[Federal Register Volume 67, Number 204 (Tuesday, October 22, 2002)]
[Notices]
[Pages 64936-64940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26850]


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SECURITES AND EXCHANGE COMMISSION

[Release No. IC-25769; File No. 812-12873]


London Pacific Life & Annuity Company; Notice of Application

October 16, 2002.
AGENCY: The Securities and Exchange Commission (``SEC or Commission'').

ACTION: Notice of application for an Order of approval pursuant to 
section 26(c) and Order of exemption pursuant to Sections 6(c) and 
17(b) of the Investment Company Act of 1940 (``1940 Act'').

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    Applicants: London Pacific Life & Annuity Company, LPLA Separate 
Account One and LPT Variable Insurance Series Trust (collectively, the 
``Applicants'').

SUMMARY: Applicants seek an order approving the substitution of the 
shares of the portfolios (``Replaced Portfolios'') of the LPT Variable 
Insurance Series Trust (the ``LPT Trust'') with shares of certain 
portfolios (``Substituting Portfolios'') of the MFS(R) Variable 
Insurance Trust (``MFS Trust'') as follows: (1) Shares of the RS 
Diversified Growth Portfolio with shares of the MFS New Discovery 
Series; (2) shares of the Harris Associates Value Portfolio with shares 
of the MFS Value Series; (3) shares of the LPA Core Equity Portfolio 
with shares of the MFS Value Series; (4) shares of the Strong Growth 
Portfolio with shares of the MFS Investors Growth Stock Series; and (5) 
shares of the MFS Total Return Portfolio with shares of the MFS Total 
Return Series. Applicants also seek an order of exemption pursuant to 
section 17(b) of the 1940 Act to permit certain in-kind redemptions and 
purchases in connection with the substitution.

DATES: The initial Application was filed on August 23, 2002. The 
amended and restated application was filed on October 2, 2002.
    Hearing or Notification of Hearing: An order granting the amended 
and restated 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 November 6, 2002, 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 may 
request notification of a hearing by writing to the Secretary of the 
SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, c/o Lynn K. Stone, 
Blazzard, Grodd & Hasenauer, P.C., PO Box 5108, Westport, Connecticut, 
06881. Copies to George C. Nicholson, London Pacific Life & Annuity 
Company, 3101 Poplarwood Court, Raleigh, North Carolina, 27604.

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

SUPPLEMENTARY INFORMATION: The following is a summary of the amended 
and restated application. The complete amended and restated application 
may be obtained for a fee from the SEC's Public Reference Branch, 450 
Fifth Street, NW., Washington, DC 20549, (tel. (202) 942-8090).

Applicants' Representations

    1. London Pacific Life & Annuity Company (``London Pacific'') was 
organized in 1927 in North Carolina as a stock life insurance company. 
London Pacific is authorized to sell life insurance and annuities in 40 
states and the District of Columbia. London Pacific's ultimate parent 
is London Pacific Group Limited, an international fund management firm 
chartered in Jersey, Channel Islands.
    2. On July 3, 2002, the Commissioner of Insurance 
(``Commissioner'') of the North Carolina Department of Insurance issued 
an order (``Summary Order'') declaring that London Pacific was under 
the supervision of the Commissioner. The Summary Order requires London 
Pacific to obtain prior written approval from the Commissioner before 
undertaking a number of various actions. Supplementary Instructions 
issued by the Commissioner, effective July 9, 2002, require London 
Pacific to make certain reports to the Commissioner or its 
representative and to limit payment to affiliates. The Supplementary 
Instructions also require that certain transactions are to be expressly 
approved by the North Carolina Department of Insurance during the 
period of supervision of London Pacific unless London Pacific is 
subsequently otherwise notified. On August 6, 2002, an Order of 
Rehabilitation and Preliminary Injunction was issued in the Superior 
Court of Wake County, North Carolina. The Commissioner was appointed as 
Rehabilitator of London Pacific. As Rehabilitator, the Commissioner is 
authorized to take possession of all of London Pacific's assets and 
properties, and continue to operate their businesses and manage their 
properties as deemed appropriate, pursuant to applicable North Carolina 
Insurance Law.
    3. LPLA Separate Account One (``Separate Account'') is a segregated 
asset account of London Pacific. The Separate Account was established 
by London Pacific on November 21, 1994, under North Carolina insurance 
laws. The Separate Account is used to fund certain Contracts issued by 
London Pacific. The Separate Account is divided into subaccounts, each 
of which invests in and reflects the investment performance of a 
specific underlying registered investment company or portfolio thereof. 
The Separate Account is registered as a unit investment trust under the 
1940 Act.
    4. The Separate Account supports certain variable annuity contracts 
(collectively, the ``Contracts'') issued by London Pacific. As of May 
1, 2002, the Contracts are no longer available for new sales and 
existing Owners are not permitted to make additional contributions to 
the Contracts. Each of the Contracts gives London Pacific the right to 
substitute one or more underlying mutual funds or portfolios for 
others. These contractual provisions have also been disclosed in the 
prospectuses relating to the Contracts.
    5. The LPT Trust was established as a Massachusetts business trust 
on January 23, 1995. The LPT Trust is comprised of five separate series 
(``Portfolios'' or ``Replaced Portfolios''). The LPT Trust is 
registered as an open-end management investment company under the 1940 
Act (File No. 811-8960) and its shares are registered as securities 
under the 1933 Act (File No. 033-

[[Page 64937]]

88792). The shares of the LPT Trust are sold exclusively to the 
Separate Account of London Pacific to fund benefits under the 
Contracts. LPIMC Insurance Marketing Services (``LPIMC'') is the 
investment adviser for the LPT Trust. LPIMC is a wholly-owned 
subsidiary of London Pacific. LPIMC has engaged sub-advisers for each 
of the Portfolios of the LPT Trust to make investment decisions and 
place orders.
    6. Applicants request the Commission's approval to effect the 
substitutions of the shares of the Replaced Portfolios with shares of 
certain portfolios of the MFS Trust (the ``Substitution''). The 
Substituting Portfolios are each a series of the MFS Trust, an open-end 
management investment company registered under the 1940 Act (File No. 
811-08326), the shares of which are registered as securities under the 
1933 Act (File No. 33-74668). Applicants represent that the 
Substituting Portfolios, in general, have similar investment objectives 
to, more assets, better performance and lower expense ratios than, the 
Replaced Portfolios. The Replaced Portfolios and the corresponding 
Substituting Portfolios are as follows:

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                  Replaced portfolios                                    Substituting portfolios
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RS Diversified Growth Portfolio........................  MFS New Discovery Series.
Harris Associates Value Portfolio......................  MFS Value Series.
LPA Core Equity Portfolio..............................  MFS Value Series.
Strong Growth Portfolio................................  MFS Investors Growth Stock Series.
MFS Total Return Portfolio.............................  MFS Total Return Series.
----------------------------------------------------------------------------------------------------------------

    7. For the shares of each Replaced Portfolio held on behalf of the 
Separate Account at the close of business on the date selected for the 
Substitution, London Pacific will redeem those shares for cash or in-
kind. Simultaneously, London Pacific, on behalf of the Separate Account 
Applicant, 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 Separate Account Applicant.
    8. 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 LPT Trust has informed the Applicants that it will 
comply with the requirements of Rule 17a-7 under the 1940 Act and the 
procedures established thereunder by the Board of Trustees of the LPT 
Trust.
    9. 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 
LPT 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.
    10. The full net asset value of the redeemed shares held by the 
Separate Account Applicant 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 Applicant will be reflected in the Owners' contract values 
following the Substitution.
    11. The LPT Trust is fully advised of the terms of the 
Substitution. Applicants anticipate that until the Substitution occurs, 
the LPT Trust will conduct the trading of portfolio securities in 
accordance with the investment objectives and strategies stated in the 
LPT Trust's prospectus and in a manner that provides for the 
anticipated redemptions of shares held by the Separate Account 
Applicant.
    12. 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.
    13. 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 London Pacific 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 fees. Moreover, London 
Pacific 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. The Contracts provide that there are currently no 
restrictions on the number of transfers that can be made. Currently, 
London Pacific does not assess a transfer fee on the first 12 transfers 
made in a contract year. 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.
    14. In anticipation of the filing of this Application, the 
Applicants have supplemented the prospectuses for the Contracts to 
reflect the proposed Substitution. Within five days after the 
Substitution, London Pacific will send to Owners written notice of the 
Substitution, substantially in the form attached to the Application as 
Exhibit C (the ``Notice''), identifying the shares of the Replaced 
Portfolios that have been

[[Page 64938]]

eliminated and the shares of the Substituting Portfolios that have been 
substituted. London Pacific will include in such mailing the applicable 
prospectus supplement for the Contracts of the Separate Account 
Applicant describing the Substitution. In addition, London Pacific will 
provide a copy of the prospectus for the Substituting Portfolios 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 transfer charge (the ``Free Transfer Period'').

Applicants' Legal Analysis

    1. Section 26(c) (formerly, Section 26 (b)) of the 1940 Act 
provides that ``[i]t shall be unlawful for any depositor or trustee of 
a registered unit investment trust holding the security of a single 
issuer to substitute another security for such security unless the 
[SEC] shall have approved such substitution.'' Section 26(b) of the 
1940 Act (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, the SEC, concerned with the high sales charges 
then common to most unit investment trusts and the disadvantageous 
position in which such charges placed investors who did not want to 
remain invested in the substituted security, recommended that section 
26 be amended to require that a proposed substitution of the underlying 
investments of a trust receive prior Commission approval.
    2. The purposes, terms and conditions of the Substitution are 
consistent with the principles and purposes of section 26(c) and do not 
entail any of the abuses that section 26(c) is designed to prevent. 
Simply put, Owners will be assessed no charges whatsoever in connection 
with the Substitution and their annual fund expense ratios are expected 
to decrease. In addition, to the extent an Owner does not wish to 
participate in the Substitution, he or she is free to transfer to any 
other option available under the relevant Contract prior to the 
Substitution and within 31 days after the date of the Notice for the 
Substitution without any transfer fee. Moreover, as discussed below, 
Owners will be substituted into a Substituting Portfolio whose 
investment objectives are substantially similar to those of the 
Replaced Portfolio.
    3. 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:
    (1) 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.
    (2) 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;
    (3) The Substitution will be at net asset value of the respective 
shares, without the imposition of any transfer or similar charge;
    (4) 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;
    (5) The Substitution will in no way alter the contractual 
obligations of London Pacific or the rights and privileges of Owners 
under the Contracts;
    (6) The Substitution will in no way alter the tax benefits to 
Owners; and
    (7) The Substitution is expected to confer certain economic 
benefits on Owners by virtue of enhanced asset size and lower expenses, 
as described below.
    4. The Applicants have determined that each Substituting Portfolio 
is an appropriate replacement for each Replaced Portfolio and an 
appropriate investment vehicle for the Owners because they share 
similar investment objectives. The investment objectives of each 
Replaced Portfolio and of each Substituting Portfolio and an 
explanation as to why Applicants believe they are similar are contained 
below.

Replaced Portfolio

RS Diversified Growth Portfolio

Substituting Portfolio

MFS New Discovery Series
    The investment objective for the RS Diversified Growth Portfolio is 
long-term capital growth. The investment objective for the MFS New 
Discovery Series is capital appreciation.
    The RS Diversified Growth Portfolio invests at least 65% of its 
total assets in common and preferred stocks and warrants of small-to-
medium sized companies that have a market capitalization of $3 billion 
or less. The subadviser may invest a larger percentage of the assets of 
the Portfolio in a single company than do other investment advisers. 
The MFS New Discovery Series invests, under normal market conditions, 
at least 65% of its net assets in equity securities of emerging growth 
companies. Equity securities include common stocks and related 
securities, such as preferred stocks, convertible securities and 
depositary receipts for those securities. While emerging growth 
companies may be of any size, the series will generally focus on 
smaller capitalization emerging growth companies that are early in 
their life cycle. Small cap companies are defined by MFS as those 
companies with market capitalizations within the range of market 
capitalizations in the Russell 2000 Stock Index as of November 30, 
2001, between $4.1 million and $8.4 billion.

Replaced Portfolio

Harris Associates Value Portfolio

Substituting Portfolio

MFS Value Series
    The investment objective for the Harris Associates Value Portfolio 
is long-term capital appreciation. The MFS Value Series seeks capital 
appreciation and reasonable income.
    The Harris Associates Value Portfolio invests at least 65% of its 
total assets in stocks or securities that can be converted into stocks. 
The subadviser tries to find undervalued stocks for the Portfolio. The 
subadviser may invest up to 25% of the assets in securities of non-U.S. 
companies and may invest up to 25% of the assets in lower quality, 
higher-yielding, bonds (junk bonds). The MFS Value Series invests, 
under normal market conditions, at least 65% of its net assets in 
income producing equity securities of companies which the adviser 
believes are undervalued in the market relative to their long term 
potential. Equity securities include common stocks and related 
securities, such as preferred stocks, convertible securities and 
depositary receipts for those securities. While the series may invest 
in companies of any size, the series generally focuses on undervalued 
companies with large market capitalizations. The series seeks to 
achieve a gross yield that exceeds that of the Standard & Poor's 500 
Composite Stock Index. The series may invest in

[[Page 64939]]

junk bonds. The series may invest in foreign securities through which 
it may have exposure to foreign currencies.

Replaced Portfolio

LPA Core Equity Portfolio

Substituting Portfolio

MFS Value Series
    The LPA Core Equity Portfolio seeks long-term capital growth and 
income. The MFS Value Series seeks capital appreciation and reasonable 
income.
    The LPA Core Equity Portfolio will invest at least 80% of its 
assets in the stocks of large, well-established companies that have a 
market capitalization greater than $1 billion. Under normal 
circumstances, the subadviser will invest the assets of the Portfolio 
equally among a list of stocks of approximately 100 companies that it 
considers to be ``corporate leaders,'' primarily in The Dow Jones 
Industrial Average. The MFS Value Series invests, under normal market 
conditions, at least 65% of its net assets in income producing equity 
securities of companies which the adviser believes are undervalued in 
the market relative to their long term potential. Equity securities 
include common stocks and related securities, such as preferred stocks, 
convertible securities and depositary receipts for those securities. 
While the series may invest in companies of any size, the series 
generally focuses on undervalued companies with large market 
capitalizations. The series seeks to achieve a gross yield that exceeds 
that of the Standard & Poor's 500 Composite Stock Index. The series may 
invest in junk bonds. The series may invest in foreign securities 
through which it may have exposure to foreign currencies.

Replaced Portfolio

Strong Growth Portfolio

Substituting Portfolio

MFS Investors Growth Stock Series
    The Strong Growth Portfolio seeks long-term capital growth and 
income.
    The MFS Investors Growth Stock Series seeks long-term growth of 
capital and future income rather than current income. The Strong Growth 
Portfolio will invest at least 65% of its assets in stocks and 
securities that can be converted into stocks, which may include a 
substantial amount of stocks of companies that have a market 
capitalization of $3 billion or less. The Strong Growth Portfolio may 
invest up to 35% of its assets in debt obligations such as bonds, 
including up to 5% in junk bonds. The subadviser may also invest up to 
25% of the assets in foreign securities, including investments directly 
in securities of non-U.S. Companies or depository receipts. The MFS 
Investors Growth Stock Series invests, under normal market conditions, 
at least 80% of its net assets in common stocks and related securities, 
such as preferred stocks, convertible securities and depositary 
receipts for those securities, of companies which MFS believes offer 
better than average prospects for long-term growth. The series 
typically invests in large cap companies (market capitalizations of $10 
billion or higher). The series may invest in foreign securities through 
which it may have exposure for foreign currencies. The series has 
engaged and may engage in active and frequent trading to achieve its 
principal investment strategies.

Replaced Portfolio

MFS Total Return Portfolio

Substituting Portfolio

MFS Total Return Series
    Both these portfolios seek to provide above average income 
(compared to a portfolio invested entirely in equity securities) 
consistent with the prudent employment of capital and secondarily to 
provide a reasonable opportunity for growth of capital and income.
    The MFS Total Return Portfolio seeks to meets its goal by investing 
between 40% and 75% of its assets in stocks and securities that can be 
converted into stocks and at least 25% of its assets in debt 
obligations, including up to 20% in lower-quality, higher-yielding 
bonds (junk bonds). The MFS Total Return Series, under normal market 
conditions, invests at least 40%, but not more than 75%, of its net 
assets in common stocks and related securities, such as preferred 
stocks, bonds, warrants and rights convertible into stock, and 
depositary receipts for those securities, and at least 25% of its net 
assets in non-convertible fixed income securities.
    5. Accordingly, Applicants have 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.
    6. As of December 31, 2001, each Substituting Portfolio had lower 
expense ratios than its corresponding Replaced Portfolio. Further, 
since the Trust's inception, London Pacific has voluntarily reimbursed 
certain operating expenses of each Portfolio of the Trust. The 
Commissioner, as Rehabilitator of London Pacific, has determined that 
state insurance laws preclude London Pacific from continuing to 
reimburse expenses of the Trust. Therefore, effective August 31, 2002, 
expenses of the Trust will no longer be reimbursed.
    7. 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. Even in the one instance where the management fee of the 
Substituting Portfolio is higher (i.e., with respect to substitution of 
the MFS Value Series for shares of the LPA Core Equity Portfolio), the 
overall expense ratio of the Substituting Portfolio is significantly 
lower.
    8. With respect to the LPA Core Equity subaccount of the London 
Pacific Separate Account investing in the MFS Value Series, 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.
    9. (i) London Pacific will not receive, for 3 years from the date 
of the substitutions, any direct or indirect benefits from the 
Substituting Portfolios, their advisors or underwriters (or their 
affiliates), in connection with assets representing contract values of 
contracts affected by the substitutions, at a higher rate than it had 
received from the Replaced Portfolios, their advisors or underwriters 
(or their affiliates), including without limitation 12b-1 shareholder 
service, administration or other service fees, revenue sharing or other 
arrangements in connection with such assets; and (ii) the substitutions 
and the selection of the Replacement Portfolios were not motivated by 
any financial consideration paid or to be paid to London Pacific by the 
Replacement Portfolios, their advisors or underwriters, or their 
respective affiliates.
    10. The assets of the Replaced Portfolios have continued to 
decline. As of July 29, 2002, the assets of the Replaced Portfolios 
totaled $28,343,852 as compared to a total of $44,853,295 at December 
31, 2001.
    11. London Pacific anticipates that the discontinuance of the Trust 
expense reimbursement arrangement, described elsewhere herein, will 
result in a substantial increase in Trust expenses and a corresponding 
decrease in the performance of the Portfolios.
    12. 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

[[Page 64940]]

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. 
Section 2(a)(3) of the 1940 Act defines the term ``affiliated'' person. 
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.
    13. 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:
    1. 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;
    2. The proposed transaction is consistent with the investment 
policy of each registered investment company concerned, as recited in 
its registration statement and reports filed under the 1940 Act; and
    3. The proposed transaction is consistent with the general purposes 
of the 1940 Act. 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.
    14. 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 consolidations of assets in each Substituting 
Portfolio. 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.

Applicants' Conclusions

    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, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26850 Filed 10-21-02; 8:45 am]
BILLING CODE 8010-01-P