounts offered prior to the proposed Substitutions.
    The Equity Index Replacement Portfolio. In the case of the proposed 
substitution of the Equity Index Replacement Portfolio for the Equity 
500 Index Eliminated Fund, the Eliminated Portfolio is being replaced 
by a fund with: (a) a substantially similar investment objective; (b) a 
substantially similar risk profile; (c) a lower advisory fee; (d) lower 
total expenses; and (e) more favorable historical performance.
    The Small Company Growth Replacement Portfolio. With respect to the 
proposed substitution of the Small Company Growth Replacement Portfolio 
for the Small Cap Index Eliminated

[[Page 19260]]

Fund, the Eliminated Portfolio is being replaced by a fund with: (a) a 
substantially similar investment objective; (b) a substantially similar 
risk profile; (c) a lower advisory fee (though slightly higher total 
expenses); and (d) more favorable historical performance.
    The International Replacement Portfolio. In the case of the 
proposed substitution of the International Replacement Portfolio for 
the International Eliminated Fund and the EAFE Equity Index 
Eliminated Fund, each of the Eliminated Portfolios is being replaced by 
a fund with: (a) a substantially similar investment objective; (b) a 
substantially similar risk profile, (c) a lower advisory fee; (d) lower 
total expenses; and (e) more favorable historical performance.
    The Money Market Replacement Portfolio. With respect to the 
proposed substitution of the Money Market Replacement Portfolio for the 
Money Market Eliminated Fund, the Eliminated Portfolio is being 
replaced by a fund with: (a) substantially similar investment 
objectives; (b) a substantially similar risk profile; (c) a lower 
advisory fee; (d) lower total expenses; and (e) more favorable 
historical performance for the one year and five year periods ending 
December 31, 2000.
    2. Investments in the Replacement Portfolios may be temporary 
investments for Owners as Owners may exercise their own judgment as to 
the most appropriate investment alternative available to them. In this 
regard, the proposed Substitutions retain for Owners the investment 
flexibility which is a central feature of the Contracts and the 
Policies. If the proposed Substitutions are carried out, Owners will be 
permitted to allocate purchase payments and transfer Contract and 
Policy values and cash values between and among approximately the same 
number of Variable Fund Accounts as they could before the proposed 
Substitutions. Additionally, for a period beginning 30 days before the 
Substitution Date, and ending no earlier than 60 days after the 
Substitutions, Owners are permitted to transfer value among the 
Variable Fund Accounts and from the Variable Fund Accounts to the Fixed 
Fund Account, without limitation and free of any otherwise applicable 
transfer charges.
    3. The Substitutions will be effected at the relative net asset 
values of the respective shares.
    4. Owners will not incur directly or indirectly related fees or 
charges, including brokerage-related fees or charges as a result of the 
transfer of account value.
    5. The Substitutions will not alter or affect the insurance 
benefits or rights of Owners or the terms and obligations of the 
Contracts and the Policies.
    6. The Substitutions are designed to avoid any adverse effects upon 
the tax benefits available to Owners under the contracts and Policies 
and do not give rise to any current Federal income tax to Owners.
    7. Owners will not be subject to any 12b-1 fee as a result of the 
Substitutions.
    8. Neither USAA Life nor any of its affiliates currently receives, 
and will not receive for a period of three years from the date of the 
Commission order requested herein, any amounts from the Replacement 
Portfolios, their advisers, and/or the advisers' affiliates, including, 
without limitation, 12b-1, shareholder service, administrative or other 
service fees, revenue sharing or other arrangement, either with 
specific reference to the Replacement Portfolios or as part of an 
overall business arrangement.
    Applicants assert that, for the reasons summarized above, the 
proposed substitutions meet the standards of Section 26(b) of the Act 
and that the requested order should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.


Jonathan G. Katz,
Secretary.
[FR Doc. 01-9192 Filed 4-12-01; 8:45 am]
BILLING CODE 8010-01-M