[Federal Register Volume 64, Number 37 (Thursday, February 25, 1999)]
[Notices]
[Pages 9361-9365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4631]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23 701; File No. 812-11396]


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

February 19, 1999.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of amended and restated 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.

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

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered unit investment trusts to substitute shares of Bond 
Portfolio of One Group Investment Trust (``One Group Trust'') for 
shares of Pegasus Variable Fund (``Pegasus Trust'') Bond Fund, shares 
of One Group Trust's Diversified Equity Portfolio for shares of Pegasus 
Variable Fund's Growth and Value Fund, shares of One Group Trust's 
Diversified Mid Cap Portfolio for shares of Pegasus Trust's Mid Cap 
Opportunity Fund, shares of One Group Trust's Large Cap Growth 
Portfolio for shares of Pegasus Trust's Growth Fund and shares of One 
Group Trust's Mid Cap Value Portfolio 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,\1\ and 
amended and restated on February 12, 1999.

    \1\ The Commission previously published a notice of the 
application. Investment Company Act Release No. 23652 (January 13, 
1999) [64 FR 3322 (January 21, 1999)] (``Rel. IC-23652''). 
Applicants subsequently amended and restated the application. This 
release publishes notice of the application as amended and restated, 
and supersedes Rel. IC-23652.
---------------------------------------------------------------------------

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 March 16, 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, N.W., Washington, D.C. 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, N.W., Washington, D.C. 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, N.W., 
Washington, D.C. 20549 (tel. (202) 942-8090).

Applicant's 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 the three

[[Page 9362]]

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 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 Portfolio (``One Group Bond Portfolio'') 
seeks to maximize total return by investing primarily in a diversified 
portfolio of intermediate and long-term debt securities. At least 65% 
of the One Group Bond Portfolio's total assets is invested in bonds and 
at least 65% in debt securities of all types with intermediate to long 
maturities. The One Group Bond Portfolio mainly invests in investment 
grade bonds and debt securities, which may include mortgage-backed and 
other types of asset-backed securities. It also may invest in 
convertible securities, preferred stock and loan participations. The 
One Group Bond Portfolio normally maintains a weighted average maturity 
of between four and 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 of 
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 Diversified Equity Portfolio (``One Group 
Diversified Equity Portfolio'') seeks long-term capital growth and 
growth of income and secondarily, a moderate level of current income. 
It invests primarily in common stocks of overlooked or undervalued 
companies that have the potential for earnings growth over time. It 
follows a multi-style strategy in that it may invest 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 Diversified Mid Cap Portfolio (``One Group 
Diversified Mid Cap Portolio'') seeks long term capital growth by 
investing primarily in equity securities of companies with market 
capitalizations of between $500 million and $5 billion. The One Group 
Diversified Mid Cap Portfolio invests in companies with strong growth 
potential, stable market share, and an ability to respond quickly to 
new business opportunities. Normally the One Group Diversified Mid Cap 
Portfolio invests at least 65% of its total assets in common and 
preferred stock, rights, warrants, securities convertible into common 
stock, and other equity securities. The One Group Diversified Mid Cap 
Portfolio may invest up to 25% of its total assets in foreign 
securities and up to 20% of its total assets in investment grade debt 
securities, U.S. government securities, cash and cash equivalents.
    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 Cap Growth Portfolio (``One Group Large 
Cap Growth Portfolio'') 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 
Cap Growth Portfolio normally invests at least 65% of its total assets 
in those types of equity securities.
    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 it not recognized by prevailing market prices. In selecting 
securities, the Fund's investment adviser employs screening techniques 
to

[[Page 9363]]

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 Portolio (``One Group Mid Cap 
Value Portfolio'') seeks capital appreciation with a secondary goal of 
achieving current income by investing primarily in equity securities. 
At least 80% of the One Group Mid Cap Value Portfolio's total assets 
are invested in equity securities, including common stock, debt 
securities and preferred stock convertible into common stock. 
Generally, the One Group Mid Cap Value Portfolio invests in equity 
securities of companies with below-average price/earnings and price/
book value ratios and having market capitalizations of $500 million to 
$5 billion. The One Group Mid Cap Value Portfolio also considers a 
company's financial soundness and earnings prospects. It generally will 
sell a security if its investment adviser believes that the issuer's 
fundamental 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 
Portfolio for shares of the Pegasus Bond Fund, shares of the One Group 
Diversified Equity Portfolio for shares of the Pegasus Growth and Value 
Fund, shares of the One Group Diversified Mid Cap Portfolio for shares 
of the Pegasus Mid Cap Opportunity Fund, shares of the One Group Large 
Cap Growth Portfolio for shares of the Pegasus Growth Fund and shares 
of the One Group Mid Cap Value Portfolio 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 Portfolio for shares of Pegasus Bond Fund, shares of One 
Group Diversified Mid Cap Portfolio for shares of Pegasus Mid Cap 
Opportunity Fund, shares of One Group Diversified Equity Portfolio for 
shares of Pegasus Growth and Value Fund and shares of One Group Mid Cap 
Value Portfolio 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, Diversified Mid Cap Portfolio, Diversified 
Equity Portfolio and Mid Cap Value Portfolio. 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, 
0.7%; Diversified Mid Cap Portfolio, 0.95%; Diversified Equity 
Portfolio, 0.95%; and Mid Cap Value Portfolio, 0.95%.
    20. With respect to the proposed substitution of shares of One 
Group Large Cap Growth Portfolio for shares of Pegasus Growth Fund, 
Applicants assert that One Group Large Cap Growth Portfolio has 
substantially the same investment objective as the Pegasus Growth Fund. 
If the proposed substitutions of One Group Large Cap Growth Portfolio 
shares for those of Pegasus Growth Fund occurs, Large Cap Growth 
Portfolio 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 Cap 
Growth Portfolio 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 Cap Growth 
Portfolio has had better cumulative performance over the past thee 
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 Cap Growth Portfolio:

----------------------------------------------------------------------------------------------------------------
                                 Net assets at
      Pegasus growth fund          year-end                Expense ratio                     Total return
----------------------------------------------------------------------------------------------------------------
1995..........................      $6,434,936  .85% (annualized)..................  18.82% (annualized)
1996..........................      11,542,021  .85%...............................  17.52%
1997..........................      15,839,911  .91%...............................  24.48%
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                      Expense
              One group large cap growth portfolio                 Net assets at     ratio\2\      Total return
                                                                     year-end        (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
1995............................................................     $16,119,036            .90%           24.13
1996............................................................      42,893,346            .98%           16.67

[[Page 9364]]

 
1997............................................................      99,627,641            1.00           31.93
----------------------------------------------------------------------------------------------------------------
\2\ The One Group Trust Large Cap Growth Portfolio'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

    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 Contact. The supplements also inform 
Contract owners that Hartford will not exercise any rights reserved 
under any Contracts to impose additional 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 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 of 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 Portfolio for shares of Pegasus Mid Cap 
Opportunity Fund, shares of One Group Diversified Equity Portfolio for 
shares of Pegasus Growth and Value Fund and shares of One Group Mid Cap 
Value Portfolio 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 Cap Growth Portfolio 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 that for 
One Group Trust Large Growth Portfolio, cumulative investment 
performance for the later has been better than for the former over the 
same periods and investors in Large Cap Growth Portfolio 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

[[Page 9365]]

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 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 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 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, 
Diversified Equity Portfolio, Diversified Mid Cap Portfolio, Large Cap 
Growth Portfolio and Mid Cap Value Portfolio, as recited in the current 
registration statement 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 the 
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 
Advisors 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-4631 Filed 2-24-99; 8:45 am]
BILLING CODE 8010-01-M