[Federal Register Volume 64, Number 170 (Thursday, September 2, 1999)]
[Notices]
[Pages 48217-48221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22942]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23980; File No. 812-11676]


Integrity Life Insurance Company, et al.

August 27, 1999.
AGENCY: Securities and Exchange Commission (the ``Commission'' or 
``SEC'').

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

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

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered unit investment trusts to substitute shares of EQ Advisors 
Trust, a registered open-end investment company, for shares of The 
Hudson River Trust, another registered open-end investment company, 
currently held by those unit investment trusts.
    Applicants: Integrity Life Insurance Company, National Integrity 
Life Insurance Company, Separate Account VUL of Integrity Life 
Insurance Company, and Separate Account VUL of National Integrity Life 
Insurance Company (collectively, the ``Applicants'').

[[Page 48218]]

    Filing Date: The application was filed on July 1, 1999, and amended 
and restated on August 17, 1999.
    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 September 21, 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 who wish to be notified of a 
hearing may request notification by writing to the Secretary of the 
Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants: c/o Integrity Life 
Insurance Company, 515 West Market Street, 8th Floor, Louisville, 
Kentucky 40202, Attn: Kevin L. Howard, Esq.

FOR FURTHER INFORMATION CONTACT: Kevin P. McEnery, Senior Counsel, or 
Susan M. Olson, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Integrity Life Insurance Company (``Integrity'') is an Ohio 
stock life insurance company. Integrity sells flexible premium variable 
annuity contracts, fixed single premium annuity contracts, and flexible 
premium annuity contracts offering both traditional fixed guaranteed 
interest rates along with equity indexed options. Integrity serves as 
depositor for Separate Account VUL of Integrity Life Insurance Company 
(``Integrity Account'').
    2. Integrity is an indirect wholly owned subsidiary of ARM 
Financial Group, Inc., a publicly traded corporation specializing in 
providing retail and institutional customers with products and services 
designed for long-term savings and retirement planning.
    3. National Integrity Life Insurance Company (``National 
Integrity,'' and together with Integrity, the ``Insurance Companies'') 
is a New York stock life insurance company. National Integrity sells 
flexible premium variable annuity contracts, fixed single premium 
annuity contracts, and flexible premium annuity contracts offering 
traditional fixed guaranteed interest rates. National Integrity serves 
as depositor for Separate Account VUL of National Integrity Life 
Insurance Company (``National Integrity Account,'' and together with 
the Integrity Account, the ``Insurance Company Accounts''). National 
Integrity is a wholly owned subsidiary of Integrity.
    4. Each of the Insurance Company Accounts is a segregated asset 
account of its Insurance Company sponsor and is registered with the 
Commission under the 1940 Act as a unit investment trust. The Insurance 
Company Accounts fund the variable benefits available under certain 
variable life insurance policies issued by their respective Insurance 
Company sponsors (collectively, the ``Policies''). The Policies are 
flexible premium individual variable life insurance policies. Integrity 
and National Integrity have not offered the Policies since 1990, but 
the Policies that they issued are still outstanding.\1\
---------------------------------------------------------------------------

    \1\ Applicants represent that, in reliance on the relief in 
Great-West Life Insurance Company (pub. avail. Oct. 23, 1990) 
(``Great-West''), they provide certain information to Policy owners 
about the policies, the relevant Insurance Company, and the 
underlying fund in lieu of filing post-effective amendments to the 
registration statements relating to those Policies or delivering 
updated prospectuses to those Policies owners.
---------------------------------------------------------------------------

    5. The Hudson River Trust (``HRT'') is organized as a Massachusetts 
business trust. It is registered as an open-end management investment 
company under the 1940 Act, and its shares are registered under the 
Securities Act of 1933 (the ``1933 Act'') on Form N-1A. HRT is a series 
investment company, as defined by Rule 18f-2 under the 1940 Act, and 
currently offers shares of 14 separate portfolios, six of which 
(``Current Funds'') would be involved in the proposed substitutions. 
HRT sells shares to the Insurance Company Accounts to serve as an 
investment medium for the Policies.\2\ Sales of HRT shares to the 
Insurance Company Accounts currently account for less than 1% of HRT's 
total assets. HRT currently offers two classes of shares, Class IA and 
Class IB shares, which differ only in that Class IB shares are subject 
to a distribution plan adopted and administered pursuant to Rule 12b-1 
under the 1940 Act. The Insurance Company Accounts hold only Class IA 
shares. Each Current Fund is advised by Alliance Capital Management 
L.P. (``Alliance''), an investment adviser registered under the 
Investment Advisers Act of 1940, as amended (``Advisers Act'').
---------------------------------------------------------------------------

    \2\ An exemptive order was issued by the Commission granting 
exemptions from the 1940 Act to permit shares of HRT to be offered 
to separate accounts of affiliated and unaffiliated insurance 
companies that offer either variable life insurance policies or 
variable annuity contracts. See Equitable Variable Life Insurance 
Company, Investment Company Act Rel. Nos. 14899 (Jan. 14, 1986) 
(order) and 14860 (Dec. 18, 1985) (notice). An exemptive order also 
was issued by the Commission granting exemptions from the 1940 Act 
to permit shares of EQ Advisors Trust to be offered to separate 
accounts of affiliated and unaffiliated insurance companies that 
offer either variable life insurance policies or annuity contracts 
(``EQAT Shared Funding Order''). See EQ Advisors Trust, Investment 
Company Act Rel. Nos. 22651 (April 30, 1997) (order) and 22602 
(April 4, 1997) (notice).
---------------------------------------------------------------------------

    6. EQ Advisors Trust (``EQAT'') is organized as a Delaware business 
trust. It is registered as an open-end management investment company 
under the 1940 Act, and its shares are registered under the 1933 Act on 
Form N-1A. EQAT is a series investment company, as defined by Rule 18f-
2 under the 1940 Act, and currently offers 25 separate portfolios of 
shares EQAT currently sells shares to certain registered and 
unregistered separate accounts (``Equitable Separate Accounts'') used 
as the underlying investment options for certain variable annuity 
contracts and/or variable life insurance policies issued by The 
Equitable Life Assurance Society of the United States (``Equitable''). 
EQAT currently offers two classes of shares, Class IA and IB shares, 
which differ only in that Class IB shares are subject to a distribution 
plan adopted and administered pursuant to Rule 12b-1 under the 1940 
Act. EQ Financial Consultants, Inc. (``EQ Financial''), an indirect 
wholly-owned subsidiary of Equitable, serves as investment manager of 
each of the current 25 portfolios of EQAT under an investment 
management agreement with EQAT.\3\ EQ Financial is an investment 
adviser registered under the Advisers Act and a broker-dealer 
registered under the Securities Exchange Act of 1934, as amended. 
Pursuant to the investment management agreement, the investment manager 
(``Manager'') is responsible for the general management and 
administration of EQAT, including selecting the investment advisers for 
each of EQAT's portfolios (``Advisers''), monitoring their investment 
programs and results, reviewing brokerage matters, overseeing 
compliance issues, and carrying out the directives of the

[[Page 48219]]

Board of Trustees. EQAT has received an exemptive order from the 
Commission (``Multi-Manager Order'') that permits EQ Financial, or any 
entity controlling, controlled by, or under common control (within the 
meaning of Section 2(a)(9) of the 1940 Act) with EQ Financial, subject 
to certain conditions, including approval of the Board of Trustees of 
EQAT, and without the approval of shareholders, to (a) Employ a new 
Adviser or Advisers for any portfolio pursuant to the terms of a new 
Investment Advisory Agreement, in each case either as a replacement for 
an existing Adviser or as an additional Adviser; (b) change the terms 
of any Investment Advisory Agreement; and (c) continue the employment 
of an existing Adviser on the same contract terms where a contract has 
been assigned because of a change of control of the Adviser.\4\ In such 
circumstances, owners would receive notice of any such action, 
including information concerning any new Adviser, that normally is 
provided in proxy materials.
---------------------------------------------------------------------------

    \3\ During 1999, EQ Financial plans to change its name to AXA 
Advisors, Inc. On July 12, 1999, the Board of trustees of EQAT 
approved a transfer of the Investment Management Agreement to 
Equitable. That transfer of the Investment Management Agreement is 
expected to occur prior to October 1, 1999.
    \4\ See EQ Advisors Trust and EQ Financial Consultants, Inc., 
Investment Company Act Rel. Nos. 23128 (April 24, 1998) (order) and 
23093 (March 30, 1998) (notice). Before a New Fund may rely on the 
Multi-Manager Order, the operation of that New Fund as a multi-
manager fund, as described in the application for the Multi-Manager 
Order, will be approved, following the substitutions proposed in the 
application, by a majority of that New Fund's outstanding voting 
securities in a manner consistent with the EQAT Shared Funding 
Order.
---------------------------------------------------------------------------

    7. EQAT has filed a post-effective amendment to its registration 
statement on Form N-1A in order to register 14 new portfolios, 
including the six portfolios (``New Funds'') that the Applicants 
propose to substitute for the Current Funds. Alliance will serve as the 
Adviser to each of the 14 new portfolios (the ``Alliance Portfolios''), 
including the New Funds. EQAT intends to sell shares of the Alliance 
Portfolios to the Equitable Separate Accounts, as well as to the 
Insurance Company Accounts.
    8. The Policies expressly reserve to the Applicants the right, 
subject to compliance with applicable law, to substitute shares of 
another portfolio for shares of the Current Funds held by the Insurance 
Company Accounts. The prospectuses describing the Policies contain 
appropriate disclosure of this right of substitution.
    9. Applicants represent that they are not affiliates of HRT, EQAT 
or Equitable.
    10. The Applicants propose to substitute Class IA shares issued by 
the six New Funds for the Class IA shares issued by six Current Funds. 
Equitable and each Equitable Separate Account that is registered under 
the 1940 Act and that currently invests in HRT (collectively, the 
``Equitable Accounts'') have filed an application with the Commission 
(``Equitable Application'') requesting, inter alia, an order pursuant 
to Section 26(b) of the 1940 Act, approving the substitution of 
securities issued by the Alliance Portfolios for the securities issued 
by the 14 portfolios of HRT and currently used as the investment 
options for the contracts issued by Equitable through the Equitable 
Accounts.\5\ If approved, Equitable will redeem more than 99% of HRT's 
assets in connection with those substitutions. Applicants state that it 
is their belief that it is reasonable to conclude that, following the 
proposed substitutions by Equitable: (i) The expense level of the 
Current Funds will increase dramatically as a percentage of net assets 
due to the smaller asset base, which is highly unlikely to increase; 
(ii) the Current Funds will be difficult to manage in conformity with 
the applicable diversification regulations under the Internal Revenue 
Code of 186, as amended (``Code''); and (iii) the asset levels of the 
Current Funds will be small enough to raise concern as to whether the 
Current Funds will remain viable investment options. By contrast, none 
of these concerns will be associated with investments in EQAT. 
Applicants submit that, under these circumstances, the substitution of 
the New Funds for the Current Funds is in the best interest of Policy 
owners.
---------------------------------------------------------------------------

    \5\ File No. 812-11602 (filed Apr. 30, 1999).
---------------------------------------------------------------------------

    11. The Applicants represent that the Manager of the 25 current 
portfolios of EQAT will also serve as Manager of the New Funds, that 
Alliance will serve as the Adviser to each of the Alliance Portfolios, 
and that each of the New Funds will have the same portfolio manager(s) 
as those of the corresponding Current Fund. The Applicants also state 
that each of the New Funds will have investment objectives, investment 
strategies and anticipated risks that are identical in all material 
respects to those of the corresponding Current Fund. The investment 
objectives of each Current Fund and the corresponding New Fund are as 
follows:

----------------------------------------------------------------------------------------------------------------
             Current fund                Investment objective           New fund           Investment objective
----------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock Portfolio..  Seeks to achieve long-   Alliance Aggressive      Seeks to achieve long-
                                        term growth of capital.  Stock Portfolio.         term growth of
                                                                                          capital.
Alliance Balanced Portfolio..........  Seeks to achieve a high  Alliance Balanced        Seeks to achieve a high
                                        return through both      Portfolio.               return through both
                                        appreciation of                                   appreciation of
                                        capital and current                               capital and current
                                        income.                                           income.
Alliance Common Stock Portfolio......  Seeks long-term growth   Alliance Common Stock    Seeks long-term growth
                                        of its capital and       Portfolio.               of its capital and
                                        increase in income.                               increase in income.
Alliance Global Portfolio............  Seeks long-term growth   Alliance Global          Seeks long-term growth
                                        of capital.              Portfolio.               of capital.
Alliance High Yield Portfolio........  Seeks to achieve a high  Alliance High Yield      Seeks to achieve a high
                                        return by maximizing     Portfolio.               return by maximizing
                                        current income and, to                            current income and, to
                                        the extent consistent                             the extent consistent
                                        with that objective,                              with that objective,
                                        capital appreciation.                             capital appreciation.
Alliance Money Market Portfolio......  Seeks to obtain a high   Alliance Money Market    Seeks to obtain a high
                                        level of current         Portfolio.               level of current
                                        income, preserve its                              income, preserve its
                                        assets and maintain                               assets and maintain
                                        liquidity.                                        liquidity.
----------------------------------------------------------------------------------------------------------------

    12. The Applicants state that it is expected that: (i) The 
management fees (i.e., the total management fees paid to the Manager 
and from which the Manager will compensate the Adviser) with respect to 
each New Fund will be the same as the management fees currently 
applicable to the corresponding Current Funds; and (ii) there may be a 
slight increase in the total expense ratios of each of the New Funds as 
compared to those of the corresponding Current Fund. The Applicants 
also represent that the chart below shows: (i) The Management fees

[[Page 48220]]

and total expenses for Class IA shares of each of the Current Funds for 
the year ending December 31, 1998; and (ii) the estimated management 
fees and total expenses of Class IA shares of each of the New Funds 
following the proposed substitutions. Estimated management fees and 
total expenses of Class IA shares of each of the New Funds are based on 
pro forma expenses of the New Funds following the proposed 
substitutions and are based upon the audited financial statements of 
HRT for the year ending December 31, 1998.

----------------------------------------------------------------------------------------------------------------
                 Year ending December 31, 1998                                      Pro forma
----------------------------------------------------------------------------------------------------------------
                                                                                   Managemet and
                                Advisory fees   Total expenses                     advisory fees  Total expenses
                               (as percentage   (as percentage   New fund class   (as percentage  (as percentage
    Current fund class IA        of average       of average           IA           of average      of average
                                  daily net       daily net                          daily net       daily net
                                   assets)         assets)                            assets)         assets)
----------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock                0.54            0.56   Alliance                    0.54            0.57
 Portfolio.                                                      Aggressive
                                                                 Stock Portfolio.
Alliance Balanced Portfolio..            0.41            0.45   Alliance                    0.41            0.46
                                                                 Balanced
                                                                 Portfolio.
Alliance Common Stock                    0.36            0.39   Alliance Common             0.36            0.40
 Portfolio.                                                      Stock Portfolio.
Alliance Global Stock                    0.64            0.71   Alliance Global             0.64            0.72
 Portfolio.                                                      Stock Portfolio.
Alliance High Yield Portfolio            0.60            0.63   Alliance High               0.60            0.64
                                                                 Yield Portfolio.
Alliance Money Market                    0.35            0.37   Alliance Money              0.35            0.38
 Portfolio.                                                      Market
                                                                 Portfolio.
----------------------------------------------------------------------------------------------------------------

    13. The Applicants state that they provided their respective Policy 
owners with detailed notice disclosing the proposed substitutions 
shortly after the application was initially filed. The Applicants state 
that, upon effectiveness of the post-effective amendment to the 
registration statement of EQAT with respect to the New Funds and 
publication of notice by the Commission with respect to the 
application, they will send the Policy owners further detailed notice 
concerning the proposed substitutions, together with a prospectus for 
the New Funds. The notices will describe each of the New Funds, 
identify each Current Fund that is being replaced, and disclose the 
impact of other substitutions on fees and expenses at the underlying 
fund level. The Applicants state that copies of the prospectuses for 
the New Funds will be sent to Policy owners with the notice. The notice 
period will be at least thirty days after the notice is sent to 
affected Policy owners. Confirmation of the substitutions will be sent 
to affected Policy owners within five days after the substitutions are 
effected.
    14. The Applicants state that the substitutions will be effected by 
redeeming shares of the Current Funds on the effective date of the 
substitutions proposed in the application and proposed in the Equitable 
Application (``Substitution Date'') at net asset value and using the 
proceeds to purchase shares of the New Funds at net asset value on the 
same date. No transfer or similar changes will be imposed by the 
Applicants and, on the Substitution Date, all policy values will remain 
unchanged and fully invested. The Applicants expect that the 
substitutions will be effected by redeeming the shares of each Current 
Fund in-kind. Those assets will then be contributed in-kind to the 
corresponding New Fund to purchase shares of that New Fund. Redemptions 
and contributions in-kind will reduce the brokerage costs that 
otherwise would be incurred in connection with the proposed 
substitutions and will ensure that Policy values remain fully invested. 
In-kind redemptions and contributions will be done in a manner 
consistent with the investment objectives, policies and diversification 
requirements of each corresponding New Fund. The Manager of each New 
Fund will review the in-kind transactions to assure that the assets are 
suitable for the New Fund. All assets subject to in-kind redemption and 
purchase will be valued based on the normal valuation procedures of the 
redeeming and purchasing Funds, as set forth in the HRT and EQAT 
registration statements.
    15. The significant terms of the substitutions described above 
include:
    a. The New Funds have investment objectives, investment strategies, 
and anticipated risks that are identical in all material respects to 
those of the Current Funds. In this regard, the Applicants note that 
the New Funds will continue to employ the same portfolio managers 
currently employed by the Current Funds and are intended to mirror the 
investment options provided by the Current Funds.
    b. The fees and expenses of the New Funds will in all cases be 
substantially similar to those of the Current Funds, assuming that the 
asset levels of the New Funds do not decrease significantly from the 
Current Funds' present asset levels. Again, the Applicants note in this 
regard that given the substantial similarity of the Current Funds and 
the New Funds, Applicants do not expect there to be a reduction in the 
asset levels of the New Funds as a result of the substitutions.
    c. Policy owners may transfer assets from the Current or New Funds 
to another fund available under their Policy without the imposition of 
any fee, charge, or other penalty that might otherwise be imposed from 
the date of the initial notice through a date at least thirty days 
following the Substitution Date.
    d. The substitutions, in all cases, will be effected at the net 
asset value of the respective shares of the Current Fund and the 
corresponding New Fund in conformity with Section 22(c) of the 1940 Act 
and Rule 22c-1 thereunder, without the imposition of any transfer or 
similar charge by the Applicants, and with no change in the amount of 
any Policy owner's Policy value or in the dollar value of his or her 
investment in such Policy.
    e. Policy owners will not incur any fees or charges as a result of 
the proposed substitutions, nor will their rights or the obligations of 
the relevant Insurance Company under the Policies be altered in any 
way. Equitable will bear all expenses incurred in connection with the 
proposed substitutions and related filings and notices, including 
legal, accounting and other fees and expenses. The proposed 
substitutions will not cause the Policy fees and charges currently 
being paid by existing Policy owners to be greater after the proposed 
substitutions than before the proposed substitutions.
    f. Redemptions in-kind and contributions in-kind will be done in a 
manner consistent with the investment objectives, policies and 
diversification requirements of the applicable Current and New Funds, 
and the Manager will review the in-kind transactions to assure that the 
assets are suitable for the New

[[Page 48221]]

Fund. Consistent with Rule 17a-7(d) under the 1940 Act, no brokerage 
commissions, fees (except customary transfer fees) or other 
remuneration will be paid in connection with the in-kind transactions.
    g. The substitutions will not be counted as new investment 
selections in determining the limit, if any, on the total number of 
funds that Policy owners can select during the life of a Policy.
    h. The substitutions will not alter in any way the life benefits, 
tax benefits, or any Policy obligations of the Applicants, under the 
Policies.
    i. Policy owners may withdraw amounts under the Policies or 
terminate their interest in a Policy, under the conditions that 
currently exist, including payment of any applicable withdrawal or 
surrender charge.
    j. Policy owners affected by the substitutions will be sent written 
confirmation of the substitutions that identify each substitution made 
on behalf of that Policy owner within five days following the 
Substitution Date.
    k. Before a New Fund may rely on the Multi-Manager Order, the 
operation of that New Fund as a multi-manager fund as described in the 
application for the Multi-Manager Order will be approved, following the 
substitutions proposed in the application and the substitutions 
proposed in the Equitable Application, by a majority of that New Fund's 
outstanding voting securities in a manner consistent with the EQAT 
Shared Funding Order.
    16. The Applicants state that they will not complete the 
substitutions as described in the application unless all of the 
following conditions are met:
    a. The Commission will have issued an order approving the 
substitutions under Section 26(b) of the 1940 Act.
    b. The Commission will have issued an order approving the Equitable 
Application.
    c. The amendments to the registration statement for EQAT adding the 
New Funds shall have become effective.
    d. Each Policy owner will have been mailed effective prospectuses 
for the New Funds and relevant information about the proposed 
substitutions for the applicable Policies at least 30 days prior to the 
Substitution Date. In conjunction with this mailing, each Policy owner 
will have been sent a notice that describes the terms of the proposed 
substitutions and the Policy owners' rights in connection with them.
    e. The Applicants will have satisfied themselves, based on advice 
of counsel familiar with insurance laws, that the Policies allow the 
substitution of portfolios as described in the application, and that 
the transactions can be consummated as described herein under 
applicable insurance laws and under the various Policies.
    f. The Applicants will have complied with any regulatory 
requirements they believe are necessary to complete the transactions in 
each jurisdiction where the Policies have been qualified for sale.

Applicants' Legal Analysis

    1. Section 26(b) of the 1940 Act provides that 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. Section 26(b) further provides that 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 policies and provisions of the 1940 Act.
    2. The Applicants submit that the Policies expressly reserve to the 
Applicants the right, subject to compliance with applicable law, to 
substitute shares of another portfolio for shares of the Current Funds 
held by the Insurance Company Accounts, and that appropriate disclosure 
of this right of substitution is contained in the prospectuses 
describing the Policies. The Applicants assert that they have reserved 
this right of substitution both to protect themselves and their Policy 
owners in situations where either might be harmed by events affecting 
the issuer of the securities held by the Insurance Company Account and 
to preserve the opportunity to replace such shares in situations where 
a substitution could benefit itself and its Policy owners.
    3. The Applicants maintain that the proposed substitutions protect 
the Policy owners who have allocated Policy value to the Current Funds 
by: (1) Providing an underlying investment option that is substantially 
similar in all material aspects to the current investment option; and 
(2) eliminating Current Funds that will not be viable due to the low 
level of assets following the proposed substitutions by Equitable.
    4. The Applicants further submit that the proposed substitutions 
meet the standards that the Commission and its staff generally have 
applied to other substitutions that have been approved. In addition, 
the Applicants contend that none of the proposed substitutions is the 
type of substitution that Section 26(b) was designed to prevent. Unlike 
traditional unit investment trusts, the Policies provide each Policy 
owner with the right to exercise his own judgment and transfer Policy 
values into any other available variable and/or fixed investment 
options. Additionally, Applicants state that the proposed substitutions 
will not, in any manner, reduce the number, nature or quality of the 
available investment options. The Applicants assert that the Policy 
owners will be offered the opportunity to transfer amounts out of the 
affected subaccounts without any cost or other penalty that may 
otherwise have been imposed until thirty days after the Substitution 
Date. For these reasons, the Applicants maintain that the proposed 
substitutions will not result in the type of costly forced redemption 
that Section 26(b) was designed to prevent.
    5. The Applicants further submit that the proposed substitutions 
also are unlike the type of substitution that Section 26(b) was 
designed to prevent in that by purchasing a Policy, Policy owners 
select much more than a particular underlying fund in which to invest 
their Policy values. The Policy owners also select the specific type of 
insurance coverage offered by the Applicants under the applicable 
Policy, as well as numerous other rights and privileges set forth in 
the Policy. The Applicants state that, in choosing to buy a Policy from 
one of the Insurance Companies, it is likely that the Policy owner also 
may have considered that Insurance Company's size, financial condition, 
and reputation for service, and that none of those considerations and 
factors will change as a result of the proposed substitutions.
    6. The Applicants submit that, for all reasons stated above, the 
proposed substitutions are consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
1940 Act.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the substitutions should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22942 Filed 9-1-99; 8:45 am]
BILLING CODE 8010-01-M