[Federal Register Volume 64, Number 13 (Thursday, January 21, 1999)]
[Notices]
[Pages 3322-3326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1322]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23652; File No. 812-11396]


Hartford Life and Annuity Insurance Company, et al.; Notice of 
Application

January 13, 1999.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (the ``Act'') approving certain 
substitutions of securities, and pursuant to Section 17(b) of the Act 
exempting related transactions from Section 17(a) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered unit investment trusts to substitute shares of Bond Fund of 
One Group Investment Trust (``One Group Trust'') for shares of Pegasus 
Variable Fund (``Pegasus Trust'') Bond Fund, shares of One Group 
Trust's Value Growth Fund for shares of Pegasus Variable Fund's Growth 
and Value Fund, shares of One Group Trust's Mid Cap Opportunities Fund 
for shares of Pegasus Trust's Mid Cap Opportunity Fund, shares of One 
Group Trust's Large Company Growth Fund for shares of Pegasus Trust's 
Growth Fund and shares of One Group Trust's Mid Cap Value Fund for 
shares of Pegasus Trust's Intrinsic Value Fund currently held by those 
unit investment trusts, and to permit certain in-kind redemptions of 
portfolio securities in connection with the substitutions.
    Applicants: Hartford Life and Annuity Insurance Company 
(``Hartford''), ICMG Registered Variable Life Separate Account One 
(``ICMG Account'') and Hartford Life and Annuity Insurance Company 
Separate Account Six (``Annuity Account,'' together with the ICMG 
Account, the ``Accounts'').
    Filing date: The application was filed on November 10, 1998.
    Hearing or notification of hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Secretary of 
the Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on February 8, 1999, and should be accompanied 
by proof of service on Applicants, in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549. Applicants, c/o Marianne O'Doherty, 
Esq., Counsel, Hartford Life and Annuity Insurance Company, 200 
Hopmeadow Street, Simsbury, Connecticut 06089. Copies to Stephen E. 
Roth, Esq. and David S. Goldstein, Esq., Sutherland Asbill & Brennan 
LLP, 1275 Pennsylvania Avenue, NW, Washington, DC 20004-2415.

FOR FURTHER INFORMATION CONTACT:
Ethan D. Corey, Senior Counsel, at (202) 942-0675, or Kevin M. 
Kirchoff, Branch Chief, at (202) 942-0672, Office of Insurance 
Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application may be obtained for a fee from 
the Public Reference Branch of the Commission, 450 5th Street, NW, 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Hartford is a stock life insurance company incorporated in 
Connecticut. Hartford is engaged in the business of writing individual 
and group life insurance and annuity contracts in the District of 
Columbia and all states but New York. Hartford is the depositor and 
sponsor of the Accounts.
    2. The ICMG Account, a segregated investment account established 
under Connecticut law, is registered with the Commission as a unit 
investment trust. The ICMG Account is currently divided into fourteen 
subaccounts, each of which invests exclusively in shares representing 
an interest in a separate corresponding investment portfolio (``Fund'') 
of one of three management investment companies of the series type 
(``Management Companies''), including Pegasus Trust. The assets of the 
ICMG Account support flexible premium group variable life insurance 
contracts (``ICMG Contracts''), and interests in the Account offered 
through the ICMG Contracts have been registered under the Securities 
Act of 1933 (the ``1933 Act'') on Form S-6.
    3. The Annuity Account is currently divided into thirteen 
subaccounts. Each subaccount invests exclusively in a corresponding 
Fund of one of the same three Management Companies in which the ICMG 
Account invests. The assets of the Annuity Account support individual 
and group flexible premium deferred variable annuity contracts 
(``Annuity Contracts,'' together with the ICMG Contracts, 
``Contracts''), and interests in the Account offered through the 
Annuity Contracts have been registered under the 1933 Act on Form N-4 
(File No. 33-86330).
    4. Pegasus Trust, a Delaware business trust, is registered under 
the Act as an open-end management investment company (File No. 811-
8854). Pegasus Trust currently comprises five Funds, all of which would 
be involved in the proposed substitutions. Pegasus Trust issues a 
separate series of shares of beneficial interest in connection with 
each Fund. Those shares are registered under the 1933 Act on Form N-1A 
(File

[[Page 3323]]

No. 33-86186). First Chicago NBD Investment Management Company serves 
as the investment adviser to Pegasus Trust.
    5. One Group Trust, a Massachusetts business trust, is registered 
under the Act as an open-end management investment company (File No. 
811-7874). One Group Trust currently comprises nine Funds. One Group 
Trust issues a separate series of shares of beneficial interest in 
connection with each Fund and has registered these shares under the 
1933 Act on Form N-1A (File No. 33-66080). Banc One Investment Advisors 
Corporation serves as investment adviser to One Group Trust.
    6. Pegasus Trust's Bond Fund (``Pegasus Bond Fund'') seeks to 
maximize its total rate of return by investing predominantly in 
intermediate and long-term debt securities denominated in U.S. dollars. 
During normal market conditions, the Fund's average weighted portfolio 
maturity is generally 6 to 12 years. Debt securities in which the 
Pegasus Bond Fund normally invests include: (a) obligations issued or 
guaranteed by the U.S. Government, its agencies or instrumentalities; 
(b) corporate, bank and commercial obligations; (c) securities issued 
or guaranteed by foreign governments and their agencies or 
instrumentalities; (d) securities issued by supranational banks; (e) 
mortgage-backed and other asset-backed securities; and (f) variable 
rate bonds, zero coupon bonds, debentures and various types of demand 
instruments. Up to 15% of the Pegasus Bond Fund's total assets may be 
invested in dollar-denominated debt securities of foreign issuers.
    7. One Group Trust's Bond Fund (``One Group Bond Fund'') seeks to 
earn a high level of current income and total return by investing 
primarily in a diversified portfolio of debt securities of various 
maturities. At least 65% of the One Group Bond Fund's total assets is 
invested in bonds and at least 80% in debt securities of all types with 
varying maturities. Generally debt securities acquired by the One Group 
Bond Fund are rated investment grade but it may invest up to 5% of its 
net assets in debt securities rated below investment grade. It also may 
invest in convertible securities, preferred stock and loan 
participations. The One Group Bond Fund normally maintains a weighted 
average maturity of between six to twelve years, although it may 
shorten this maturity for temporary defensive purposes.
    8. Pegasus Trust's Growth and Value Fund (``Pegasus Growth and 
Value Fund'') seeks long-term capital growth, with income a secondary 
consideration. It invests primarily in equity securities of larger 
companies believed by its investment adviser to represent a value or 
potential worth that is not fully recognized by prevailing market 
prices. It invests in equity securities of companies that its 
investment adviser believes have earnings growth expectations that 
exceed those implied by the market's current valuation or whose 
earnings it expects to increase at a rate in excess of those within the 
general equity market.
    9. One Group Trust's Value Growth Fund (``One Group Value Growth 
Fund'') seeks long-term capital growth and growth of income and 
secondarily, a moderate level of current income, by investing primarily 
in equity securities. It invests in securities of overlooked or 
undervalued companies that have the potential to produce above-average 
earnings growth over time. It follows a multi-style strategy in that it 
invests in securities of both value and growth oriented companies of 
varying levels of capitalization.
    10. Pegasus Trust's Mid Cap Opportunity Fund (``Pegasus Mid Cap 
Opportunity Fund'') seeks long-term capital appreciation. It seeks to 
achieve its objective by investing primarily in equity securities of 
companies with market capitalizations of $500 million to $3 billion.
    11. One Group Trust's Mid Cap Opportunities Fund (``One Group Mid 
Cap Opportunities Fund'') seeks long term capital growth by investing 
primarily in equity securities of companies with market capitalizations 
of between $500 million and $5 billion. Normally the One Group Mid Cap 
Opportunities Fund invests at least 80% of its total assets in common 
and preferred stock, rights, warrants, securities convertible into 
common stock, and other equity securities. The One Group Mid Cap 
Opportunities Fund may invest up to 25% of its total assets in equity 
securities of foreign issuers and up to 20% of its total assets in 
investment grade debt securities, U.S. government securities, cash and 
cash equivalents. It may hold up to 5% of its total assets in 
convertible debt securities rated lower than investment grade.
    12. Pegasus Trust's Growth Fund (``Pegasus Growth Fund'') seeks 
long-term capital appreciation. It seeks to achieve its objective by 
investing primarily in equity securities of domestic issuers believed 
by its investment adviser to have above-average growth characteristics. 
The investment adviser often considers the following factors in 
evaluating growth characteristics: development of new or improved 
products, a favorable growth outlook for the issuer's industry, 
patterns of increasing sales and earnings, the probability of increased 
operating efficiencies, and cyclical conditions.
    13. One Group Trust's Large Company Growth Fund (``One Group Large 
Company Growth Fund'') seeks long-term capital appreciation and growth 
of income by investing primarily in equity securities of large well-
established companies. The weighted average market capitalization of 
such companies normally exceeds the median market capitalization of the 
Standard & Poor's 500 Composite Stock Price Index. The One Group Large 
Company Growth Fund normally invests at least 65% of its total assets 
in such equity securities. The remainder of the One Group Large Company 
Growth Fund's total assets are invested in nonconvertible fixed-income 
securities, options and futures contracts, repurchase agreements, and 
securities issued by the U.S. government and its agencies and 
instrumentalities.
    14. Pegasus Trust's Intrinsic Value Fund (``Pegasus Intrinsic Value 
Fund'') seeks long-term capital appreciation. It seeks to achieve its 
objective by investing primarily in equity securities of companies that 
its investment adviser believes represent a value or potential worth 
that is not recognized by prevailing market prices. In selecting 
securities, the Fund's investment adviser employs screening techniques 
to isolate issues that it believes are attractively priced and then 
evaluates the underlying earning power and dividend paying ability of 
the issuer. The Fund's holdings are usually characterized by lower 
price/earnings, price/cash flow and price/book value ratios and by 
above-average current dividend yields relative to the equity market'.
    15. One Group Trust's Mid Cap Value Fund (``One Group Mid Cap Value 
Fund'') seeks capital appreciation with a secondary goal of obtaining 
income by investing primarily in equity securities. Under normal market 
conditions, at least 80% of the One Group Mid Cap Value Fund's total 
assets are invested in equity securities having market capitalizations 
of $500 million to $5 billion. Generally, the One Group Mid Cap Value 
Fund invests in equity securities of companies with below-average 
price/earnings and price/book value ratios. The One Group Mid Cap Value 
Fund also considers a company's financial soundness and earnings 
prospects. It generally will sell a security if its investment adviser 
considers that the issuer's fundamental

[[Page 3324]]

business prospects are declining or its ability to pay dividends is 
impaired.
    16. Banc One Investment Advisors Corporation, investment adviser to 
One Group Trust, is an indirect wholly-owned subsidiary of Bank One 
Corporation. Until recently, First Chicago NBD Investment Management, 
investment adviser to Pegasus Trust, was an indirect wholly-owned 
subsidiary of First Chicago NBD Corporation. As of October 2, 1998, 
Bank One Corporation and First Chicago NBD Corporation underwent a 
merger and have decided to consolidate the mutual fund operations of 
First Chicago NBD Investment Management with those of Banc One 
Investment Advisors. Applicants assert that in connection with this 
consolidation, it has been determined that the organization needs only 
one Management Company as an investment vehicle for variable life 
insurance and variable annuity contracts and that One Group Trust 
rather than Pegasus Trust should be that vehicle. As a result, Pegasus 
Trust will be closed down and will therefore be unable to continue to 
offer its shares to the Accounts.
    17. Under the Contracts, Hartford reserves the right to substitute 
shares of one Fund for shares of another, including a Fund of a 
different Management Company.
    18. Hartford proposes to substitute shares of the One Group Bond 
Fund for shares of the Pegasus Bond Fund, shares of the One Group Value 
Growth Fund for shares of the Pegasus Growth and Value Fund, shares of 
the One Group Mid Cap Opportunities Fund for shares of the Pegasus Mid 
Cap Opportunity Fund, shares of the One Group Large Company Growth Fund 
for shares of the Pegasus Growth Fund and shares of the One Group Mid 
Cap Value Fund for shares of the Pegasus Intrinsic Value Fund 
(collectively, ``Substitutions''). Hartford proposes to carry out 
certain substitutions by redeeming shares issued by Pegasus Trust in 
kind and using the redemption proceeds to purchase shares issued by One 
Group Trust.
    19. With respect to the proposed substitution of shares of One 
Group Bond Fund for shares of Pegasus Bond Fund, shares of One Group 
Mid Cap Opportunities Fund for shares of Pegasus Mid Cap Opportunity 
Fund, shares of One Group Value Growth Fund for shares of Pegasus 
Growth and Value Fund and shares of One Group Mid Cap Value Fund for 
shares of Pegasus Intrinsic Value Fund, Applicants assert that in 
anticipation of Pegasus Trust's discontinuation, One Group Trust is in 
the process of creating new investment portfolios including the Bond 
Fund, Mid Cap Opportunities Fund, Value Growth Fund and Mid Cap Value 
Fund. Each of these Funds has been designed as a replacement for its 
Pegasus Trust counterpart. As such, each has an investment objective 
(or objectives) that is virtually or substantially identical to that of 
its Pegasus Trust counterpart and pursues such objective(s) using 
similar investment polices. The effect of the foregoing four proposed 
substitutions would be to ``transfer'' these Pegasus Trust Funds intact 
to the One Group Trust. Banc One Investment Advisors has indicated to 
Hartford that it has undertaken to waive the management fee of these 
four One Group Trust Funds during their first year of operation to the 
extent necessary to limit each Fund's expense ratio as follows: Bond 
Fund, 0.75%; Mid Cap Opportunities Fund, 0.95%; Value Growth Fund, 
0.95%; and Mid Cap Value Fund, 0.95%.
    20. With respect to the proposed substitution of shares of One 
Group Large Company Growth Fund for shares of Pegasus Growth Fund, 
Applicants assert that One Group Large Company Growth Fund has 
substantially the same investment objective as the Pegasus Growth Fund. 
If the proposed substitution of One Group Large Company Growth Fund 
shares for those of Pegasus Growth Fund occurs, Large Company Growth 
Fund would increase in size by approximately 15% and be more than seven 
times the size of the Growth Fund. This proposed substitution would 
move Contract owners currently invested in Pegasus Trust Growth Fund to 
a much larger fund with substantially the same risk and reward 
characteristics. Applicants assert that although Pegasus Growth Fund 
has had somewhat lower expense ratios than One Group Trust Large 
Company Growth Fund during the last three years, the immediate increase 
in size of the later after the proposed substitution would result in a 
lower ratio in fiscal 1999 and that One Group Large Company Growth Fund 
has had better cumulative performance over the past three fiscal years 
than has Pegasus Growth Fund.
    21. The following charts show the approximate year-end net asset 
level, ratio of operating expenses as a percentage of average net 
assets, and annual total returns for each of the past three years for 
the Pegasus Growth Fund and the One Group Large Company Growth Fund:

----------------------------------------------------------------------------------------------------------------
                                                                   Net assets at   Expense ratio   Total return
                                                                     year-end        (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Pegasus Growth Fund:
    1995........................................................      $6,434,936          \2\.85       \2\ 18.82
    1996........................................................      11,542,021             .85           17.52
    1997........................................................      15,839,911             .91           24.48
One Group Large Company Growth Fund:
    1995........................................................      16,119,036          \1\.90           24.13
    1996........................................................      42,893,346          \1\.98           16.67
    1997........................................................      99,627,641         \1\1.00           31.93
----------------------------------------------------------------------------------------------------------------
\1\ The One Group Trust Large Company Growth Fund's investment adviser voluntarily waived part of its investment
  management fee during 1995 and 1996 in order to limit the Fund's expense ratios to the amounts shown for those
  years. Absent such waivers, the expense ratios for 1995 and 1996 would have been 1.64% and 1.16%,
  respectively.
\2\ Annualized.

    22. By supplements to the various prospectuses for the Contracts 
and the Accounts, Hartford will notify all owners of the Contracts of 
its intention to effect the Substitutions. The supplements for the 
Accounts advise Contract owners that from the date of the supplement 
until the date of the Substitutions, owners are permitted to make one 
transfer of all amounts under a Contract invested in any one of the 
affected subaccounts on the date of the supplement to another 
subaccount available under a Contract other than one of the other 
affected subaccounts without that transfer counting as a ``free'' 
transfer permitted under a Contract. The supplements also inform 
Contract owners that Hartford will not exercise any rights reserved 
under any Contract to impose additional

[[Page 3325]]

restrictions on transfers until at least 30 days after the proposed 
substitution.
    23. The Substitutions will take place at relative net asset value 
with no change in the amount of any Contract owner's Contract value, 
cash value or death benefit or in the dollar value of his or her 
investment in either of the Accounts. Contract owners will not incur 
any fees or charges as a result of the Substitutions, nor will their 
rights or Hartford's obligations under the Contracts be altered in any 
way. All expenses incurred in connection with the Substitutions, 
including legal, accounting and other fees and expenses, will be paid 
by Hartford. In addition, the Substitutions will not impose any tax 
liability on Contract owners. The Substitutions will not cause the 
Contract fees and charges currently being paid by existing Contract 
owners to be greater after the Substitutions than before the 
Substitutions. The Substitutions will not be treated as a transfer for 
the purpose of assessing transfer charges or for determining the number 
of remaining permissible transfers in a Contract year. Hartford will 
not exercise any right it may have under the Contracts to impose 
additional restrictions on transfers under any of the Contracts for a 
period of at least 30 days following the Substitutions.
    24. In addition to the prospectus supplements distributed to owners 
of Contracts, within five days after the Substitutions, any Contract 
owners who were affected by the Substitutions will be sent a written 
notice informing them that the Substitutions were carried out and that 
they may make one transfer of all Contract value or cash value under a 
Contract invested in any one of the affected subaccounts on the date of 
the notice to another subaccount or separate account available under 
their Contract without that transfer counting as one of any limited 
number of transfers permitted in a Contract year or as one of a limited 
number of transfers permitted in a Contract year free of charge. The 
notice will also reiterate the fact that Hartford will not exercise any 
rights reserved by it under the Contracts to impose additional 
restrictions on transfers until at least 30 days after the 
Substitutions. The notice as delivered in certain states also may 
explain that, under the insurance regulations in those states, Contract 
owners who are affected by the Substitutions may exchange their 
Contracts for fixed-benefit life insurance contracts or annuity 
contracts, as applicable, issued by Hartford (or one of its affiliates) 
during the 60 days following the Substitutions. The notices will be 
accompanied by current prospectuses for One Group Trust.

Applicants' Legal Analysis

    1. Section 26(b) of the Act requires the depositor of a registered 
unit investment trust holding the securities of a single issuer to 
obtain Commission approval before substituting the securities held by 
the trust. Specifically, Section 26(b) states:
    It shall be unlawful for any depositor or trustee or a registered 
unit investment trust holding the security of a single issuer to 
substitute another security for such security unless the Commission 
shall have approved such substitution. The Commission shall issue an 
order approving such substitution if the evidence establishes that it 
is consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of this title.
    2. Applicants state that the Substitutions appear to involve 
substitutions of securities within the meaning of Section 26(b) of the 
Act and request that the Commission issue an order pursuant to Section 
26(b) of the Act approving the Substitutions.
    3. The Contracts expressly reserve for Hartford the right, subject 
to Commission approval, to substitute shares of another Management 
Company for shares of a Management Company held by a subaccount of the 
Accounts. Applicants assert that the prospectuses for the Contracts and 
the Accounts contain appropriate disclosure of this right.
    4. Applicants request an order of the Commission pursuant to 
Section 26(b) of the Act approving the proposed substitutions by 
Hartford. Applicants assert that the Substitutions are consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act.
    5. Applicants assert that in the cases of the proposed substitution 
of shares of One Group Bond Fund for shares of Pegasus Bond Fund, 
shares of One Group Mid Cap Opportunities Fund for shares of Pegasus 
Mid Cap Opportunity Fund, shares of One Group Value Growth Fund for 
shares of Pegasus Growth and Value Fund and shares of One Group Mid Cap 
Value Fund for shares of Pegasus Intrinsic Value Fund, the Pegasus 
Trust Funds would be replaced by essentially the same Fund under a 
different name. Although these Funds, in their One Group Trust 
incarnation, may not be managed by the same individuals as managed them 
for Pegasus Trust, each Fund will maintain its essential character 
along with its investment objective(s) and policies. Moreover, 
applicants assert that these Funds' prospects for significant future 
growth are greater as part of the One Group Trust than they would have 
been as part of Pegasus Trust.
    6. Applicants assert that in the case of the proposed substitution 
of shares of One Group Trust Large Company Growth Fund for shares of 
Pegasus Trust Growth Fund, Pegasus Trust Growth Fund would be replaced 
by a Fund with very similar investment objectives and policies, but of 
much larger size. Although expense ratios over the most recent three 
fiscal years have been somewhat lower for Pegasus Growth Fund than for 
One Group Trust Large Company Growth Fund, cumulative investment 
performance for the later has been better than for the former over the 
same periods and investors in Large Company Growth Fund can reasonably 
expect a decline in expense ratios as result of the increase in assets 
following the proposed substitution. For these reasons, Applicants 
assert that Contract owners would benefit from the proposed 
substitution.
    7. Applicants assert that they anticipate that Contract owners will 
be at least as well off with the array of subaccounts offered after the 
proposed substitutions as they have been with the array of subaccounts 
offered prior to the substitutions. Applicants assert that the 
Substitutions retain for Contract owners the investment flexibility 
which is a central feature of the Contracts. If the Substitutions are 
carried out, all Contract owners will be permitted to allocate purchase 
payments and transfer Contract values and cash values between and among 
the same number of subaccounts as they could before the Substitutions.
    8. Applicants assert that each of the Substitutions is not the type 
of substitution which Section 26(b) was designed to prevent. Unlike 
traditional unit investment trusts where a depositor could only 
substitute an investment security in a manner which permanently 
affected all the investors in the trust, the Contracts provide each 
Contract owner with the right to exercise his or her own judgment and 
transfer Contract or cash values into other subaccounts. Moreover, the 
Contracts will offer Contract owners the opportunity to transfer 
amounts out of the affected subaccounts into any of the remaining 
subaccounts without cost or other disadvantage. Applicants assert that 
the Substitutions, therefore, will not result in the type of costly 
forced redemption which Section 26(b) was designed to prevent.
    9. Section 17(a)(1) of the Act prohibits any affiliated person or 
an affiliate of an

[[Page 3326]]

affiliated person, of a registered investment company, from selling any 
security or other property to such registered investment company. 
Section 17(a)(2) of the Act prohibits such affiliated persons from 
purchasing any security or other property from such registered 
investment company.
    10. Section 17(b) of the Act authorizes the Commission to issue an 
order exempting a proposed transaction from Section 17(a) if: (a) the 
terms of the proposed transaction are fair and reasonable and do not 
involve overreaching on the part of any person concerned; (b) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned; and (c) the proposed transaction is 
consistent with the general purposes of the Act.
    11. Applicants request an order pursuant to Section 17(b) of the 
Act exempting them, Pegasus Trust and One Group Trust from the 
provisions of Section 17(a) to the extent necessary to permit Hartford 
to carry out the Substitutions.
    12. Applicants assert that the terms of the Substitutions, 
including the consideration to be paid and received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned. Applicants also assert that the proposed substitutions by 
Hartford are consistent with the policies of: (a) Pegasus Trust and of 
its Bond Fund, Growth and Value Fund, Mid Cap Opportunity Fund, Growth 
Fund and Intrinsic Value Fund; and (b) One Group Trust and of its Bond 
Fund, Value Growth Fund, Mid Cap Opportunities Fund, Large Company 
Growth Fund and Mid Cap Value Fund, as recited in the current 
registration statements and reports filed by each under the Act. 
Finally, Applicants assert that the proposed substitutions are 
consistent with the general purposes of the Act.
    13. The proposed transactions will be effected at the respective 
net asset value. The proposed transactions will not change the amount 
of any Contract owner's Contract or cash value or death benefit or in 
the dollar value of his or her investment in either of the Accounts. 
Applicants also state that the transactions will conform substantially 
with the conditions enumerated in Rule 17a-7. Applicants assert that to 
the extent that the proposed transactions do not comply fully with all 
of the conditions of Rule 17a-7 and each Trust's procedures thereunder, 
the circumstances surrounding the proposed substitutions will be such 
as to offer the same degree of protection to each Fund of Pegasus Trust 
and the affected Funds of One Group Trust from overreaching that Rule 
17a-7 provides to them generally in connection with their purchase and 
sale of securities under that Rule in the ordinary course of their 
business.
    14. Applicants assert that because of the circumstances surrounding 
the proposed Hartford substitutions, Pegasus Trust could not ``dump'' 
undesirable securities on One Group Trust or have their desirable 
securities transferred to other advisory clients of Banc One Investment 
Advisers or to Funds other than those in One Group Trust supporting the 
Accounts. Nor can Hartford (or any of its affiliates) effect the 
proposed transactions at a price that is disadvantageous to any Pegasus 
Trust Fund or One Group Trust Fund. Although the transactions may not 
be entirely for cash, each will be effected based upon: (a) the 
independent market price of the portfolio securities valued as 
specified in paragraph (b) of Rule 17a-7; and (b) the net asset value 
per share of each Fund involved valued in accordance with the 
procedures disclosed in the respective Trust's registration statement 
and as required by Rule 22c-1 under the Act. Applicants assert that no 
brokerage commission, fee, or other remuneration will be paid to any 
party in connection with the proposed transactions. In addition, 
Applicants assert that the boards of trustees of each Trust will 
subsequently review the Substitutions and make the determinations 
required by paragraph (e)(3) of Rule 17a-7.
    15. Applicants assert that the proposed transactions are consistent 
with the general purposes of the Act and that the proposed transactions 
do not present any of the conditions or abuses that the Act was 
designed to prevent.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
Substitutions are consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.

    For the Commission, by the Division Of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1322 Filed 1-20-99; 8:45 am]
BILLING CODE 8010-01-M