[Federal Register Volume 66, Number 237 (Monday, December 10, 2001)]
[Notices]
[Pages 63727-63731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30442]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25308; File No. 812-12556]


First Variable Life Insurance Company, et al.

December 4, 2001.
Agency: Securities and Exchange Commission (``SEC or ``Commission'').
    Summary of Application: Applicants seek an order pursuant to 
Section 26(c) of the Investment Company Act of 1940 (``1940 Act''), 
approving the substitution of shares of certain Portfolios of Variable 
Investors Series Trust (``VIST'') for shares of certain portfolios of 
other variable insurance products funds as follows: (1) Shares of the 
Pilgrim Baxter Insurance Series Fund, Inc.--PBHG Small Cap Growth 
Portfolio for shares of the VIST Small Cap Growth Portfolio; (2) shares 
of the American Century VP International Growth Fund for shares of the 
VIST World Equity Portfolio; (3) shares of the American Century VP 
Ultra Fund for shares of the VIST Growth Portfolio; (4) shares of the 
American Century VP Income and Growth Fund for shares of the VIST 
Matrix Equity Portfolio; (5) shares of the Fidelity Variable Insurance 
Products Fund--Growth & Income Portfolio for shares of the VIST Growth 
& Income Portfolio; (6) shares of the Fidelity Variable Insurance 
Products Fund--Growth & Income Portfolio for shares of the VIST 
Multiple Strategies Portfolio; (7) shares of the Federated High Income 
Bond Fund II for shares of the VIST High Income Bond Portfolio; and (8) 
shares of the Federated U.S. Government Securities Fund II for shares 
of the VIST U.S. Government Bond Portfolio. Applicants also seek an 
order, pursuant to Section 17(b) of the 1940 Act, granting exemptions 
from Section 17(a) to permit Applicants to carry out the above-
referenced substitution by means of in-kind redemption and purchase.
    Applicants: First Variable Life Insurance Company (``First 
Variable''),

[[Page 63728]]

First Variable Annuity Fund E (``Account E''), First Variable Annuity 
Fund A (``Account A'') and Separate Account VL (``Account VL'') of 
First Variable Life Insurance Company. First Variable is referred to 
herein as the ``Insurance Company Applicant.'' Account E, Account A and 
Account VL are referred to herein as the ``Separate Account 
Applicants.''
    Filing Date: The application (``Application'') was filed on June 
21, 2001 and amendments thereto were filed on October 11, 2001 and 
December 3, 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 27, 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 requester'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: For the Commission: Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. For 
Applicants: c/o Raymond A. O'Hara III, Esquire, Blazzard, Grodd & 
Hasenauer, PC, P.O. Box 5108, Westport, Connecticut 06881. Copies to: 
Steve M. Callaway, Esquire, Senior Associate Counsel, Protective Life 
Corporation, Birmingham, Alabama 35202.

FOR FURTHER INFORMATION CONTACT: Alison Toledo, Senior Counsel, or 
Lorna MacLeod, Branch Chief, Division of Investment Management, Office 
of Insurance Products, at (202) 942-0670.

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

Applicants' Representations

    1. First Variable is a stock life insurance company that was 
organized under Arkansas law in 1968. It engages principally in the 
business of variable life insurance, variable annuities and fixed 
annuities. First Variable holds licenses to sell insurance in 49 
states, the District of Columbia and the U.S. Virgin Islands. On 
October 1, 2001, Protective Life Insurance Company, a subsidiary of 
Protective Life Corporation of Birmingham, Alabama, acquired the stock 
of First Variable from ILona Financial Group, Inc., formerly known as 
Irish Life of North America, Inc., which had owned all of the 
outstanding stock of First Variable until that date.
    2. Account E is a segregated asset account of First Variable. 
Account E was established by First Variable on December 4, 1979, under 
Arkansas insurance laws. Account E is used to fund certain Contracts 
issued by First Variable. Account E is divided into several 
subaccounts, each of which invests in and reflects the investment 
performance of a specific underlying registered investment company or 
portfolio thereof. Account E is registered as a unit investment trust 
under the 1940 Act.
    3. Account A is a segregated asset account of First Variable. 
Account A was established by First Variable on July 1, 1968 under 
Arkansas insurance laws. Account A is used to fund certain Contracts 
issued by First Variable. Account A is divided into several 
subaccounts, each of which invests in and reflects the investment 
performance of a specific underlying registered investment company or 
portfolio thereof. Account A is registered as a unit investment trust 
under the 1940 Act.
    4. Account VL is a segregated asset account of First Variable. 
Account VL was established by First Variable on March 6, 1987, under 
Arkansas insurance laws. Account VL is used to fund certain Contracts 
issued by First Variable. Account VL is divided into several 
subaccounts, each of which invests in and reflects the investment 
performance of a specific underlying registered investment company or 
portfolio thereof. Account VL is registered as a unit investment trust 
under the 1940 Act.
    5. The segregated asset accounts support certain variable annuity 
contracts and variable life insurance policies (collectively, the 
``Contracts'') issued by the Insurance Company Applicant. Under the 
Contracts, First Variable reserves the right to substitute one or more 
of the variable investment options with another variable investment 
option. These contractual provisions have been disclosed in the 
prospectus or the statements of additional information relating to the 
contracts.
    6. The Trust was organized as a Massachusetts business trust on 
December 23, 1986. The Trust is comprised of eight separate series 
(``Portfolios'' or ``Replaced Portfolios''). The Trust is registered as 
an open-end management investment company under the 1940 Act and its 
shares are registered as securities under the Securities Act of 1933 
(``1933 Act''). The shares of the Trust are sold exclusively to the 
Separate Account Applicants to fund benefits under the Contracts. First 
Variable Advisory Services Corporation (``FVAS'') is the investment 
adviser for the Trust. FVAS is a wholly-owned subsidiary of First 
Variable, the ultimate parent of which is Protective Life Corporation. 
FVAS has engaged sub-advisers for each of the Portfolios of the Trust 
to make investment decisions and place orders.
    7. Applicants request the Commission's approval to effect the 
substitutions of the shares of portfolios of other variable insurance 
products funds (``Substituting Portfolios'') for the shares of the 
Replaced Portfolios (the ``Substitution''). The Substituting Portfolios 
are series of open-end management investment companies registered under 
the 1940 Act, the shares of which are registered as securities under 
the 1933 Act. Applicants represent that the Substituting Portfolios, in 
general, have similar investment objectives to, and more assets, better 
performance and lower expense ratios than, the Replaced Portfolios. The 
Replaced Portfolios and the corresponding Substituting Portfolios are 
as follows:

------------------------------------------------------------------------
            Replaced portfolios                Substituting portfolios
------------------------------------------------------------------------
High Income Bond Portfolio................  Federated High Income Bond
                                             Fund II.
World Equity Portfolio....................  American Century VP
                                             International Growth Fund.
Small Cap Growth Portfolio................  PBHG Small Cap Growth
                                             Portfolio.
Matrix Equity Portfolio...................  American Century VP Income
                                             and Growth Fund.
U.S. Government Bond Portfolio............  Federated U.S. Government
                                             Securities Fund II.
Growth Portfolio..........................  American Century VP Ultra
                                             Fund.
Multiple Strategies Portfolio.............  Fidelity VIP Growth & Income
                                             Portfolio.
Growth & Income Portfolio.................  Fidelity VIP Growth & Income
                                             Portfolio.
------------------------------------------------------------------------

    8. The investment objectives of the Replaced Portfolios and 
Substituted Portfolios are as follows:
    (a) The stated objective for the High Income Bond Portfolio and the 
Federated Income Bond Fund II is to seek a high level of current income 
while secondarily seeking capital appreciation by investing primarily 
in fixed-income securities, including corporate bonds and notes, 
discount

[[Page 63729]]

bonds, zero-coupon bonds, convertible securities and preferred stocks 
and bonds issued with warrants, which are rated Baa or below by Moody's 
or BBB or below by Standard & Poor's or in unrated securities 
determined to be of comparable quality. The same individual, Mark E. 
Durbiano, manages both of these Portfolios.
    (b) The World Equity Portfolio's stated objective is to seek 
maximum long-term total return by investing primarily in common stocks, 
and securities convertible into common stocks, traded in securities 
markets located around the world, including the United States. This 
objective is to be obtained via international blue chips and domestic 
U.S. small cap stocks. The American Century VP International Growth 
Portfolio's stated objective is to seek capital growth by investing 
primarily in large cap equities in developed countries around the 
world. The Portfolio also invests in preferred stock and convertible 
debt and it can invest in the United States.
    Morningstar Inc. (``Morningstar''), a provider of mutual fund, 
stock and variable insurance investment information, assigns both of 
these Portfolios to a Large-Growth investment style box focusing on 
international equities.
    (c) The objective of the Small Cap Growth Portfolio and the PBHG 
Small Cap Growth Portfolio is to seek capital appreciation by investing 
primarily in common stocks of emerging companies with the potential for 
significant capital appreciation and strong earnings growth with 
attendant risk. The Portfolios normally invest at least 65% of assets 
in common stocks and convertible securities issued by companies with 
market capitalization or annual revenues not exceeding $1 billion at 
the time of purchase. Both Portfolios are managed by the same entity--
Pilgrim Baxter & Associates, Ltd.
    (d) The Matrix Equity Portfolio's investment objective is to seek 
capital appreciation and current income by investing in a diversified 
portfolio of equity securities. The American Century VP Income and 
Growth Portfolio's investment objective is to seek capital growth by 
investing in common stocks, with income as a secondary objective.
    Over the last ten years, both Portfolios have had substantially 
similar investment styles and Morningstar has categorized each fund as 
either being Large/Value or Large/Blend during that time period.
    (e) The U.S. Government Bond Portfolio's investment objective is to 
seek current income and preservation of capital. Under normal 
circumstances, at least 80% of the Portfolios assets will be invested 
in U.S. Government Securities; the remainder may be invested in 
investment grade corporate securities and in cash and money market 
instruments. The Federated U.S. Government Securities Fund II's 
investment objective is to provide current income by investing at least 
65% of its assets in U.S. government securities, including mortgage 
backed securities issued by U.S. government agencies. In addition, the 
Fund may invest up to 35% of its assets in investment grade non-
government mortgage-backed securities.
    Morningstar classifies both portfolios as Intermediate Government 
Bond Funds.
    (f) The Growth Portfolio's investment objective is to seek capital 
growth; it also seeks current income when consistent with its primary 
objective. It pursues its objective by investing primarily in common 
stocks and securities convertible into common stock. Securities are 
selected on the basis of their issuers long-term potential for 
expanding their earnings, profitability, and size and on the basis of 
potential increases in market recognition of their securities. The 
American Century VP Ultra Fund's investment objective is to seek long-
term capital growth. The Portfolio pursues this objective by investing 
in large company stocks that the manager believes will increase in 
value over time, using a growth investment strategy. The strategy looks 
for companies with earnings and revenues that are not only growing, but 
also growing at a successfully faster or accelerating pace.
    Both portfolios are classified by Morningstar as large cap growth 
funds.
    (g) The Multiple Strategies Portfolio's investment objective is to 
seek as high a level of total return as the manager considers 
consistent with prudent investment risk. The Portfolio invests in 
equity securities, fixed income securities and money market 
instruments. Equity securities are selected on the basis of their 
issuers long-term potential for expanding their earnings, 
profitability, and size and on the basis of potential increases in 
market recognition of their securities. The Fidelity VIP Growth & 
Income Portfolio's investment objective is to seek high total return 
through a combination of current income and capital appreciation. The 
Portfolio invests a majority of its assets in common stocks with a 
focus on those that pay current dividends and show potential for 
capital appreciation. The Portfolio also invests in bonds, including 
lower-quality debt securities, as well as stocks that are not currently 
paying dividends, but offer prospects for future income or capital 
appreciation.
    (h) The Growth & Income Portfolio's investment objective is to seek 
growth of capital and income. The Portfolio pursues this objective by 
investing primarily in dividend-paying common stocks, as well as fixed 
income securities. The Fidelity VIP Growth & Income Portfolio's 
investment objective is to seek high total return through a combination 
of current income and capital appreciation. The Portfolio invests a 
majority of its assets in common stocks with a focus on those that pay 
current dividends and show potential for capital appreciation. The 
Portfolio also invests in bonds, including lower-quality debt 
securities, as well as stocks that are not currently paying dividends, 
but offer prospects for future income or capital appreciation.
    Both of the Portfolios have been characterized by Morningstar as 
Large/Value and Large/Blend over the last 10 years.
    9. For the shares of each Replaced Portfolio held on behalf of 
their respective Separate Accounts at the close of business on the date 
selected for the Substitution, First Variable will redeem those shares 
for cash or in-kind. Simultaneously, First Variable, on behalf of each 
of its Separate Account Applicants, will place a purchase order for 
shares of each Substituting Portfolio so that each purchase will be for 
the exact amount of the redemption proceeds, which may be partly or 
wholly in-kind. Accordingly, at all times monies attributable to Owners 
then invested in the Replaced Portfolio will remain fully invested and 
will result in no change in the amount of any Owner's contract value, 
death benefit or investment in the applicable Separate Account 
Applicant.
    10. In connection with the redemption of all shares of each 
Replaced Portfolio, it is anticipated that the Replaced Portfolio will 
incur brokerage fees and expenses in connection with such redemption. 
To alleviate the potential impact, the redemptions for certain Replaced 
Portfolios will be effected partly for cash and partly for portfolio 
securities redeemed in-kind. In addition, Applicants will use the in-
kind and cash redemption proceeds to purchase shares of the 
Substituting Portfolio. In effecting the in-kind redemptions and 
transfers, the Trust has informed the Applicants that it will comply 
with the requirements of Rule 17a-7 under the 1940 Act and the 
procedures established

[[Page 63730]]

thereunder by the Board of Trustees of the Trust.
    11. As noted above, the portfolio securities received from the in-
kind redemptions will be used together with the cash proceeds to 
purchase the shares of the Substituting Portfolios. The Applicants have 
determined that partially effecting the redemption of shares of the 
Replaced Portfolios in-kind is appropriate, based on the similarity of 
certain types of portfolio securities that may be held by the Replaced 
Portfolio and its corresponding Substituting Portfolio. The Trust has 
advised the Applicants that the valuation of any in-kind redemptions 
will be made on a basis consistent with the normal valuation procedures 
of the Replaced Portfolio and that of the Substituting Portfolio.
    12. The full net asset value of the redeemed shares held by the 
Separate Account Applicants will be reflected in the Owners' contract 
values following the Substitution. The Applicants represent that the 
Owners will not bear, directly or indirectly any expenses, including 
brokerage expenses, for the Substitution so that the full net asset 
value of redeemed shares of the Replaced Portfolio held by the Separate 
Account Applicants will be reflected in the Owners' contract values 
following the Substitution.
    13. The Trust is fully advised of the terms of the Substitution. 
Applicants anticipate that until the Substitution occurs, the Trust 
will conduct the trading of portfolio securities in accordance with the 
investment objectives and strategies stated in the Trust's prospectus 
and in a manner that provides for the anticipated redemptions of shares 
held by the Separate Account Applicants.
    14. Applicants have determined that the Contracts allow the 
Substitution as described in the application, and that the transactions 
can be consummated as described therein under applicable insurance laws 
and under the Contracts. In addition, prior to effecting the 
Substitution, Applicants will have complied with any regulatory 
requirements they believe are necessary to complete the transactions in 
each jurisdiction where the Contracts are qualified for sale.
    15. Affected Owners will not incur any fees or charges, directly or 
indirectly, as a result of the Substitution, nor will the rights or 
obligations of First Variable under the Contracts be altered in any 
way. The proposed Substitution will not have any adverse tax 
consequences to Owners. The proposed Substitution will not cause 
Contract fees and charges currently being paid by existing Owners to be 
greater after the proposed Substitution than before the proposed 
Substitution. The proposed Substitution will not be treated as a 
transfer for the purpose of assessing transfer charges. Moreover, First 
Variable will allow the Owners, with respect to shares substituted, to 
transfer the Contract values held in the subaccount invested in the 
Substituting Portfolio for a period of thirty-one days without 
collecting transfer fees or imposing any additional restrictions on 
transfers. Moreover, such a transfer will not be counted as a transfer 
request under any contractual provisions of the Contracts that limit 
the number of transfers that may be made without charge.
    16. In anticipation of the filing of this Application, the 
respective Applicants have supplemented the prospectuses for the 
Contracts to reflect the proposed Substitution. Within five days after 
the Substitution, First Variable will send to Owners written notice of 
the Substitution (the ``Notice''), identifying the shares of the 
Replaced Portfolios that have been eliminated and the shares of the 
Substituting Portfolios that have been substituted. First Variable will 
include in such mailing the applicable prospectus supplement for the 
Contracts of the Separate Account Applicants describing the 
Substitution. For those Contracts that already include as a variable 
investment option the Substituting Portfolio, First Variable does not 
intend to mail a copy of the prospectus for the Substituting Portfolio 
to the Owners, because they already will have received a copy of a 
prospectus that includes the Substituting Portfolio in the ordinary 
course. For those Contracts that do not include as a variable 
investment option the Substituting Portfolio, First Variable will have 
amended the applicable registration statement and will provide a copy 
of the prospectus supplement for the Contract and the prospectus for 
the Substituting Portfolio with the Notice. Owners will be advised in 
the Notice that for a period of thirty-one days from the mailing of the 
Notice, Owners may transfer all assets, as substituted, to any other 
available subaccount without limitation or charge (the ``Free Transfer 
Period'').

Applicants' Legal Analysis

    1. Section 26(c) of the 1940 Act provides that ``[i]t shall be 
unlawful for any depositor or trustee of a registered unit investment 
trust holding the security of a single issuer to substitute another 
security for such security unless the [SEC] shall have approved such 
substitution.'' Section 26(b) of the 1940 Act (now Section 26(c)) was 
enacted as part of the Investment Company Act Amendments of 1970. Prior 
to the enactment of these amendments, a depositor of a unit investment 
trust could substitute new securities for those held by the trust by 
notifying the trust's security holders of the substitution within five 
(5) days after the substitution. In 1966, Commission, concerned with 
the high sales charges then common to most unit investment trusts and 
the disadvantageous position in which such charges placed investors who 
did not want to remain invested in the substituted security, 
recommended that Section 26 be amended to require that a proposed 
substitution of the underlying investments of a trust receive prior 
Commission approval.
    2. Applicants submit that the Substitution does not present the 
type of costly forced redemption or other harms that Section 26(c) was 
intended to guard against and is consistent with the protection of 
investors and the purposes fairly intended by the 1940 Act for the 
following reasons:
    (a) The Substitution will continue to fulfill Owners' objectives 
and risk expectations, because the investment objectives of each 
Substituting Portfolio are substantially similar to those of each 
Replaced Portfolio.
    (b) After receipt of the Notice informing an Owner of the 
Substitution, an Owner may request that his or her assets be 
reallocated to another subaccount at any time during the Free Transfer 
Period. The Free Transfer Period provides sufficient time for Owners to 
consider their reinvestment options;
    (c) The Substitution will be at net asset value of the respective 
shares, without the imposition of any transfer or similar charge;
    (d) Neither the Owners, the Replaced Portfolio nor the Substituting 
Portfolio will bear any costs of the Substitution, including brokerage 
fees, and accordingly, the Substitution will have no impact on the 
Owners' Contract values;
    (e) The Substitution will in no way alter the contractual 
obligations of First Variable or the rights and privileges of Owners 
under the Contracts;
    (f) The Substitution will in no way alter the tax benefits to 
Owners; and
    (g) The Substitution is expected to confer certain economic 
benefits on Owners by virtue of enhanced asset size and lower expenses.
    3. The Applicants have determined that each Substituting Portfolio 
is an appropriate replacement for each Replaced Portfolio and an 
appropriate investment vehicle for the Owners

[[Page 63731]]

because they share similar investment objectives. Accordingly, the 
Insurance Company Applicant has specifically determined that the 
Substituting Portfolios are appropriate investment vehicles for owners 
who have allocated values to the Replaced Portfolios and that the 
Substitution will be consistent with Owners' investment objectives.
    4. As of December 31, 2000, each Substituting Portfolio had lower 
expense ratios than its corresponding Replaced Portfolio, and with the 
exception of American Century VP International Growth Fund, American 
Century VP Income and Growth Fund and American Century VP Ultra Fund, 
each Substituting Portfolio pays management fees that are equal to or 
less than the corresponding Replaced Portfolio. Applicants believe that 
the addition of assets resulting from the Substitution will likely 
result in lower expense ratios for the Owners that have allocated their 
Contract values to the Substituting Portfolios.
    The expense structure of the American Century Fund is substantially 
different from that of the Trust. The Trust pays, in addition to a 
management fee, all of its own expenses, which may vary from year to 
year. In contrast, services provided by American Century under the 
American Century Management Agreement are offered under a unified fee 
arrangement. For the services it provides to the American Century Fund, 
American Century receives a unified management fee based on a 
percentage of the average net assets of the series of the Fund, 
including each of the American Century Substituting Portfolios. Out of 
that fee American Century pays all expenses of managing and operating 
the American Century Fund except brokerage expenses, taxes, interest, 
fees and expenses of the Fund's independent directors (including legal 
counsel fees), and extraordinary expenses. In each substution into the 
American Century Fund, the overall expense ratios of the Substituting 
Portfolios are lower and, in some cases, significantly so.
    5. With respect to the First Variable separate accounts investing 
in the American Century Substituting Portfolios, Applicants represent 
that there will be no increase in the contract charges from their 
current levels for a period of at least two years from the date of the 
Commission order requested herein.
    6. Applicants represent that First Variable does not currently 
receive (and will not receive for three years from the date of the 
Commission order requested herein) any direct or indirect benefit from 
the Substituting Portfolios (other than the American Century 
Substituting Portfolios), their advisers and/or their affiliates, that 
would exceed the amounts that First Variable or FVAS, the Trust's 
adviser, had received from the Replaced Portfolios, including without 
limitations, 12b-1, shareholder service, administrative or other 
service fees, revenue sharing or other arrangements, either with 
respect to specific reference to the Substituting Portfolios or as part 
of an overall business arrangement.
    7. Applicants represent that the returns for most of the 
Substituting Portfolios have generally been higher than the returns of 
the corresponding Replaced Portfolios, and that while there is no 
guarantee that past performance will continue, the return data supports 
Applicants' view that the Substitution is not expected to give rise to 
diminution in performance or other adverse effects on Contract values.
    8. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or an affiliated person of an 
affiliated person, from selling any security or other property to such 
registered investment company. Section 17(a)(2) of the 1940 Act 
prohibits any of the persons described above from purchasing any 
security or other property from such registered investment company. The 
proposed Substitution will be effected in part through in-kind 
redemptions and purchases and may be deemed to entail the indirect 
purchase of shares of a related Substituting Portfolio with portfolio 
securities of the Replaced Portfolio and the indirect sale of 
securities of the Replaced Portfolio for shares of the Substituting 
Portfolio.
    9. Section 17(b) of the 1940 Act provides that the Commission may 
grant an Order exempting transactions prohibited by Section 17(a) of 
the 1940 Act upon application if evidence establishes that:
    (a) The terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve over-reaching on the part of any person concerned;
    (b) The proposed transaction is consistent with the investment 
policy of each registered investment company concerned, as recited in 
its registration statement and reports filed under the 1940 Act; and
    (c) The proposed transaction is consistent with the general 
purposes of the 1940 Act.
    The Applicants represent that the terms of the proposed 
transactions, as described in this Application are: reasonable and 
fair, including the consideration to be paid and received; do not 
involve over-reaching; are consistent with the policies of the Replaced 
Portfolios of the Trust; and are consistent with the general purposes 
of the 1940 Act.
    10. Applicants represent that for all the reasons stated above, 
with regard to Section 26(c) of the 1940 Act, the Substitution is 
reasonable and fair. It is expected that existing and future Owners 
will benefit from the consolidation of assets in the Substituting 
Portfolios. The transactions effecting the Substitution will be 
effected in conformity with Section 22(c) of the 1940 Act and Rule 22c-
1 thereunder. Moreover, the partial in-kind redemptions of portfolios' 
securities of the Replaced Portfolios will be effected in conformity 
with Rule 17a-7 under the 1940 Act and the procedures of the Trust 
established pursuant to Rule 17a-7. The Owners' interests after the 
Substitution, in practical economic terms, will not differ in any 
measurable way from such interests immediately prior to the 
Substitution. In each case, the consideration to be received and paid 
is, therefore, reasonable and fair.

Conclusion

    Applicants submit, for all of the reasons stated herein, that their 
requests meet the standards set out in Sections 6(c), 17(b) and 26(c) 
of the 1940 Act and that an Order should, therefore, be granted. 
Accordingly, Applicants request an Order pursuant to Sections 6(c), 
17(b) and 26(c) of the 1940 Act approving the Substitution.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-30442 Filed 12-7-01; 8:45 am]
BILLING CODE 8010-01-P