[Federal Register Volume 70, Number 120 (Thursday, June 23, 2005)]
[Notices]
[Pages 36414-36426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26909; File No. 812-13170]


Business Men's Assurance Company of America, et al.; Notice of 
Application

June 17, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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

Applicants: Business Men's Assurance Company of America (``BMA''), BMA 
Variable Annuity Account A (``BMA VA Account''), BMA Variable Life 
Account A (``BMA VL Account''), Fidelity Security Life Insurance 
Company (``Fidelity Security''), and FSL Separate Account M (``FSL 
Account'').

Filing Date: The application was filed on February 28, 2005, and 
amended on June 16, 2005.

Summary of Application: The Applicants request an order pursuant to 
Section 26(c) of the Act to permit certain unit investment trusts to 
substitute shares of certain portfolios of various unaffiliated funds 
(``Replacement Portfolios'') for shares of certain portfolios of 
Investors Mark Series Fund, Inc. (``IMSF''), which are currently held 
by those unit investment trusts (``Existing Portfolios''). The shares 
are held by the unit investment trusts to fund certain variable annuity 
contracts and variable life insurance policies (collectively, the 
``Contracts'') issued by the BMA and Fidelity Security. Specifically, 
Applicants propose to make the following substitutions:

------------------------------------------------------------------------
Separate account   Existing portfolios        Replacement portfolio
------------------------------------------------------------------------
BMA VA..........  IMSF Intermediate      Fidelity VIP II Investment
BMA VL..........   Fixed Income.          Grade Bond (Initial Shares).
BMA VA..........  IMSF Money Market....  Fidelity VIP Money Market
BMA VL..........                          (Initial Shares).

[[Page 36415]]

 
FSL.............  IMSF Money Market....  Federated Prime Money Fund II.
BMA VA..........  IMSF Global Fixed      Fidelity VIP II Investment
BMA VL..........   Income.                Grade Bond (Initial Shares).
BMA VA..........  IMSF Mid Cap Equity..  Fidelity VIP III Mid Cap
BMA VL..........                          (Initial Shares).
All.............  IMSF Small Cap Equity  Dreyfus Emerging Leaders
                                          (Initial Class).
BMA VA..........  IMSF Large Cap Growth  T. Rowe Price Blue Chip Growth.
BMA VL..........
FSL.............  IMSF Large Cap Growth  Universal Institutional Funds
                                          Equity Growth (Class I
                                          Shares).
BMA VA..........  IMSF Large Cap Value.  Lord Abbett Growth and Income
BMA VL..........                          (Class VC Share).
All.............  IMSF Growth and        Lord Abbett Growth and Income
                   Income.                (Class VC Shares).
BMA VA..........  IMSF Balanced........  T. Rowe Price Personal Strategy
BMA VL..........                          Balanced.
------------------------------------------------------------------------


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 July 12, 2005, and should be accompanied 
by proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549. Applicants: Raymond A. O'Hara III, Blazzard, 
Grodd & Hasenauer, P.C., 943 Post Road East, Westport, CT 06880. Copy 
to Michael K. Deardorff, Business Men's Assurance Company of America, 
2300 Main Street, Suite 450, Kansas City, MO 64108.

FOR FURTHER INFORMATION CONTACT: Thu Ta, Senior Counsel, or Lorna J. 
MacLeod, Branch Chief, at (202) 551-6795, Office of Insurance Products, 
Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Public Reference Branch of the Commission, 100 F Street, NE., 
Washington, DC 20549 (tel. (202) 551-5850).

Applicants' Representations

    1. BMA was incorporated on July 1, 1909, under the laws of the 
State of Missouri. As of December 31, 2003, BMA became a South Carolina 
domiciled insurance company. BMA is licensed to do business in the 
District of Columbia and in all States except New York. BMA is a wholly 
owned subsidiary of Liberty Life Insurance Company, which is an 
insurance company domiciled in the State of South Carolina.
    2. Fidelity Security is a stock life insurance company. Fidelity 
Security was originally incorporated on January 17, 1969, as a Missouri 
corporation. It is principally engaged in the sale of life insurance 
and annuities. Fidelity Security is licensed in the District of 
Columbia and in all States except New York, where it is only admitted 
as a reinsurer. Fidelity Security is majority owned by Richard F. Jones 
(an individual).
    3. BMA and Fidelity Security (collectively, the ``Insurance 
Companies'') are not affiliates. However, through their collective 
ownership of all of the shares of the Existing Portfolios, they are 
affiliates of the Existing Portfolios.
    4. BMA VA Account is a separate investment account of BMA 
established pursuant to a resolution of its Board of Directors on 
September 6, 1996, under Missouri law to fund variable annuity 
contracts issued by BMA. BMA VA Account is registered under the Act as 
a unit investment trust. The variable annuity contracts issued through 
BMA VA Account are registered on Form N-4 under the Securities Act of 
1933 (the ``1933 Act'').
    5. BMA VL Account is a separate investment account of BMA 
established pursuant to a resolution of its Board of Directors on 
December 1, 1998, under Missouri law to fund variable life insurance 
policies issued by BMA. BMA VL Account is registered under the Act as a 
unit investment trust. The variable life insurance policies issued 
through BMA VL Account are registered on Form N-6 under the 1933 Act.
    6. FSL Account is a separate investment account of Fidelity 
Security established pursuant to a resolution of its Board of Directors 
on August 25, 1998, pursuant to Missouri law to fund variable annuity 
contracts issued by Fidelity Security. FSL Account is registered under 
the Act as a unit investment trust. The variable annuity contract 
issued through FSL Account is registered on Form N-4 under the 1933 
Act.
    7. Each of the BMA VA Account, BML VL Account, and FSL Account 
meets the definition of ``separate account'' contained in Section 
2(a)(37) of the Act.
    8. IMSF is an open-end management investment company that was 
incorporated in Maryland in 1997. Currently, there are nine Portfolios 
offered in IMSF, each of which is involved in the Substitution. IMSF is 
registered under the Act as an open-end management investment company 
and its securities are registered under the 1933 Act. Investors Mark 
Advisor LLC (``IMA'') is the investment adviser for each of the 
Existing Portfolios. IMA has hired sub-advisers for each of the 
Existing Portfolios. The sub-advisers are:

------------------------------------------------------------------------
               Portfolio                           Sub-adviser
------------------------------------------------------------------------
Intermediate Fixed Income Portfolio....  Standish Mellon Asset
                                          Management Company LLC.
Money Market Portfolio.................  Standish Mellon Asset
                                          Management Company LLC.
Global Fixed Income Portfolio..........  Standish Mellon Asset
                                          Management Company LLC.
Mid Cap Equity Portfolio...............  The Boston Company Asset
                                          Management LLC.

[[Page 36416]]

 
Small Cap Equity Portfolio.............  Columbia Management Advisors,
                                          Inc.
Large Cap Growth Portfolio.............  Columbia Management Advisors,
                                          Inc.
Large Cap Value Portfolio..............  Babson Capital Management LLC.
Growth & Income Portfolio..............  Lord, Abbett & Co. LLC.
Balanced Portfolio.....................  Kornitzer Capital Management,
                                          Inc.
------------------------------------------------------------------------

    9. The BMA Separate Accounts invest in all nine Portfolios of IMSF. 
The FSL Account invests in four Portfolios of IMSF: Money Market 
Portfolio, Small Cap Equity Portfolio, Large Cap Growth Portfolio and 
Growth & Income Portfolio.
    10. Each of the Replacement Portfolios is a portfolio of a 
registered open-end management investment company, and their securities 
are registered under the 1933 Act. The Investment Grade Bond Portfolio 
is a portfolio of Fidelity Variable Insurance Products Fund II. The Mid 
Cap Portfolio is a portfolio of the Fidelity Variable Insurance 
Products Fund III. Money Market Portfolio is a portfolio of Fidelity 
Variable Insurance Products Fund. Fidelity Management & Research 
Company (``FMR'') serves as the adviser for each of these Fidelity 
portfolios. The Federated Prime Money Fund II is a portfolio of 
Federated Insurance Series. Federated Investment management Company 
serves as adviser to the Federated Prime Money Fund II. T. Rowe Price 
Blue Chip Growth Portfolio and T. Rowe Price Personal Strategy Balanced 
Portfolio are portfolios of the T. Rowe Price Equity Series, Inc. T. 
Rowe Price Associates, Inc. serves as the investment manager for each 
of these T. Rowe Price portfolios. Equity Growth Portfolio is a 
portfolio of the Universal Institutional Funds, Inc. Morgan Stanley 
Investment Management, Inc. serves as the adviser for the Equity Growth 
Portfolio. The Growth and Income Portfolio is a portfolio of the Lord 
Abbett Series Fund, Inc. Lord, Abbett & Co., LLC serve as adviser to 
the Growth and Income Portfolio. The Emerging Leaders Portfolio is a 
portfolio of the Dreyfus Investment Portfolios. The Dreyfus Corporation 
serves as adviser to the Emerging Leaders Portfolio. None of the 
Replacement Portfolios is affiliated with either of the Insurance 
Companies.
    11. Each of the Contracts permits its owners to allocate the 
Contract's accumulated value among numerous available Subaccounts, each 
of which invests in a different investment portfolio of an underlying 
mutual fund. Each of the BMA Contracts will have at least 21 different 
Subaccounts (and corresponding portfolios) available for this purpose. 
The FSL Contract will have 17 different Subaccounts (and corresponding 
portfolios) available for this purpose.
    12. Each Contract permits its owner to transfer the Contract's 
accumulated value from one Subaccount to another Subaccount of the 
issuing Separate Account at any time, subject to certain potential 
restrictions and charges. The only charges on such transfers are flat 
dollar amounts that may be assessed to help defray the administrative 
costs of effecting these transfers. Each of the Contracts permits up to 
a specified number of free transfers in a Contract year, before any 
such transfer charge may be imposed.
    13. To the extent that the Contracts contain restrictions or 
limitations on an owner's right to transfer, such restrictions and 
limitations will be suspended in connection with substitution-related 
transfers as described in further detail elsewhere herein.
    14. BMA or Fidelity Security, as applicable, reserves the right to 
make certain changes, including the right to substitute, for the shares 
held in any Subaccount, the shares of another Fund or the shares of 
another underlying mutual fund, as stated in each prospectus for the 
Contracts contained in the applicable Form N-6 or Form N-4 registration 
statement.
    15. BMA and Fidelity Security, on each of its behalf and on behalf 
of the Separate Accounts, propose to make certain substitutions of 
shares of the Replacement Portfolio for shares of the Existing 
Portfolios held in sub-accounts of their respective Separate Accounts. 
The proposed substitutions are as follows:
    (a) Shares of the Investment Grade Bond Portfolio (Initial Class) 
of Fidelity Variable Insurance Products Fund II for shares of the 
Intermediate Fixed Income Portfolio and Global Fixed Income Portfolio 
of IMSF, with respect to the BMA VA Account and BMA VL Account only.
    (b) Shares of the Mid Cap Portfolio (Initial Class) of Fidelity 
Variable Insurance Products Fund III for shares of the Mid Cap Equity 
Portfolio of IMSF, with respect to the BMA VA Account and BMA VL 
Account only.
    (c) Shares of the Money Market Portfolio (Initial Class) of 
Fidelity Variable Insurance Products Fund for shares of the Money 
Market Portfolio of IMSF, with respect to the BMA VA Account and BMA VL 
Account only.
    (d) Shares of the Federated Prime Money Fund II of Federated 
Insurance Series for shares of the Money Market Portfolio of IMSF, with 
respect to the FSL Account only.
    (e) Shares of the T. Rowe Price Blue Chip Growth Portfolio of T. 
Rowe Price Equity Series, Inc. for shares of the Large Cap Growth 
Portfolio of IMSF, with respect to the BMA VA Account and BMA VL 
Account only.
    (f) Shares of the Equity Growth Portfolio (Class I) of The 
Universal Institutional Funds, Inc. for shares of the Large Cap Growth 
Portfolio of IMSF, with respect to the FSL Account only.
    (g) Shares of the T. Rowe Price Personal Strategy Balanced 
Portfolio of T. Rowe Price Equity Series, Inc. for shares of the 
Balanced Portfolio of IMSF, with respect to the BMA VA Account and BMA 
VL Account only.
    (h) Shares of the Growth and Income Portfolio (Class VC Shares) of 
Lord Abbett Series Fund, Inc. for shares of the Growth & Income 
Portfolio and, with respect to the BMA VA Account and BMA VL Account 
only, the Large Cap Value Portfolio of IMSF.
    (i) Shares of the Emerging Leaders Portfolio (Initial Class) of 
Dreyfus Investment Portfolios for shares of the Small Cap Equity 
Portfolio of IMSF.
    16. The substitutions are expected to provide significant benefits 
to Contract owners, including improved selection of portfolio managers. 
The Applicants believe that the advisers and subadvisers of the 
Replacement Portfolios overall are better positioned to provide 
consistent above-average performance for their funds than are the 
adviser and sub-advisers of the Existing Portfolios. At the same time, 
Contract owners will continue to be able to select among a large number 
of funds, with a full range of investment objectives, investment 
strategies, and managers.
    17. Applicants believe that the Replacement Portfolios have 
investment objectives, policies, and risk profiles that are 
substantially the same as, or sufficiently similar to, the 
corresponding Existing Portfolios to make those Replacement Portfolios 
appropriate candidates as substitutes.

[[Page 36417]]

    Set forth below is a description of the investment objectives and 
principal investment policies of each Existing Portfolio and its 
corresponding Replacement Portfolio.

------------------------------------------------------------------------
         Existing Portfolio                 Replacement Portfolio
------------------------------------------------------------------------
IMSF Intermediate Fixed Income       Fidelity VIP II Investment Grade
 Portfolio--primarily seeks to        Bond Portfolio (BMA Substitution
 achieve a high level of current      only)--seeks as high a level of
 income consistent with preserving    current income as is consistent
 capital and liquidity.               with the preservation of capital.
 Secondarily, the Portfolio seeks     The Portfolio normally invests at
 capital appreciation when changes    least 80% of its assets in
 in interest rates or other           investment-grade debt securities
 economic conditions indicate that    (those of medium and high quality)
 capital appreciation may be          of all types and repurchase
 available without significant risk   agreements for those securities.
 to principal. During normal market   The Portfolio may invest up to 10%
 conditions, the Portfolio will       of the Portfolio's assets in lower-
 invest at least 80% of its total     quality (those of less than
 net assets in investment grade       investment-grade quality) debt
 fixed income securities. The         securities. The Portfolio is
 Portfolio may invest up to 20% of    managed to have similar overall
 its total net assets in fixed        interest rate risk to an index,
 income securities of foreign         which, as of December 31, 2004,
 corporations and foreign             was the Lehman Brothers[reg]
 governments and their political      Aggregate Bond Index. The
 subdivisions, including securities   Portfolio's assets are allocated
 of issuers located in emerging       across different market sectors
 markets. No more than 10% of the     and maturities.
 Portfolio's total net assets will
 be invested in foreign securities
 not subject to currency hedging
 transactions back into U.S.
 dollars. The Portfolio may invest
 up to 20% of its total net assets
 in below-investment grade
 securities (junk bonds).
------------------------------------
IMSF Mid Cap Equity Portfolio--      Fidelity VIP III Mid Cap Portfolio
 seeks to achieve long-term growth    (BMA Substitution only)--seeks
 of capital through investment        long-term growth of capital. The
 primarily in equity and equity-      Portfolio normally invests
 related securities of companies      primarily in common stocks. The
 which appear to be undervalued.      Portfolio will normally invest at
 The Portfolio invests primarily in   least 80% of its assets in
 equity securities of mid             securities of companies with
 capitalization companies. Under      medium market capitalizations
 normal conditions, the Portfolio     (which, for purposes of this
 will invest at least 80% of its      Portfolio, are those companies
 assets in securities issued by mid   with market capitalizations
 capitalization companies, which      similar to companies in the
 are those companies whose equity     Russell Midcap[reg] Index or the
 market capitalizations at the time   S&P[reg] MidCap 400 Index. The
 of investment are similar to the     Portfolio may invest in domestic
 market capitalizations of            and foreign issuers; in either
 companies in the Standard &          ``growth'' or ``value'' stocks;
 Poor's[reg] MidCap 400 Index         and in companies with smaller or
 (``S&P[reg] MidCap 400 Index'').     larger market capitalizations.
------------------------------------
IMSF Global Fixed Income Portfolio-- Fidelity VIP II Investment Grade
 seeks maximum total return while     Bond Portfolio (BMA Substitution
 realizing a market level of income   only)--seeks as high a level of
 consistent with preserving capital   current income as is consistent
 and liquidity. During normal         with the preservation of capital.
 market conditions, the Portfolio     The Portfolio normally invests at
 will invest at least 80% of its      least 80% of its assets in
 total net assets in fixed income     investment-grade debt securities
 securities of foreign governments    (those of medium and high quality)
 or their political subdivisions      of all types and repurchase
 and companies located in at least    agreements for those securities.
 three countries around the world,    The Portfolio may invest up to 10%
 including the United States.         of the Portfolio's assets in lower-
 Usually the Portfolio will invest    quality (those of less than
 in no fewer than eight foreign       investment-grade quality) debt
 countries. The Portfolio invests     securities. The Portfolio is
 primarily in investment grade        managed to have similar overall
 fixed income securities or those     interest rate risk to an index,
 determined by the sub-adviser to     which, as of December 31, 2004,
 be of comparable quality, but it     was the Lehman Brothers[reg]
 may invest up to 15% of its total    Aggregate Bond Index. The
 net assets in below-investment       Portfolio's assets are allocated
 grade securities (junk bonds).       across different market sectors
                                      and maturities.
------------------------------------
IMSF Money Market Portfolio--seeks   Fidelity VIP Money Market Portfolio
 to obtain the highest level of       (BMA Substitution only)--seeks as
 current income which is consistent   high a level of current income as
 with the preservation of capital     is consistent with preservation of
 and maintenance of liquidity. The    capital and liquidity. The
 Portfolio invests in obligations     Portfolio invests in U.S. dollar-
 of the U.S. Government and its       denominated money market
 agencies and instrumentalities.      securities of domestic and foreign
 The Portfolio may also invest in     issuers and repurchase agreements.
 other obligations and instruments    The Portfolio may invest more than
 common to money market funds.        25% of its total assets in the
                                      financial services industries and
                                      may enter into reverse repurchase
                                      agreements.
------------------------------------
IMSF Money Market Portfolio--seeks   Federated Prime Money Fund II
 to obtain the highest level of       (Fidelity Security Substitution
 current income which is consistent   only)--seeks to maintain a stable
 with the preservation of capital     net asset value of $1.00 per
 and maintenance of liquidity. The    share. The Fund's investment
 Portfolio invests in obligations     objective is to provide current
 of the U.S. Government and its       income consistent with stability
 agencies and instrumentalities.      of principal and liquidity. The
 The Portfolio may also invest in     Fund invests primarily in a
 other obligations and instruments    portfolio of short-term, high-
 common to money market funds.        quality fixed income securities
                                      issued by banks, corporations and
                                      the U.S. Government.
------------------------------------
IMSF Large Cap Growth Portfolio--    T. Rowe Price Blue Chip Growth
 seeks long-term capital              Portfolio (BMA Substitution only)--
 appreciation. During normal market   seeks to provide long-term capital
 conditions, the Portfolio will       growth. Income is a secondary
 invest at least 80% of its total     objective. The Portfolio will
 net assets in common stocks and      normally invest at least 80% of
 other equity-type securities of      its net assets in the common
 companies exceeding $10 billion in   stocks of large and medium-sized
 market capitalization at the time    blue chip growth companies, which
 of purchase. The sub-adviser will    in the adviser's view, are well
 focus on companies that it           established in their industries
 believes have long-term              and have the potential for above-
 appreciation possibilities. The      average earnings growth. The
 Portfolio may invest in investment   average market capitalization of
 grade debt securities of corporate   the companies in which the
 and government issuers. The          Portfolio was invested as of
 Portfolio also may invest up to      December 31, 2004 was
 25% of its total net assets in       approximately $83 billion. As of
 foreign securities. The Portfolio    that same date, approximately 7.1%
 may invest in options, futures       of the Portfolio was invested in
 contracts and futures options.       companies with a market
                                      capitalization of less than $10
                                      billion. The Portfolio may also
                                      invest in foreign stocks, futures
                                      and options.
------------------------------------

[[Page 36418]]

 
IMSF Large Cap Growth Portfolio--    Equity Growth Portfolio of The
 seeks long-term capital              Universal Institutional Funds,
 appreciation. During normal market   Inc. (Fidelity Security
 conditions, the Portfolio will       Substitution only)--seeks long-
 invest at least 80% of its total     term capital appreciation by
 net assets in common stocks and      investing primarily in growth-
 other equity-type securities of      oriented equity securities of
 companies exceeding $10 billion in   large capitalization companies.
 market capitalization at the time    The Portfolio invests primarily in
 of purchase. The sub-adviser will    growth-oriented equity securities
 focus on companies that it           of U.S. and, to a limited extent,
 believes have long-term              foreign companies that are listed
 appreciation possibilities. The      on U.S. exchanges or traded in
 Portfolio may invest in investment   U.S. markets. Under normal
 grade debt securities of corporate   circumstances, at least 80% of the
 and government issuers. The          Portfolio's assets will be
 Portfolio also may invest up to      invested in equity securities. The
 25% of its total net assets in       Portfolio invests primarily in
 foreign securities. The Portfolio    companies with market
 may invest in options, futures       capitalizations of generally $10
 contracts and futures options.       billion or more that the adviser
                                      believes exhibit, among other
                                      things, strong free cash flow and
                                      compelling business strategies.
------------------------------------
IMSF Balanced Portfolio--seeks long- T. Rowe Price Personal Strategy
 term capital growth and high         Balanced Portfolio (BMA
 current income. The Portfolio        Substitution only)--seeks the
 seeks to achieve long-term capital   highest total return over time
 growth primarily by investment in    consistent with an emphasis on
 common stocks and secondarily by     both capital appreciation and
 investment in convertible bonds      income. The Portfolio pursues its
 and convertible preferred stocks.    objective by investing in a
 The sub-adviser seeks to achieve     diversified portfolio typically
 high current income by investing     consisting of approximately 60%
 in: Corporate bonds; government      stocks, 30% bonds, and 10% money
 bonds; mortgage-backed securities;   market securities. Under normal
 convertible bonds; preferred         conditions, allocations for the
 stocks; and/or convertible           Portfolio can vary by 10% above or
 preferred stocks. The Portfolio      below these ranges, based on the
 may invest up to 75% of its total    adviser's outlook for the economy
 net assets in corporate bonds;       and the financial markets. The
 convertible bonds; preferred         Portfolio will invest at least 25%
 stocks; and/or convertible           of its total assets in senior
 preferred stocks. The Portfolio      fixed-income securities. The
 may invest in below-investment       Portfolio may invest in below-
 grade debt securities (junk bonds).  investment grade debt securities
                                      (junk bonds) and in other
                                      securities, including futures,
                                      options and swaps.
------------------------------------
IMSF Growth & Income Portfolio--     Lord Abbett Growth and Income
 seeks to provide long-term growth    Portfolio (BMA and Fidelity
 of capital and income without        Security Substitutions)--seeks
 excessive fluctuation in market      long-term growth of capital and
 value. The Portfolio intends to      income without excessive
 keep its assets invested in those    fluctuations in market value. The
 securities which are selling at      Portfolio primarily purchases
 reasonable prices in relation to     equity securities of large,
 value. During normal market          seasoned U.S. and multinational
 conditions, the Portfolio will       companies that the adviser
 invest in common stocks (including   believes are undervalued. Under
 securities convertible into common   normal circumstances, the
 stocks) of large, U.S. and           Portfolio will invest at least 80%
 multinational companies that the     of its net assets in equity
 sub-adviser believes are             securities of large companies.
 undervalued. A large company is a    Large companies are companies with
 company having a market              a market capitalization at the
 capitalization at the time of        time of purchase that falls within
 purchase that falls within the       the market capitalization range of
 market capitalization range of       companies in the Russell 1000
 companies in the Russell 1000        Index ($471 million to $382
 Index (which at 1/31/05 was $471     billion as of 1/31/05).
 million-$382 billion).
------------------------------------
IMSF Large Cap Value Portfolio--     Lord Abbett Growth and Income
 seeks long-term growth of capital    Portfolio (BMA Substitution only)--
 and income by investing              seeks long-term growth of capital
 principally in a diversified         and income without excessive
 portfolio of common stocks which     fluctuations in market value. The
 are considered to be undervalued     Portfolio primarily purchases
 in relation to earnings, dividends   equity securities of large,
 and/or assets. The Portfolio         seasoned U.S. and multinational
 invests, under normal                companies that the adviser
 circumstances, at least 90% of its   believes are undervalued. Under
 net assets, plus any borrowings      normal circumstances, the
 for investment purposes, in common   Portfolio will invest at least 80%
 stocks that are considered to be     of its net assets in equity
 undervalued in relation to           securities of large companies.
 earnings, dividends and/or assets.   Large companies are companies with
                                      a market capitalization at the
                                      time of purchase that falls within
                                      the market capitalization range of
                                      companies in the Russell 1000
                                      Index.
------------------------------------
IMSF Small Cap Equity Portfolio--    Dreyfus Emerging Leaders Portfolio
 seeks long-term capital              (BMA and Fidelity Security
 appreciation. During normal market   Substitutions)--seeks capital
 conditions, the Portfolio will       growth. To pursue this goal, the
 invest at least 80% of its total     Portfolio normally invests at
 net assets in a diversified          least 80% of its assets in stocks
 portfolio of common stocks and       of companies that the adviser
 equity-type securities of            believes to be emerging leaders.
 companies with market                Based on current market
 capitalization, at the time of       conditions, the Portfolio
 purchase, equal to or less than      primarily invests in companies
 the capitalization of the largest    with market capitalizations of
 stock in the Standard & Poor's       less than $2 billion at the time
 Small Cap 600 Index. The Portfolio   of purchase. The Portfolio may
 may invest up to 20% of its total    invest up to 25% of its assets in
 net assets in debt securities of     foreign securities. The
 corporate and governmental           Portfolio's investments may
 issuers, primarily investment        include common stocks, preferred
 grade. The Portfolio may also        stocks and convertible securities,
 invest up to 25% of its total net    including those issued in initial
 assets in foreign securities, and    public offerings (IPOs) or shortly
 the Portfolio may invest in          thereafter. The Portfolio may, but
 options, futures contracts and       is not required to, use
 futures options.                     derivatives, such as futures and
                                      options, as a substitute for
                                      taking a position in an underlying
                                      asset, to increase returns or as
                                      part of a hedging strategy. The
                                      Portfolio also may engage in short-
                                      selling, typically for hedging
                                      purposes, such as to limit
                                      exposure to a possible market
                                      decline in the value of its
                                      portfolio securities. However,
                                      short sales in the Portfolio are
                                      extremely rare. Since the
                                      Portfolio's inception, the
                                      Portfolio managers have engaged in
                                      very few short sales, and there is
                                      no intent to increase the use of
                                      short sales in the future.
------------------------------------------------------------------------

    18. Contract owners with sub-account balances invested in shares of 
the Replacement Portfolios will, in most cases, based on current 
expenses, have lower total expense ratios than they currently have in 
the Existing Portfolios. However, even where the expense ratios of the 
Replacement Portfolios are currently higher than those of the

[[Page 36419]]

Existing Portfolios, this is not expected to remain so. IMA and its 
affiliates have been heavily subsidizing each of the Existing 
Portfolios since their inception in 1997 through an expense 
reimbursement arrangement. None of the Existing Portfolios has ever 
been out of the expense reimbursement mode. As disclosed in a 
supplement to each Insurance Company's product prospectuses, the 
adviser's current contractual obligation to reimburse the Existing 
Portfolios' expenses expired on May 1, 2005. As further disclosed in 
the supplement, IMA subsequently agreed to voluntarily continue the 
reimbursement arrangement until July 1, 2005. IMA has now determined 
that, effective July 1, 2005, it is discontinuing the expense 
reimbursement of the IMSF Money Market, Large Cap Growth and Small Cap 
Equity Portfolios. IMA may determine to voluntarily continue 
subsidizing the expenses of the other Portfolios after July 1, 2005.
    19. The following tables compare the total operating expenses of 
the Existing Portfolio and the Replacement Portfolio for each proposed 
substitution. The comparative fund expenses are generally based on 
actual expenses, including waivers, for the year ended December 31, 
2004. For the IMSF Money Market, Large Cap Growth and Small Cap Equity 
Portfolios, expenses have been restated to reflect the expenses of 
those funds without the waivers.

----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:        Fidelity VIP II
                                                                IMSF Intermediate Fixed   Investment Grade Bond
                                                                    Income Portfolio       Portfolio  (Initial
                                                                       (percent)            class)  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.60                     0.43
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     2.16                     0.13
                                                               --------------------------
    Total Expenses............................................                     2.76                     0.56
Waivers.......................................................                    *1.96                      **0
                                                               --------------------------
    Net Expenses..............................................                     0.80                    0.56
----------------------------------------------------------------------------------------------------------------
* The adviser has voluntarily agreed to reimburse certain expenses of the Portfolio until July 1, 2005 so that
  the annual expenses do not exceed 0.80%.
** Effective February 1, 2005, the adviser has voluntarily agreed to reimburse the Initial Class to the extent
  that total operating expenses (excluding interest, taxes, certain securities lending costs, brokerage
  commissions, and extraordinary expenses), as a percentage of the Initial Class' average net assets, exceed
  0.58%.


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio
                                                                  Existing portfolio:      Fidelity VIP III Mid
                                                                  IMSF Mid Cap Equity    Cap Portfolio  (Initial
                                                                  Portfolio  (percent)      class)  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.80                     0.57
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     1.93                     0.14
                                                               --------------------------
    Total Expenses............................................                     2.73                     0.71
Waivers.......................................................                    *1.83                      **0
                                                               --------------------------
    Net Expenses..............................................                     0.90                    0.71
----------------------------------------------------------------------------------------------------------------
*The adviser has voluntarily agreed to reimburse certain expenses of the Portfolio until July 1, 2005 so that
  the annual expenses do not exceed 0.90%.
** Effective February 1, 2005, the adviser has voluntarily agreed to reimburse the Initial Class to the extent
  that total operating expenses (excluding interest, taxes, certain securities lending costs, brokerage
  commissions, and extraordinary expenses), as a percentage of the Initial Class' average net assets, exceed
  0.85%.


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:        Fidelity VIP II
                                                                   IMSF Global Fixed      Investment Grade Bond
                                                                    Income Portfolio       Portfolio  (Initial
                                                                       (percent)             class) (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.75                     0.43
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     1.85                     0.13
                                                               --------------------------
    Total Expenses............................................                     2.60                     0.56
Waivers.......................................................                 \*\ 1.60                   \**\ 0
                                                               --------------------------
    Net Expenses..............................................                     1.00                    0.56
----------------------------------------------------------------------------------------------------------------
\*\ The adviser has voluntarily agreed to reimburse certain expenses of the Portfolio until July 1, 2005 so that
  the annual expenses do not exceed 1.00%.
\**\ Effective February 1, 2005, the adviser has voluntarily agreed to reimburse the Initial Class to the extent
  that total operating expenses (excluding interest, taxes, certain securities lending costs, brokerage
  commissions, and extraordinary expenses), as a percentage of the Initial Class' average net assets, exceed
  0.58%.


[[Page 36420]]


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:       Fidelity VIP Money
                                                                   IMSF Money Market         Market Portfolio
                                                                  Portfolio  (percent)       (Initial class)
                                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.40                     0.20
12b-1 Fee.....................................................                     None                     None
                                                               --------------------------
Other Expenses................................................                     3.07                     0.09
    Total Expenses............................................                     3.47                     0.29
Waivers.......................................................                     0\*\                        0
                                                               --------------------------
    Net Expenses..............................................                     3.47                \**\0.29
----------------------------------------------------------------------------------------------------------------
* Effective July 1, 2005 an expense reimbursement arrangement currently in effect will terminate.
** Effective February 1, 2005, the adviser has voluntarily agreed to reimburse the Initial Class to the extent
  that total operating expenses (excluding interest, taxes, certain securities lending costs, brokerage
  commissions, and extraordinary expenses), as a percentage of the Initial Class' average net assets, exceed
  0.40%.


----------------------------------------------------------------------------------------------------------------
                                                                  Existing portfolio:     Replacement portfolio:
                                                                   IMSF Money Market      Federated Prime Money
                                                                  portfolio  (percent)      Fund II  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.40                  ** 0.50
12b-1 Fee.....................................................                     None                     None
Shareholder Services Fee......................................                     None                 *** 0.25
Other Expenses................................................                     3.07                **** 0.30
                                                               --------------------------
    Total Expenses............................................                     3.47                     1.05
Waivers.......................................................                     \*\0                     0.40
                                                               --------------------------
    Net Expenses..............................................                     3.47                    0.65
----------------------------------------------------------------------------------------------------------------
* Effective July 1, 2005 an expense reimbursement arrangement currently in effect will terminate.
** The adviser has voluntarily waived a portion of the management fee. The adviser can terminate this voluntary
  waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.38% for the fiscal
  year ended December 31, 2004.
*** The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2004.
  The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year
  ending December 31, 2005.
**** The administrator voluntarily waived a portion of its fee. The administrator can terminate this voluntary
  waiver at any time. Total other expenses paid by the Fund (after the voluntary waiver) were 0.27% for the
  fiscal year ended December 31, 2004.


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:    T. Rowe Price Blue Chip
                                                                 IMSF Large Cap Growth       Growth Portfolio
                                                                  Portfolio  (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.80                     0.85
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     2.01                        0
                                                               --------------------------
    Total Expenses............................................                     2.81                     0.85
Waivers.......................................................                      * 0                        0
                                                               --------------------------
    Net Expenses..............................................                     2.81                    0.85
----------------------------------------------------------------------------------------------------------------
* Effective July 1, 2005 an expense reimbursement arrangement currently in effect will terminate.


----------------------------------------------------------------------------------------------------------------
                                                                  Existing portfolio:     Replacement portfolio:
                                                                 IMSF Large Cap Growth   Equity Growth Portfolio
                                                                  Portfolio  (percent)     (Class I)  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.80                     0.50
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     2.01                     0.35
                                                               --------------------------
    Total Expenses............................................                     2.81                     0.85
Waivers.......................................................                      * 0                       **
                                                               --------------------------
    Net Expenses..............................................                     2.81                    0.85
----------------------------------------------------------------------------------------------------------------
* Effective July 1, 2005 an expense reimbursement arrangement currently in effect will terminate.
** The adviser has voluntarily agreed to reduce its advisory fee and/or reimburse the fund so that total annual
  operating expenses, excluding certain investment related expenses, will not exceed 0.85%.


[[Page 36421]]


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement Portfolio:
                                                                  Existing Portfolio:     T. Rowe Price Personal
                                                                IMSF Balanced Portfolio      Strategy Balaned
                                                                        (percent)          Portfolio  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.80                     0.90
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     1.78                        0
                                                               --------------------------
    Total Expenses............................................                     2.58                     0.90
Waivers.......................................................                   * 1.68  .......................
                                                               --------------------------
    Net Expenses..............................................                     0.90                 ** 0.90
----------------------------------------------------------------------------------------------------------------
* The adviser has voluntarily agreed to reimburse certain expenses of the fund until July 1, 2005 so that the
  annual expenses do not exceed 0.90%.
** Actual expenses paid were 0.87% due to a credit received from investing in the T. Rowe Price Institutional
  High Yield Fund.


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement Portfolio:
                                                                  Existing Portfolio:     Lord Abbett Growth and
                                                                  IMSF Growth & Income   Income Portfolio (Class
                                                                  Portfolio  (percent)    VC shares)  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.80                     0.50
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     1.46                     0.39
                                                               --------------------------
    Total Expenses............................................                     2.26                     0.89
Waivers.......................................................                   * 1.36                        0
                                                               --------------------------
    Net Expenses..............................................                     0.90                    0.89
----------------------------------------------------------------------------------------------------------------
* The adviser has voluntarily agreed to reimburse certain expenses of the Portfolio until July 1, 2005 so that
  the annual expenses do not exceed 0.90%.


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement Portfolio:
                                                                  Existing Portfolio:     Lord Abbett Growth and
                                                                  IMSF Large Cap Value   Income Portfolio (Class
                                                                  Portfolio  (percent)    VC shares)  (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.80                     0.50
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     2.04                     0.39
                                                               --------------------------
    Total Expenses............................................                     2.84                     0.89
Waivers.......................................................                    *1.94                        0
                                                               --------------------------
    Net Expenses..............................................                     0.90                    0.89
----------------------------------------------------------------------------------------------------------------
* The adviser has contractually agreed to reimburse certain expenses of the Portfolio until July 1, 2005 so that
  the annual expenses do not exceed 0.90%.


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement Portfolio:
                                                                  Existing Portfolio:        Dreyfus Emerging
                                                                 IMSF Small Cap Equity      Leaders Portfolio
                                                                  Portfolio  (percent)       (Initial class)
                                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee................................................                     0.95                     0.90
12b-1 Fee.....................................................                     None                     None
Other Expenses................................................                     2.16                     0.23
                                                               --------------------------
    Total Expenses............................................                     3.11                     1.13
Waivers.......................................................                       *0                    **.04
                                                               --------------------------
    Net Expenses..............................................                     3.11                    1.09
----------------------------------------------------------------------------------------------------------------
* Effective July 1, 2005 an expense reimbursement arrangement currently in effect will terminate.
** The adviser's parent has agreed, until December 31, 2005, to waive receipt of its fees and/or assume the
  expenses of the Portfolio so that the expenses of the Class (excluding taxes, brokerage commissions,
  extraordinary expenses, interest expenses and commitment fees on borrowings) do not exceed 1.50%.

    20. The T. Rowe Price Blue Chip Growth Portfolio and the T. Rowe 
Price Personal Strategy Balanced Portfolio each has higher management 
fees than its corresponding Existing Portfolio (higher by .05% and 
.10%,

[[Page 36422]]

respectively). However, each of the two T. Rowe Price Portfolios has a 
``unified'' management fee which requires that many of the fund 
expenses be paid by the adviser out of its fee rather than be charged 
directly to the fund. Thus, under the unified fee arrangement, the 
overall expenses of the two T. Rowe Price Portfolios are largely 
reflected by each Portfolio's management fee. Specifically, each T. 
Rowe Price Portfolio's management fee pays for investment management 
services and ordinary, recurring operating expenses, but does not cover 
interest, taxes, brokerage, nonrecurring and extraordinary items or 
fees and expenses for the fund's independent directors. The investment 
adviser of the T. Rowe Price Portfolios has represented to Applicants 
that the ordinary, recurring operating expenses covered by the 
management fee of the T. Rowe Price Blue Chip Growth and T. Rowe Price 
Personal Strategy Balanced Portfolios have exceeded .05% and 0.10%, 
respectively, for each of the past three years. Effectively, therefore, 
this makes the management fees of each of the two T. Rowe Price 
Portfolios lower than the management fees of each of their 
corresponding Existing Portfolios.
    21. The Federated Prime Money Fund II also has a higher management 
fee than its corresponding Existing Portfolio (higher by .10%) as well 
as higher overall current total expenses. However, effective July 1, 
2005, the expense reimbursement arrangement for the Existing Portfolio 
will be discontinued. When that occurs, the expenses of the IMSF Money 
Market Portfolio will increase significantly. In fact, the total 
expenses of the IMSF Money Market Portfolio are anticipated to be more 
than double those of the Federated Prime Money Fund II when the waiver 
with respect to the IMSF Money Market Portfolio is discontinued.
    22. In summary, with respect to Fund expenses, given the 
anticipated discontinuation of the expense reimbursement arrangement 
for the Existing Portfolios, there will be a dramatic increase in each 
Existing Portfolio's total expenses resulting in a significant increase 
in overall expenses to the Contract owners. Without the expense 
reimbursement arrangement in place for the Existing Portfolios, the 
total expenses of each Existing Portfolio are substantially higher in 
all cases than those of the corresponding Replacement Portfolios, even 
without taking into account any fee waiver/expense reimbursement 
arrangements of the Replacement Portfolios.
    23. The Insurance Companies also considered the performance history 
of the Existing Portfolios and the Replacement Portfolios and 
determined that no Contract owners would be materially adversely 
affected as a result of the substitutions. The following tables compare 
the performance history of the Existing Portfolio and the Replacement 
Portfolio for each proposed substitution.

----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:        Fidelity VIP II
   Average annual total returns  (For years or periods ended    IMSF Intermediate Fixed   Investment Grade Bond
                      December 31, 2004)                            Income Portfolio       Portfolio  (Initial
                                                                                            class)  (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                     4.50                     4.46
Five Years....................................................                     6.98                     7.90
Ten Years.....................................................                      N/A                     7.60
Life of Fund..................................................                     5.75
Fund Inception Date...........................................                 11/13/97
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
   Average annual total returns  (For years or periods ended      Existing portfolio:      Fidelity VIP III Mid
                      December 31, 2004)                          IMSF Mid Cap Equity    Cap Portfolio  (Initial
                                                                       (percent)            class)  (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                    16.94                    24.92
Five Years....................................................                    11.11                    15.11
Life of Fund..................................................                     9.80                    20.74
Fund Inception Date...........................................                 11/13/97                 12/28/98
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:        Fidelity VIP II
   Average annual total returns  (For years or periods ended       IMSF Global Fixed      Investment Grade Bond
                      December 31, 2004)                            Income Portfolio       Portfolio  (Initial
                                                                                            class)  (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                     3.71                     4.46
Five Years....................................................                     5.86                     7.90
Ten Years.....................................................                      N/A                     7.60
Life of Fund..................................................                     5.31  .......................
Fund Inception Date...........................................                 11/13/97  .......................
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:       Fidelity VIP Money
   Average annual total returns  (For years or periods ended       IMSF Money Market         Market Portfolio
                      December 31, 2004)                               Portfolio             (Initial class)
                                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                     0.85                     1.21
Five Years....................................................                     2.50                     2.86
Ten Years.....................................................                      N/A                     4.16

[[Page 36423]]

 
Life of Fund..................................................                     3.20  .......................
Fund Inception Date...........................................                 11/13/97  .......................
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                  Existing portfolio:     Replacement portfolio:
   Average annual total returns  (For years or periods ended       IMSF Money Market      Federated Prime Money
                      December 31, 2004)                               Portfolio            Fund II  (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                    0.85%                     0.82
Five Years....................................................                    2.50%                     2.50
Ten Years.....................................................                      N/A                     3.69
Life of Fund..................................................                    3.20%
Fund Inception Date...........................................                 11/13/97
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
   Average annual total returns  (For years or periods ended      Existing portfolio:    T. Rowe Price Blue Chip
                      December 31, 2004)                         IMSF Large Cap Growth       Growth Portfolio
                                                                  Portfolio  (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                    -1.96                    8.69%
Five Years....................................................                   -10.00                      N/A
Life of Fund..................................................                     0.89                    -2.12
Fund Inception Date...........................................                 11/13/97                 12/29/00
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                  Existing portfolio:     Replacement portfolio:
   Average annual total returns  (For years or periods ended     IMSF Large Cap Growth   Equity Growth Portfolio
                      December 31, 2004)                          Portfolio  (percent)     (Class I)  (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                    -1.96                     7.77
Five Years....................................................                   -10.00                    -6.16
Life of Fund..................................................                     0.89                     6.14
Fund Inception Date...........................................                 11/13/97                   1/2/97
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                    Replacement
                                                                   portfolio; T.
                                                                    Rowe Price                    Merrill Lynch-
   Average annual total returns  (For      Existing portfolio:       Personal         Custom         Wilshire
  years or periods ended December 31,    IMSF Balanced Portfolio     Strategy        Benchmark    Capital Market
                 2004)                                               Balanced        (percent)         Index
                                                                     Portfolio                       (percent)
                                                                     (percent)
----------------------------------------------------------------------------------------------------------------
One Year...............................  20.30%.................           12.80            9.70            9.54
Five Years.............................  9.80%..................            5.95            2.12            1.23
Ten Years..............................  N/A....................           11.12            9.67           10.11
Life of Fund...........................   7.05%.................
Fund Inception Date....................   11/13/97..............
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:     Lord Abbett Growth and
   Average annual total returns  (For years or periods ended      IMSF Growth & Income       Income Portfolio
                      December 31, 2004)                               Portfolio            (Class VC shares)
                                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                   12.60%                    12.65
Five Years....................................................                    5.58%                     5.49
Ten Years.....................................................                      N/A                    12.77
Life of Fund..................................................                    8.49%
Fund Inception Date...........................................                 11/13/97
----------------------------------------------------------------------------------------------------------------


[[Page 36424]]


----------------------------------------------------------------------------------------------------------------
                                                                                    Replacement
                                                                                    portfolio:
                                                                                    Lord Abbett
                                                                                    Growth and
 Average annual total returns  (For years or     Existing portfolio: IMSF Large       Income       S&P 500 Index
       periods ended December 31, 2004)               Cap Value Portfolio            Portfolio       (percent)
                                                                                     (Class VC
                                                                                      shares)
                                                                                     (percent)
----------------------------------------------------------------------------------------------------------------
One Year.....................................  15.77%...........................           12.65           10.85
Five Years...................................  6.25%............................            5.49           -2.30
Ten Years....................................  N/A..............................           12.77           12.07
Life of Fund.................................  4.75%............................
Fund Inception Date..........................  11/13/97.........................
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                          Replacement portfolio:
                                                                  Existing portfolio:        Dreyfus Emerging
   Average annual total returns  (For years or periods ended     IMSF Small Cap Equity      Leaders Portfolio
                      December 31, 2004)                          Portfolio  (percent)       (Initial Shares)
                                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
One Year......................................................                    10.86                    14.42
Five Years....................................................                     1.06                    14.15
Life of Fund..................................................                     4.75                    15.65
Fund Inception Date...........................................                 11/13/97                 12/15/99
----------------------------------------------------------------------------------------------------------------

    24. Applicants acknowledge with respect to the IMSF Balanced 
Portfolio--T. Rowe Price Personal Strategy Balanced Portfolio 
substitution, that the IMSF Balanced Portfolio has had one-year and 
five-year average annual total returns exceeding those of the T. Rowe 
Price Personal Strategy Balanced Portfolio. The Applicants believe, 
however, that the substitution is appropriate and in the best interests 
of Contract owners even given the superior performance of the IMSF 
Balanced Portfolio. The IMSF Balanced Portfolio has not attracted 
sufficient assets to make it a viable fund. The IMSF Balanced 
Portfolio's operating expenses have been heavily subsidized by IMA and 
its affiliates since inception. As discussed elsewhere in the 
Application, IMA anticipates discontinuing the reimbursement 
arrangement with respect to the IMSF Balanced Portfolio in the near 
future, possibly as early as July 1, 2005. Once the expense 
reimbursement arrangement is discontinued, the Portfolio's annual 
operating expenses will more than double which will result in a 
substantial decrease in performance. Further, the Replacement Portfolio 
has significantly outperformed its benchmarks over each of the one 
year, five year and ten year periods ended December 31, 2004.
    25. Applicants acknowledge with respect to the IMSF Large Cap Value 
Portfolio--Lord Abbett Growth and Income Portfolio substitution, that 
the IMSF Large Cap Value Portfolio has had one-year and five-year 
average annual total returns exceeding those of the Lord Abbett Growth 
and Income Portfolio. The Applicants believe, however, that the 
substitution is appropriate and in the best interests of Contract 
owners even given the superior performance of the IMSF Large Cap Value 
Portfolio. The IMSF Large Cap Value Portfolio has not attracted 
sufficient assets to make it a viable fund. The operating expenses of 
the IMSF Large Cap Value Portfolio have been heavily subsidized by IMA 
and its affiliates since inception. As discussed elsewhere in this 
Application, IMA anticipates discontinuing the expense reimbursement 
arrangement with respect to the IMSF Large Cap Value Portfolio in the 
near future, possibly as early as July 1, 2005. Once the expense 
reimbursement arrangement is discontinued, the Portfolio's annual 
operating expenses will more than triple which will result in a 
substantial decrease in performance. Further, the Replacement Portfolio 
has outperformed the S&P 500 Index, one of its benchmarks, over each of 
the one year, five year and ten year periods ended December 31, 2004.
    26. Finally, in all cases, the assets of the Replacement Portfolios 
are substantially larger than those of the Existing Portfolios. It 
would be anticipated, therefore, that expenses of the Replacement 
Portfolios would have a greater likelihood going forward to be lower 
than those of the Existing Portfolios due to greater economies of scale 
and efficiencies of operation of the Replacement Portfolios. In 
addition, the Existing Portfolios have failed to attract sufficient 
assets to make them viable going forward, particularly in light of the 
anticipated discontinuation of the expense reimbursement arrangement. 
The Board of Directors of IMSF, in light of the above, has expressed 
its view that the Existing Portfolios should be liquidated as soon as 
possible by way of the proposed substitutions.
    27. The proposed substitutions will take place at relative net 
asset value with no change in the amount of any Contract owner's 
Contract value, accumulation value, or death benefit or in the dollar 
value of his or her investment in the Separate Accounts.
    28. It is expected that the substitutions will be effected by 
redeeming shares of an Existing Portfolio for cash and using the cash 
to purchase shares of the Replacement Portfolio.
    29. There will be no increase in Contract fees and expenses, 
including mortality and expense risk fees and administration fees 
charged to the Separate Accounts as a result of the substitutions. 
Contract owners will not incur any fees or charges as a result of the 
proposed substitutions, nor will their rights or an Insurance Company's 
obligations under the Contracts be altered in any way. All expenses 
incurred in connection with the proposed substitutions, including 
brokerage, legal, accounting, and other fees and expenses, will be paid 
by IMA or an affiliate thereof. In addition, the proposed substitutions 
will not impose any tax liability on Contract owners. The proposed 
substitutions will not cause the Contract fees and charges currently 
being paid by existing Contract owners to be greater after the proposed 
substitutions than before the proposed substitutions. No fees will be 
charged on the transfers made at the time of the proposed substitutions 
because the proposed substitutions will not be treated as a transfer 
for the purpose of assessing transfer charges or

[[Page 36425]]

for determining the number of remaining permissible transfers in a 
Contract year.
    30. The Applicants agree that the Insurance Companies will not 
increase total separate account charges with respect to the Replacement 
Portfolio sub-accounts for any outstanding Contracts involved in the 
proposed substitution on the date of the substitutions for a period of 
two years from the date of the substitutions.
    31. In connection with assets held under variable annuity and 
variable life insurance contracts affected by the substitutions, BMA 
will not receive, for three years from the date of the substitutions, 
any direct or indirect benefits from the Replacement Portfolios, their 
advisors, or underwriters (or their affiliates) at a rate higher than 
that which BMA or IMA, IMSF's adviser and an affiliate of BMA, had 
received from the IMSF Portfolios or their advisors, underwriters or 
affiliates, including without limitation, 12b-1, shareholder service, 
advisory, administration or other service fees, revenue sharing or 
other arrangements in connection with such assets. BMA represents that 
the substitutions and the selection of Replacement Portfolios were not 
motivated by any financial consideration paid or to be paid by the 
Replacement Portfolios, their advisors or underwriters, or their 
respective affiliates.
    32. In connection with assets held under variable annuity contracts 
affected by the substitutions, Fidelity Security will not receive, for 
three years from the date of the substitutions, any direct or indirect 
benefits from the Replacement Portfolios, their advisors, or 
underwriters (or their affiliates) at a rate higher than that which 
Fidelity Security had received from the IMSF 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. 
Fidelity Security represents that the substitutions and the selection 
of the Replacement Portfolios were not motivated by any financial 
consideration paid or to be paid by the Replacement Portfolios, their 
advisors or underwriters, or their respective affiliates.
    33. Each Insurance Company also will seek approval of the proposed 
substitutions from any state insurance regulators whose approval may be 
necessary or appropriate.
    34. By a supplement to the prospectuses for the Contracts and the 
Separate Accounts, each Insurance Company will notify all owners of the 
Contacts of its intention to take the necessary actions, including 
seeking the order requested by this Application, to substitute share of 
the funds as described herein. The supplement will advise Contract 
owners that from the date of the supplement until the date of the 
proposed substitution, owners are permitted to make transfers of 
Contract value out of the Existing Portfolio sub-account to another 
sub-account without the transfer (or exchange) being treated as one of 
a limited number of permitted transfers (or exchanges) or a limited 
number of transfers (or exchanges) permitted without charge. The 
supplement will also advise Contract owners that for at least 30 days 
following the proposed substitutions, the Insurance Companies will 
permit Contract owners affected by the substitutions to make transfers 
of Contract value out of the Replacement Portfolio sub-account to 
another sub-account without the transfer (or exchange) being treated as 
one of a limited number of permitted transfers (or exchanges) or a 
limited number of transfers (or exchanges) permitted without charge.
    35. In addition to the prospectus supplements distributed to owners 
of Contracts, within five business days after the proposed 
substitutions, Contract owners will be sent a written notice informing 
them that the substitutions were carried out and that they may transfer 
all Contract value or accumulation value under a Contract invested in 
any one of the sub-accounts on the date of the notice to another sub-
account available under their Contract at no cost and without regard to 
the usual limit on the frequency of transfers from the variable account 
options to the fixed account options. The Insurance Companies will also 
send each Contract owner current prospectuses for the Replacement 
Portfolios involved.

Applicants' Legal Analysis

    1. Section 26(c) (formerly, Section 26 (b)) of the 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 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 SEC approval.
    2. Congress responded to the SEC's concerns by enacting Section 
26(b) (now Section 26 (c)) to require that the SEC approve all 
substitutions by the depositor of investments held by unit investment 
trusts. As the legislative history makes clear, Congress intended 
Section 26(b) to provide SEC scrutiny of proposed substitutions which 
could otherwise, in effect, force shareholders dissatisfied with the 
substituted security to redeem their shares, thereby possibly incurring 
either a loss of the sales load deducted from initial purchase 
payments, an additional sales load upon reinvestment of the proceeds of 
redemption, or both. The section-by-section analysis states in 
pertinent part:

    The proposed amendment recognizes that in the case of the unit 
investment trust holding the securities of a single issuer 
notification to shareholders does not provide adequate protection 
since the only relief available to shareholders, if dissatisfied, 
would be to redeem their shares. A shareholder who redeems and 
reinvests the proceeds in another unit investment trust or in an 
open-end company would under most circumstances be subject to a new 
sales load. The proposed approval of the substitution would close 
this gap in shareholder protection by providing for [SEC] approval 
of the substitution. The [SEC] would be required to issue an order 
approving the substitution if it finds the substitution consistent 
with the protection of investors and the purposes fairly intended by 
the policy and provisions of the act.

    3. The Proposed substitutions appear to involve substitutions of 
securities within the meaning of Section 26(c) of the Act.
    4. Applicants therefore request an Order of the SEC pursuant to 
Section 26(c) of the Act to permit them to effect the Substitution on 
the terms set forth in this Application. Section 26(c) of the Act 
provides:

    It shall be unlawful for any depositor or trustee of a 
registered unit investment trust holding the security of a single 
issuer to substitute another security for such security unless the 
[SEC] shall have approved such substitution. The [SEC] shall issue 
an order approving such substitution if the evidence establishes 
that it is consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of this title.


[[Page 36426]]


    Applicants believe that their requests for approval meet the 
standards set forth in Section 26(c) and are consistent with applicable 
precedent.
    5. The Contracts expressly reserve to the applicable Insurance 
Company the right, subject to compliance with applicable law, to 
substitute shares of another investment company for shares of an 
investment company held by a sub-account of the Separate Accounts. The 
prospectuses for the Contracts and the Separate Accounts contain 
appropriate disclosure of this right.
    6. With respect to each proposed substitution, Contract owners with 
balances invested in the Replacement Portfolios will have a lower 
expense ratio in most cases. Moreover, it is expected that the expense 
reimbursement arrangements for the Existing Portfolios will be 
discontinued in the near future which will result in a dramatic 
increase in the expenses of the Existing Portfolios causing them to far 
exceed those of the Replacement Portfolios.
    7. The proposed Replacement Portfolio for each Existing Portfolio 
has an investment objective that is at least substantially similar to 
that of the Existing Portfolio. Moreover, the principal investment 
policies of the Replacement Portfolios are similar to those of the 
corresponding Existing Portfolios.
    8. In each case, the applicable Insurance Companies believe that it 
is in the best interests of the Contract owners to substitute the 
Replacement Portfolio for the Existing Portfolio. The Insurance 
Companies believe that the advisers and sub-advisers of the Replacement 
Portfolios will, over the long term, be positioned to provide at least 
comparable performance to that of the Existing Portfolios' adviser or 
sub-advisers.
    9. The Applicants anticipate that Contract owners will be better 
off with the array of sub-accounts offered after the proposed 
substitutions than they have been with the array of sub-accounts 
offered prior to the substitutions. The proposed substitutions retain 
for Contract owners the investment flexibility which is a central 
feature of the Contracts. If the proposed substitutions are carried 
out, all Contract owners will be permitted to allocate purchase 
payments and transfer Contract values and accumulation values between 
and among approximately the same number of sub-accounts as they could 
before the proposed substitutions.

Conclusion

    Applicants submit, for all of the reasons stated herein, that their 
request meets the standards set out in Section 26(c) of the Act and 
that an Order should, therefore, be granted. Accordingly, Applicants 
request an Order pursuant to Section 26(c) of the Act approving the 
substitution.

    For the Commission, by the Division of Investment Management 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3257 Filed 6-22-05; 8:45 am]
BILLING CODE 8010-01-P