[Federal Register Volume 66, Number 225 (Wednesday, November 21, 2001)]
[Notices]
[Pages 58538-58543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29164]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25270; File No. 812-12660]


John Hancock Variable Series Trust I, et al.

November 15, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application under section 17(g) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 17(a) of 
the Act.

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

    Summary of Application: Applicants request an order to permit (a) 
two series of John Hancock Variable Series Trust I (``Trust I'') each 
to acquire all of the assets and liabilities of one of two series of 
John Hancock Declaration Trust (``Declaration Trust'') and (b) four 
other series of Trust I each to acquire all of the assets and 
liabilities of one of four additional series of Trust I.
    Applicants: The Declaration Trust, Trust I, John Hancock Advisers, 
Inc. (``Hancock Advisers''), and John Hancock Life Insurance Company 
(``John Hancock'').
    Filing Date: The application (``Application'') was filed on October 
10, 2001 and amended and restated on November 15, 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 December 6, 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 who wish to be notified of a hearing may 
request notification my writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, The Declaration 
Trust and Hancock Advisers, 101 Huntington Avenue, Boston, MA 02198; 
Trust I and John Hancock, 197 Charendon Street, Boston, MA 02117.

FOR FURTHER INFORMATION CONTACT: Harry Eisenstein, Senior Counsel, or 
Keith Carpenter, Branch Chief, Division of Investment Management, 
Office of Insurance Products, 202-942-0670.

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, NW., 
Washington, DC 20549-0102.

Applicants' Representations

    1. The Declaration Trust and Trust I are both Massachusetts 
business trusts and each is registered as an open-end management 
investment company. The Declaration Trust is comprised of 15 series (or 
``Funds''), and Trust I is comprised of 33 such Funds.
    2. Hancock Advisers is the investment manager of the Declaration 
Fund and John Hancock is the investment manager of the Trust I Funds.
    3. Two of the Declaration Trust's Funds are party to one of the 
transactions for which the application seeks exemptive relief: the V.A. 
International Fund and the V.A. Mid Cap growth Fund (``Declaration 
Funds'').
    4. Ten of Trust I's Funds are party to a transaction for which the 
application seeks exemptive relief: the International Equity Fund, the 
Fundamental Growth Fund, the Large Cap Value CORE II Fund, the Large 
Cap Value CORE Fund, the Active Bond II Fund, the Active Bond Fund, the 
Aggressive Balance Fund, the Managed Fund, the Mid Cap Blend Fund, and 
the Growth & Income Fund (collectively, the ``Trust I Funds'').
    5. The application requests exemptive relief with respect to 
mergers of certain of the Funds listed in 3 and 4 above (``Acquired 
Funds'') into the remaining Funds listed there (``Acquiring Funds'') 
with each Fund listed as an Acquired Fund below to be merged into the 
corresponding Fund listed as an Acquiring Fund, as follows:

------------------------------------------------------------------------
               Acquired fund                Corresponding acquiring fund
------------------------------------------------------------------------
V.A. International........................  International Equity.
V.A. Mid Cap Growth.......................  Fundamental Growth.
Large Cap Value CORE II...................  Large Cap Value CORE.
Active Bond II............................  Active Bond.
Aggressive Balanced.......................  Managed.
Mid Cap Blend.............................  Growth & Income.
------------------------------------------------------------------------

    6. The shares of the Funds are currently sold exclusively to John 
Hancock and certain insurance companies affiliated with John Hancock 
(collectively, the ``Insurance Companies'') for allocation to separate 
accounts (``Separate Accounts'') established to fund benefits under 
variable annuity contracts and variable life insurance policies 
(collectively, the ``Contracts'') issued by these companies. The 
Separate Accounts are registered as investment companies of the unit 
investment trust type under the Act. The Insurance Companies no longer 
are making available any of the Acquired Funds as investment options 
under new Contracts. Sharesheld by an investment manager exceed five 
percent of the outstanding shares of one of the Funds in each of the 
mergers described above.
    7. Contract owners may choose to allocate their contract premiums 
and account values among various investment options, including one or 
more of the Acquired funds and/or the Acquiring Funds. As a result, 
owners may participate, indirectly, in the performance of those Funds.
    8. With one exception, the investment objective of each Acquired 
Fund is identical to that of its corresponding Acquiring Fund.
    9. The exception involves the proposed merger of the Mid Cap Blend 
Fund, whose investment objective is ``long-term capital appreciation,'' 
into the Growth & Income Fund, whose objective is ``income and long-
term capitalization.'' Income, however, does not always form a major 
portion of the Growth & Income Fund's total investment return. The 
Growth & Income Fund's income was approximately 1% of its average net 
assets for its two most recent fiscal years.
    10. The investment objective of each Fund is non-fundamental.
    11. In the case of two of the mergers (``Clone Mergers''), the 
Acquiring Fund

[[Page 58539]]

and the corresponding Acquired Fund follow an identical investment 
program and share the same investment manager, sub-adviser and 
portfolio manager: Large Cap Value CORE II Fund into Large Cap Value 
CORE Fund and Active Bond II Fund into Active Bond Fund.
    12. In the case of each of the other four proposed mergers, the 
investment programs of the Acquired Fund and the corresponding 
Acquiring Fund are similar but not identical. In one case (V.A. 
International Fund into International Equity Fund), the Acquiring Fund 
may be more conservatively managed. Applicants indicate that no 
definitive generalization can be made about the relative conservatism 
or aggressiveness of the constituent Funds in any of the three 
remaining mergers.
    13. Except for the Managed and Growth and Income Funds, each of the 
Funds is ``diversified'' within the meaning of section 5(b)(1) of the 
Act. John Hancock and Trust I assert, however, that neither the Managed 
Fund nor the Growth and Income Fund exercises its latitude to 
concentrate in particular issuers in a way that has practical 
significance for investors, in terms of distinguishing it from its 
corresponding Acquired Fund (i.e., The Aggressive Balance Fund and the 
Mid Cap Blend Fund, respectively).
    14. Except for the V.A. Mid Cap Growth Fund, each Fund has at least 
one sub-investment adviser, who is responsible for making and 
implementing day-to-day investment decisions. The Acquired and 
Acquiring Funds in each of the Clone Mergers have the same sub-adviser. 
Two of the Acquiring Funds (the Managed Fund and the Growth & Income 
Fund) have co-sub-advisers. In each case, one of these co-sub-advisers 
(Independence Investment LLC) also is the sole sub-adviser to the 
corresponding Acquired Fund.
    15. The approximate net assets of each Acquired Fund and its 
corresponding Acquiring Fund as of June 30, 2001 were as follows:

------------------------------------------------------------------------
               Acquired fund                Corresponding acquiring fund
------------------------------------------------------------------------
V.A. International--$5 million............   International Equity--$21
                                             million.
V.A. Mid Cap Growth--$6 million...........  Fundamental Growth--$40
                                             million.
Large Cap Value CORE II--$7 million.......  Large Cap Value CORE--$44
                                             million.
Active Bond II--$7 million................  Active Bond--$816 million.
Aggressive Balance--$20 million...........  Managed--$2,730 million.
Mid Cap Blend--$23 million................  Growth & Income--$2,800
                                             million.
------------------------------------------------------------------------

    16. The Funds' annualized total returns for the indicated periods 
ended June 30, 2001 were as follows:

------------------------------------------------------------------------
                                    Twelve
              Fund               months  (In    Since fund's inception
                                   percent)              date
------------------------------------------------------------------------
V.A. International.............       -31.56  .83% (8/29/96)
International Equity...........       -25.00  -6.23% (8/31/99)
V.A. Mid Cap Growth............       -36.99  4.50% (1/7/98)
Fundamental Growth.............       -35.19  9.51% (8/31/99)
Large Cap Value CORESM II......         7.66  7.66% (6/30/01)
Large Cap Value CORESM.........         8.97  4.36% (8/31/99)
Active Bond II.................        10.46  10.46% (6/30/00)
Active Bond....................        10.73  8.02% (3/29/86)
Aggressive Balanced............        -6.00  .74% (8/31/99)
Managed........................        -2.89  11.02% (3/29/86)
Mid Cap Blend..................         4.35  16.15% (8/31/99)
Growth & Income................       -20.09  13.13% (3/29/86)
------------------------------------------------------------------------

    17. Although the above table shows that the V.A. International Fund 
has outperformed the International Equity Fund for the life of both 
Funds, most of the V.A. International Fund's performance was achieved 
under a different sub-adviser. For the six-months ended June 30, 2001, 
when both the current sub-advisers were serving the total return of the 
V.A. International fund was--19.26% and that of the International 
Equity Fund was--14.56%.
    18. Both Acquired Funds in the Clone Mergers (i.e., the Large Cap 
Value CORE II fund and the Active Bond II Fund) had other sub-advisers 
and followed somewhat different investment programs prior to January 1, 
2001. This may reduce the value of performance comparisons for the 
period prior to that date.
    19. As a contractual commitment in the investment advisory 
agreements for each of the Trust I Funds, John Hancock reimburses each 
such Fund for most of its operating expenses (other than advisory fees) 
that exceed .10% per annum of the Fund's average daily net asset value.
    20. Hancock Advisers, through at least the first four months of 
2002 has agreed to reimburse each of the V.A. International Fund and 
the V.A. Mid Cap Growth Fund for most of its operating expenses (other 
than advisory fees) that exceed .25% per annum of the Fund's average 
daily net assets.
    21. The terms and conditions of each of the six proposed mergers 
will be as set forth in an Agreement and Plan of Reorganization 
(``Plan''). Each merger will occur on a ``Closing Date,'' which is 
expected to be December 7, 2001 for one of the mergers, December 19, 
2001 for another, and December 14, 2001 for the remainder.
    22. Under the Plans, each Acquiring Fund will acquire substantially 
all of the assets, subject to the liabilities, of the corresponding 
Acquired Fund in consideration of the issuance by the Acquiring Fund of 
shares having an aggregate net asset value (``NAV'') equal to the 
aggregate NAV of the Acquired Fund's shares, determined as of 4 p.m. 
Eastern Time (``Effective Time'') on the Closing Date. The NAV of each 
Fund's shares for these purposes will be computed in the same manner as 
that Fund normally uses in pricing its shares for purchase and 
redemption. The aforementioned Acquiring Fund Shares will be delivered 
pro-rata to the Acquired Fund's shareholders of record as of the close 
of business on the Closing Date.
    23. The Plans are subject to a number of conditions precedent, 
including that the mergers will have been approved by the vote of 
shareholders of their respective Acquired Funds. In connection with 
that vote, the Insurance Companies are soliciting instructions from 
contract owners as to how to vote each Acquired Fund's outstanding 
shares. The Insurance Companies will vote their shares of an Acquired 
Fund

[[Page 58540]]

held in a Separate Account based on instructions received from contract 
owners who are participating in that Fund. Shares of an Acquired Fund 
for which no instructions are received in time to be voted will be 
represented by the Insurance Companies at the meeting and voted in the 
same proportion as shares of that Fund that are being held in the same 
Separate Account and for which instructions have been received in time 
to be voted.
    24. The Plans may be terminated at any time by mutual agreement 
between the parties. Applicants have agreed to the relief they are 
requesting being conditioned on their obtaining period approval from 
the SEC of any material change in the applicable Plan.
    25. Each merger has been structured so as to be a tax-free 
reorganization.
    26. Because of the similarity of each Acquired Fund's investment 
program to that of its corresponding Acquiring Fund, applicants do not 
expect it will be necessary to acquire or dispose of portfolio 
securities outside the normal course in connection with any of the 
proposed mergers.
    27. Whether or not the mergers are consummated, each Fund will 
incur certain other expenses attributable to the Fund's discharging its 
role in connection with the mergers. This includes each Fund's 
attributable portion of such items as (a) the costs of preparing 
filing, printing and mailing of proxy solicitation materials, (b) the 
cost of conducting a Fund shareholders meeting, and (c) the costs of 
obtaining any appropriate legal opinions and regulatory approvals.
    28. The proposed mergers will have no effect on the economic or 
other rights and interests of contract owners. The rates of fees and 
charges under the contracts will be unaffected by the mergers.
    29. The six tables below show, for each of the mergers as to which 
applicants request relief, the constituent Funds' fees and expenses for 
the twelve months ended June 30, 2001, as well as on a ``pro-forma'' 
basis as if those Funds had merged at the beginning of that twelve 
month period. The fees and expenses are expressed as an annual 
percentage of the Funds' average daily net assets.

----------------------------------------------------------------------------------------------------------------
                                                                V.A.                              Pro-forma of
                                                           International      International    combined acquired
                 Type of fee or expense                    fund (acquired      equity fund          fund and
                                                               fund)         (acquiring fund)    acquiring fund
----------------------------------------------------------------------------------------------------------------
Investment Management Fees.............................              0.90%              1.20%              1.20%
Other Expenses (Before Reimbursement)..................              2.70%              0.80%              0.80%
    Total Annual Fund Operating Expenses (Before                     3.60%              2.00%              2.00%
     Reimbursement)....................................
Reimbursement From Investment Manager..................              2.45%               .70%               .70%
    Total Annual Fund Operating Expenses (After                      1.15%              1.30%              1.30%
     Reimbursement)....................................
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                                  Pro-forma of
                                                            V.A. Mid cap       Fundamental     combined acquired
                 Type of fee or expense                     growth fund        growth fund          fund and
                                                          (acquired fund)    (acquiring fund)    acquiring fund
----------------------------------------------------------------------------------------------------------------
Investment Management Fees.............................              0.75%              0.90%              0.90%
Other Expenses (Before Reimbursement)..................              0.35%              0.24%              0.23%
    Total Annual Fund Operating Expenses (Before                     1.10%              1.14%              1.13%
     Reimbursement)....................................
Reimbursement From Investment Manager..................               .10%               .14%               .13%
    Total Annual Fund Operating Expenses (After                      1.00%              1.00%              1.00%
     Reimbursement)....................................
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                     Large cap       Large cap     Pro forma of
                                                                   value CORE SM   value CORE SM     combined
                                                                      II fund          fund        acquired fund
                     Type of fee or expense                          (acquired      (acquiring     and acquiring
                                                                       fund)           fund)           fund
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Investment Management Fees......................................            .75*             .75             .75
Other Expenses (Before Reimbursement)...........................             .66             .20             .31
    Total Annual Fund Operating Expenses (Before Reimbursement).           1.41*             .95            1.06
Reimbursement from Investment Manager...........................             .56             .10             .21
    Total Annual Fund Operating Expenses (After Reimbursement)..            .85*             .85            .85
----------------------------------------------------------------------------------------------------------------
* Restated to reflect a .05% investment management fee decrease effective as of May 1, 2001.


----------------------------------------------------------------------------------------------------------------
                                                                                                   Pro-forma of
                                                                  Active bond II    Active bond      combined
                                                                  fund (acquired       fund        acquired fund
                     Type of fee or expense                            fund)        (acquiring     and acquiring
                                                                     (percent)         fund)           fund
                                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Investment Management Fees......................................             .70            .62*             .62
Other Expenses (Before Reimbursement)...........................             .48              .5             .15
    Total Annual Fund Operating Expenses (Before Reimbursement).            1.18            .77*             .77
Reimbursement from Investment Manager...........................             .38             .05             .05
    Total Annual Fund Operating Expenses (After Reimbursement)..             .80            .72*            .72
----------------------------------------------------------------------------------------------------------------
* Restated to reflect an increase in the investment management fee (which previously had been .25%) effective as
  of November 1, 2001.


[[Page 58541]]


----------------------------------------------------------------------------------------------------------------
                                                                                                  Pro-forma of
                                                             Aggressive          Managed       combined acquired
                 Type of fee or expense                    balanced fund     (acquiring fund)       fund and
                                                          (acquired fund)      (In percent)      acquiring fund
                                                            (In percent)                          (In percent)
----------------------------------------------------------------------------------------------------------------
Investment Management Fees.............................                .67               *.67                 67
Other Expenses (Before Reimbursement)..................                .28               *.11                .11
    Total Annual Fund Operating Expenses...............
    (Before Reimbursement).............................                .95               *.78                .78
Reimbursement from Investment Manager).................                 18               *.01                .01
    Total Annual Fund Operating Expenses...............
    (After Reimbursement)..............................                .77               *.77               .77
----------------------------------------------------------------------------------------------------------------
* Restated to reflect an investment management fee increase of approximately .35% effective as of November 1,
  2000.


----------------------------------------------------------------------------------------------------------------
                                                                                                  Pro-forma of
                                                           Mid cap blend     Growth & Income   combined acquired
                 Type of fee or expense                    fund (acquired    (acquiring fund)       fund and
                                                             fund)  (In        (In percent)      acquiring fund
                                                              percent)                            (In percent)
----------------------------------------------------------------------------------------------------------------
Investment Management Fees.............................                .75               *.67                 67
Other Expenses (Before Reimbursement)..................                .23                .12                .12
    Total Annual Fund Operating Expenses...............
    (Before Reimbursement).............................                .98               *.79                .79
Reimbursement from Investment Manager).................                 13                .02                .02
    Total Annual Fund Operating Expenses...............
    (After Reimbursement)..............................                .85               *.77               .77
----------------------------------------------------------------------------------------------------------------
* Restated to reflect an investment management fee increase effective as of November 1, 2000. Prior to that
  date, the fee was .25% per annum.

    30. None of the Funds impose any front-end or back-end sales 
charge.
    31. The Declaration Trust's Board of Trustees considered the 
mergers to which the Declaration Funds are party at a meeting on 
September 11, 2001. Among other things, the Board considered the 
following matters:
    a. The Declaration Funds are no longer being offered to new 
Contract purchasers, making it increasingly difficult for those Funds 
to attract additional assets.
    b. Shareholders may be better served by larger Funds (such as the 
corresponding Acquiring Funds), because those Funds may be able to 
invest in a broader range of securities and increase diversification.
    c. The International Equity Fund shares have performed better than 
the V.A. International Fund over the twelve months ended June 30, 2001; 
and the Fundamental Growth Fund has outperformed the V.A. Mid Cap 
Growth Fund over the life of both Funds. The Trustees believed that 
each of these Acquiring Funds is better positioned than the 
corresponding Declaration Fund to generate strong future returns, 
because of its greater flexibility to choose from among a broader range 
of investments.
    d. The proposed mergers may lead to economics of scale that can 
lead to better control over expenses than is possible for the 
Declaration Funds alone.
    e. The proposed mergers may also benefit John Hancock and John 
Hancock Advisers by reducing the amount of resources the John Hancock 
organization currently expends in the management and administration of 
these Funds. The Board concluded, however, that any such savings would 
not be significant.
    f. The historical expense ratio of each Declaration Fund and its 
corresponding Acquiring Fund, as well as the pro-forma expense ratio 
assuming a combination of the two Funds.
    g. Given the Acquiring Funds' current size and historical growth 
rate, the Trustees did not believe that, under all the circumstances, 
either Declaration Fund would grow to an asset size that would allow it 
to realize economics of scale or to significantly broaden 
diversification of its investment portfolio.
    32. Based on such considerations, and all the other information 
available to them, the Declaration Trust's Board, including all of its 
trustees who are not ``interested persons'' of the Declaration Trust or 
of any of its ``affiliated persons'' as those terms are defined in 
section 2(a) of the Act (``Independent Trustees''), unanimously 
approved both of the mergers to which a Declaration Fund is party. In 
addition, the Board, including all of the Independent Trustees, in the 
exercise of their reasonable business judgment, unanimously determined 
that each such merger would be in the best interest of the affected 
Declaration Fund and its shareholders, and that the interests of such 
shareholders would not be diluted as a result of the merger.
    33. Trust I's Board of Trustees considered each merger at a meeting 
on September 12, 2001.
    34. As to each Acquiring Fund, the Trust I Board considered, among 
other things, the following matters:
    a. The mergers would add substantial assets to each Acquiring Fund, 
which may help the Acquiring Funds to be managed more efficiently and 
effectively over time.
    b. The acquisition of these assets would involve little effort or 
expense on behalf of the Acquiring Funds.
    c. The fact that the mergers will not in any way disadvantage these 
Funds.
    35. As to the Acquired Funds, the Board considered, among other 
things, the following matters:
    a. The fact that the investment programs of the constituent Funds 
in each proposed merger are similar (or identical), except for the 
relative size of each Fund.
    b. The fact that, due to their relatively small size, the Acquired 
Funds are not economic to operate, and there is no reasonable prospect 
for any of these Funds, by itself, to remedy this.
    c. The fact that a merger of each of these Funds with its 
corresponding Acquiring Fund would address this problem in a way that 
permits the shareholder of the Acquired Fund to continue to have the 
same or similar

[[Page 58542]]

investment program, as well as the expected benefits of lower expenses 
over time and more effective management.
    d. The relative performance records of the Large Cap Value CORE and 
Active Bond Funds, since their respective commencements of operations. 
The performance records of the Acquired Funds corresponding to these 
two Acquiring Funds were less relevant to the Board, for two reasons. 
First, in each case, part of the acquired Fund's historical performance 
was achieved by a sub-adviser that has since been terminated and that 
follow a somewhat different investment program. Second, because the 
investment program and sub-adviser of each of these two Acquired Funds 
are now the same as those of its corresponding Acquiring Fund, the 
future performance of either of these Acquired Funds should not differ 
from that of its corresponding Acquiring Fund, except to the extent 
that the Acquired Fund cannot be managed as efficiently and effectively 
due to its smaller size.
    e. The investment performance records of the Managed Fund and the 
Growth & Income Funds over the relatively long period of their 
existence. The investment performance record of the corresponding 
Acquired Funds was less relevant to the Board, because each of those 
Funds commenced operations only on August 31, 1999.
    f. The fact that the merger will afford Aggressive Balanced and Mid 
Cap Blend Fund shareholders an opportunity to benefit from the 
investment expertise of a second sub-adviser, in addition to that of 
their current sub-adviser.
    g. The fact that the proposed transactions will not in any way 
disadvantage any of the Trust I constituent Funds.
    36. Based on such considerations, and all other information 
available to them, Trust I's Board, including all of its Independent 
Trustees, unanimously approved each merger. In addition, the Board, 
including all of the Independent Trustees, in the exercise of their 
reasonable business judgment, unanimously determined that each such 
merger for which this application seeks relief would be in the best 
interest of each affected Trust I Fund and its shareholders, and that 
the interests of such shareholders would not be diluted as a result of 
any of the mergers for which the application seeks relief.
    37. Each Fund will be charged with those expenditures incurred in 
connection with the mergers described above that are properly 
attributable to it. The expenses for a Fund are expected to range from 
$12,000 to $22,500. These costs are within the category of reimbursable 
expenses under the Funds' expense reimbursement arrangements. 
Applicants assert that, as a practical matter only the Managed, Growth 
and Income, and Active Bond Funds may bear any merger costs and 
expenses. Applicants also assert that the amount of expenses that they 
would bear is insufficient to affect their per share net asset value or 
their published expense ratios.

Applicants' Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, acting as principal, from selling any security to, or 
purchasing any security from the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include: (a) Any 
person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of the 
other person; (b) any person % or more of whose securities are directly 
or indirectly owned, controlled, or held with power to vote by the 
other person; (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person is an 
investment company, any investment adviser of that company. Applicants 
state that each Acquired Fund and its corresponding Acquiring Fund may 
be deemed affiliated persons and, thus, absent an exemption, the 
reorganization may be prohibited by section 17(a).
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided that certain conditions set 
forth in the rules are satisfied.
    3. Applicants believe that rule 17a-8 may be unavailable in 
connection with the mergers, because one of the constituent Funds in 
each merger may be deemed to be affiliated for reasons other than those 
set forth in the rule. Most particularly, the investment manager of one 
of the Funds in each of the mergers is an affiliated person of that 
Fund, because that Fund's shares held by the investment manager and 
reflecting ``seed money'' that the investment manager has maintained in 
the Fund constitute more than 5% of the Fund's outstanding shares. 
These shares will be voted in accordance with Contract owner 
instructions (i.e., in the same manner as if they were shares 
attributable to Contracts as to which voting instructions have not been 
received from the Contract owners).
    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the provisions of section 17(a) if the evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) of the Act to the extent necessary to 
permit applicants to consummate the mergers. Applicants submit that the 
mergers satisfy the standards of section 17(b) of the Act.
    6. In support of their claim that the mergers satisfy the standards 
of section 17(b) of the Act, Applicants state that (a) the aggregate 
value of the interest of a contract owner participating in an Acquired 
Fund or an Acquiring Fund will not change as a result of the proposed 
merger; (b) the investment program and fundamental investment policies 
of each Acquired Fund and the corresponding Fund are substantially 
similar (or in some cases identical); (c) the Board of Trustees of each 
Fund, including all Independent Trustees have determined that each 
merger is in the best interest of that Fund and its shareholders; (d) 
no sales charges will be imposed in connection with the mergers; (e) 
the mergers will impose no direct or indirect tax liability upon any 
Fund or its shareholders or participating contract owners; (f) the 
requirements of rule 17a-8 relating to the actions of the Boards of 
Trustees for the Declaration Trust and Trust I will be satisfied (g) 
the mergers will be submitted to shareholders of the Acquired Funds 
pursuant to registration statements on Form N-14; (h) the transfer of 
securities will be made on the basis of relative net asset value; (i) 
those merger related costs that will be borne by a Fund will not affect 
the value of its per share net asset value or their published expense 
ratios; (j) the total annual operating expense ratio of each of the 
Acquiring Funds, before reimbursement, is lower (or, in the case of 
Fundamental Growth Fund, no more than a few basis point higher) than 
the Fund it is acquiring; and (k) the investment manager for each Fund 
votes all of its shares in the same proportion as the instruction 
received

[[Page 58543]]

from contract owners who are participating in that Fund.
    7. Specifically, Applicants believe the fairness, reasonableness 
and absence of overreaching are evidenced and supported by the Board 
determinations set out above and the factors that the Boards considered 
in connection with that determination; by the terms of the mergers, as 
described above; by the absence of any negative impact on the value of 
any shareholder's or contract owner's interest; by the expected 
benefits to all of the Funds from the proposed mergers; and by the fact 
that, as applicants represent in the application, the mergers will be 
effected in compliance with all the requirements of Rule 17a-8, except 
for the existence of an impermissible affiliation through ownership of 
seed money shares by an investment adviser.
    8. In view of the similarity of each Acquired Fund to its 
corresponding Acquiring Fund, Applicants contend that each merger will 
be consistent with the constituent Funds' policies as recited in their 
respective registration statements and reports filed under the Act.
    9. Applicants also believe that each merger is consistent with the 
policies and purposes of the Act, particularly in view of the fact that 
each merger is subject to approval by the Acquired Fund's sharesholders 
and that none of the mergers will result in any diminution or dilution 
of the value of any security holder's interests or any other loss or 
diminution of his or rights or privileges.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-29164 Filed 11-20-01; 8:45 am]
BILLING CODE 8010-01-M