[Federal Register Volume 67, Number 232 (Tuesday, December 3, 2002)]
[Notices]
[Pages 72001-72005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30531]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25833; File No. 812-12862]


Integrity Life Insurance Company, et al.

November 26, 2002.
AGENCY: Securities and Exchange Commission (the ``Commission'').

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

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    Applicants: Integrity Life Insurance Company (``Integrity''), 
Separate Account I of Integrity Life Insurance Company (``Integrity 
Separate Account I''), Separate Account II of Integrity Life Insurance 
Company (``Integrity Separate Account II''), National Integrity Life 
Insurance Company (``National Integrity''), Separate Account I of 
National Integrity Life Insurance Company (``National Integrity 
Separate Account I''), and Separate Account II of National Integrity 
Life Insurance Company (National Integrity Separate Account II'') 
(collectively, the ``Applicants'').
    Summary of Application: Applicants seek an order approving the 
proposed substitution of shares of the Franklin Income Securities 
Portfolio for shares of the Janus Aspen Balanced Portfolio, shares of 
the Franklin Growth and Income Securities Portfolio for shares of the 
Janus Aspen Capital Appreciation and Janus Aspen Core Equity 
Portfolios, shares of the Franklin Mutual Shares Portfolio for shares 
of the Janus Aspen Strategic Value Portfolio, and shares of the 
Fidelity VIP Money Market Portfolio for shares of the Janus Aspen Money 
Market Portfolio (the ``Substitution'').
    Filing Date: The application was filed on July 25, 2002 and amended 
on November 22, 2002.
    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 must be received by the 
Commission by 5:30 p.m. on December 20, 2002, and should be accompanied 
by proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester'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, P.O. Box 740074, 
Louisville, Kentucky, 40202-3319.

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

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

Applicants' Representations

    1. Integrity is a stock life insurance company organized under the 
laws of Ohio. Integrity is a subsidiary of Western and Southern Life 
Insurance Company, a mutual life insurance company originally organized 
under the laws of Ohio in 1888.
    2. Integrity Separate Account I was established under Ohio law in 
1986. Integrity Separate Account I is registered under the Act as a 
unit investment trust and is used to fund variable annuity contracts 
issued by Integrity. Three variable annuity contracts funded by 
Integrity Separate Account I are affected by this application.
    3. Integrity Separate Account II was established under Ohio law in 
1992. Integrity Separate Account II is registered under the Act as a 
unit investment trust and is used to fund variable annuity contracts 
issued by Integrity. One variable annuity contract funded by Integrity 
Life Separate Account II is affected by this application.
    4. National Integrity is a stock life insurance company organized 
under the laws of New York. National Integrity is a direct subsidiary 
of Integrity and an indirect subsidiary of Western and Southern Life 
Insurance Company.
    5. National Integrity Separate Account I was established under New 
York law in 1986. National Integrity Separate Account I is registered 
under the Act as a unit investment trust and is used to fund variable 
annuity contracts issued by National Integrity. Three variable annuity 
contracts funded by National Integrity Separate Account I are affected 
by this application.
    6. National Integrity Separate Account II was established under New 
York law in 1992. National Integrity Separate Account II is registered 
under the Act as a unit investment trust and is used to fund variable 
annuity contracts issued by National Integrity. One variable annuity 
contract funded by National Integrity Separate Account II is affected 
by this application (all eight variable annuities contracts affected by 
this application are hereinafter collectively referred to as the 
``Contracts'').
    7. Purchase payments under the Contracts are allocated to one or 
more subaccounts of the Separate Accounts. Income, gains and losses, 
whether or not realized, from assets allocated to the Separate Accounts 
are, as provided in the Contracts, credited to or charged against the 
Separate Accounts without

[[Page 72002]]

regard to other income, gains or losses of Integrity and National 
Integrity, as applicable. The assets maintained in the Separate 
Accounts will not be charged with any liabilities arising out of any 
other business conducted by Integrity or National Integrity, as 
applicable. Nevertheless, all obligations arising under the Contracts, 
including the commitment to make annuity payments or death benefit 
payments, are general corporate obligations of Integrity and National 
Integrity. Accordingly, all of the assets of each of Integrity and 
National Integrity are available to meet its obligations under its 
Contracts.
    8. Each of the Contracts permits allocations of accumulation value 
to available subaccounts that invest in specific investment portfolios 
of underlying mutual funds. Each Contract offers between 56 and 63 
portfolios. All of the Contracts offer the five portfolios of the Janus 
Aspen Series that are the subject of the Substitution (the ``Replaced 
Portfolios''). The Fidelity VIP Money Market Portfolio, which is 
proposed as the Replacement Portfolio for the Janus Money Market 
Portfolio, is also available under all of the Contracts. Before the 
date of the Substitution, three portfolios of the Franklin Templeton 
Variable Insurance Products Trust (together with the Fidelity VIP Money 
Market Portfolio, the ``Replacement Portfolios''), which are proposed 
as the Replacement Portfolios for four of the Replaced Portfolios, will 
be added to the Contracts as investment options. In addition, included 
in the Contracts are several alternative fixed interest rate options 
that are available to contract owners.
    9. Each of the Contracts permits transfers of accumulation value 
from one subaccount to another subaccount at any time prior to 
annuitization, subject to certain restrictions and charges described 
below. No sales charge applies to such a transfer of accumulation value 
among subaccounts.
    10. The Contracts permit up to twelve free transfers during any 
contract year. A fee of $20 may be imposed on transfers in excess of 
twelve transfers in a contract year. Transfers must be at least $250, 
or, if less, the entire amount in the subaccount from which value is to 
be transferred. A variety of automatically scheduled transfers are 
permitted without charge and are not counted against the twelve free 
transfers in a contract year.
    11. Each of the Contracts reserves the right, upon notice to 
contract owners and compliance with applicable law, to add, combine or 
remove subaccounts, or to withdraw assets from one subaccount and put 
them into another subaccount, and this reserved right is disclosed in 
each Contract's prospectus.
    12. On an ongoing basis, Integrity and National Integrity review 
the performance of the portfolios underlying the Contracts. During the 
past several years, the Replaced Portfolios have not maintained the 
level of performance that was the basis for their inclusion in the 
Contracts. These unfavorable performance records have occurred on an 
absolute basis, as well as relative to comparable portfolios with other 
investment advisers. This performance record may be attributable to 
certain changes that were occurring at the investment adviser to the 
Replaced Portfolios.
    13. The poor performance results realized by the Replaced 
Portfolios have led to a significant decrease in Applicants' assets 
under management advised by Janus Capital Corporation. Since a peak of 
$279 million in August 2000, Applicants' assets under management in the 
non-money market Replaced Portfolios have decreased to $158 million as 
of June 30, 2002, a decline of 43%. Moreover, the Replaced Portfolios 
have also had net outflows for at least the past year, a situation 
mirrored at the Janus retail fund level. Investors withdrew $4.7 
billion from the Janus retail funds during the second quarter of 2002.
    14. Due to the poor performance of the Replaced Portfolios in 
recent years, Applicants propose the following substitutions of shares:

------------------------------------------------------------------------
           Replaced portfolio                 Replacement portfolio
------------------------------------------------------------------------
Janus Aspen Balanced Portfolio.........  Franklin Income Securities
                                          Portfolio.
Janus Aspen Capital Appreciation         Franklin Growth and Income
 Portfolio.                               Securities Portfolio.
Janus Aspen Core Equity Portfolio......  Franklin Growth and Income
                                          Securities Portfolio.
Janus Aspen Strategic Value Portfolio..  Franklin Mutual Shares
                                          Portfolio.
Janus Aspen Money Market Portfolio.....  Fidelity VIP Money Market
                                          Portfolio.
------------------------------------------------------------------------

    15. In each case, shares of each class of the Replaced Portfolios 
will be substituted by shares of the corresponding class of the 
Replacement Portfolios. Therefore, service class shares of the Replaced 
Portfolios will be substituted by the equivalent class of shares of the 
Replacement Portfolios (i.e., Class 2 shares of the portfolios of the 
Franklin Templeton Variable Insurance Products Trust and Service Class 
shares of the Fidelity VIP Money Market Portfolio). In addition, in the 
case of three of the Replacement Portfolios whose institutional class 
shares are also offered under prior versions of the Contracts funded by 
Integrity Separate Account II and National Integrity Separate Account 
II, shares of the corresponding class of shares of the Replacement 
Portfolios will be used to replace the institutional shares of the 
relevant Replaced Portfolio (i.e., Class 1 shares of the portfolios of 
the Franklin Templeton Variable Insurance Products Trust and Initial 
Class shares of the Fidelity VIP Money Market Portfolio).
    16. Janus Capital Corporation serves as the investment adviser to 
each of the Replaced Portfolios. Franklin Templeton Investments serves 
as the investment adviser to each of the portfolios of the Franklin 
Templeton Variable Insurance Products Trust. Fidelity Management and 
Research Company serves as the investment adviser to the Fidelity VIP 
Money Market Portfolio. None of the Applicants are affiliated with any 
of the investment advisers to the Replaced or Replacement Portfolios.
    17. The 2001 expenses for each of the Replaced and Replacement 
Portfolios are shown below in Chart A. Historical performance as of 
June 30, 2002 is included in Chart B.
    18. The Janus Aspen Balanced Portfolio seeks long-term capital 
growth, consistent with capital preservation and balanced by current 
income. It is a diversified portfolio that pursues its objective by 
normally investing 40-60% of its assets in securities selected 
primarily for their growth potential and 40-60% of its assets in 
securities selected primarily for their income potential. The portfolio 
normally invests at least 25% of its assets in fixed-income securities.
    19. The Franklin Income Securities Portfolio seeks to maximize 
income while maintaining prospects for capital appreciation. Under 
normal market conditions, the portfolio will invest in both debt and 
equity securities. The

[[Page 72003]]

portfolio seeks income by investing in corporate, foreign, and U.S. 
Treasury bonds. In its search for income producing growth opportunities 
the portfolio invests in common stocks with attractive dividend yields 
of companies from a variety of industries such as electric utilities, 
oil, gas, real estate and consumer goods.
    20. The Janus Aspen Capital Appreciation Portfolio seeks long-term 
growth of capital. It is a non-diversified portfolio that pursues its 
objective by investing primarily in common stocks selected for their 
growth potential. The portfolio may invest in companies of any size, 
from larger, well-established companies to smaller, emerging growth 
companies.
    21. The Janus Aspen Core Equity Portfolio seeks current income and 
long-term growth of capital. It normally emphasizes investments in 
common stocks, and growth potential is a significant investment 
consideration. The portfolio tries to provide a lower level of 
volatility than the S&P 500 Index. Normally, it invests at least 80% of 
its net assets in equity securities selected for growth potential. 
Eligible securities include domestic and foreign common stocks, 
preferred stocks, securities convertible into common stocks or 
preferred stock such as convertible preferred stocks, bonds, 
debentures, and other securities with equity characteristics.
    22. The Franklin Growth and Income Securities Portfolio seeks 
capital appreciation with a secondary goal to provide current income. 
Under normal market conditions, the portfolio will invest at least 65% 
of its total assets in a broadly diversified portfolio of equity 
securities that the portfolio's manager considers to be financially 
strong, but undervalued by the market. The portfolio may invest in real 
estate investment trusts but does not intend to invest more than 15% of 
its assets in these trusts.
    23. The Janus Aspen Strategic Value Portfolio seeks long-term 
growth of capital. It is a non-diversified portfolio that pursues its 
objective by investing primarily in common stocks with the potential 
for long-term growth of capital using a ``value'' approach. The 
``value'' approach the portfolio manager uses emphasizes investments in 
companies believed to be undervalued relative to their intrinsic worth.
    24. The Franklin Mutual Shares Securities Portfolio seeks capital 
appreciation with a secondary goal of income. Under normal market 
conditions the portfolio will invest at least 65% of its total assets 
in equity securities of companies that the manager believes are 
available at market prices less than their value based on certain 
recognized objective criteria. The portfolio currently intends to 
invest up to approximately 25% of its total assets in foreign 
investments.
    25. The Janus Aspen Money Market Portfolio seeks maximum current 
income to the extent consistent with stability of capital. The 
portfolio will invest in high-quality, short-term money market 
instruments that present minimal credit risk. The portfolio may invest 
only in U.S. dollar denominated instruments.
    26. The Fidelity VIP Money Market Portfolio seeks to earn a high 
level of current income while preserving capital and providing 
liquidity. It invests only in high-quality, U.S. dollar denominated 
money market securities of domestic and foreign issuers, such as 
certificates of deposit, obligations of governments and their agencies, 
and commercial paper and notes.

                                        Chart A.--2001 Portfolio Expenses
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                              Total
                                                                 Other        annual     Mgmt. fee    Net total
             Portfolio               Mgmt. fee    12b-1 fee     expenses    operating    reduction      annual
                                                                             expenses                  expenses
----------------------------------------------------------------------------------------------------------------
Service Class Shares to Class 2 or
 Service Class Shares:
    Janus Balanced................          .65          .25          .01          .91  ...........  ...........
    Franklin Income Securities....          .49          .25          .04          .78  ...........  ...........
    Janus Capital Appreciation....          .65          .25          .01          .91  ...........  ...........
    Janus Core Equity.............          .65          .25          .40         1.30  ...........  ...........
    Franklin Growth and Income....          .48          .25          .03          .76  ...........  ...........
    Janus Strategic Value.........          .65          .25          .70         1.60        (.10)         1.50
    Franklin Mutual Shares........          .60          .25          .19         1.04  ...........  ...........
    Janus Money Market............          .25          .25          .09          .59  ...........  ...........
    Fidelity Money Market.........          .18          .25          .12          .55  ...........  ...........
Institutional Class Shares to
 Initial Class or Class 1 Shares:*
    Janus Balanced................          .65          .00          .01          .66  ...........  ...........
    Franklin Income Securities....          .49          .00          .04          .53  ...........  ...........
    Janus Capital Appreciation....          .65          .00          .01          .66  ...........  ...........
    Franklin Growth and Income....          .48          .00          .03          .51  ...........  ...........
    Janus Money Market............          .25          .00          .09          .34  ...........  ...........
    Fidelity Money Market.........          .18          .00          .10          .28  ...........  ...........
----------------------------------------------------------------------------------------------------------------
*Applicable only to older Contracts offered by certain registration statements.


                               Chart B.--Portfolio Performance As of June 30, 2002
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                   Portfolio                         YTD         1 year       3 year       5 year      10 year
----------------------------------------------------------------------------------------------------------------
Service Class Shares to Class 2 or Service
 Class Shares:
    Janus Balanced.............................        -3.34        -4.68         0.69        10.72          N/A
    Franklin Income Securities.................        -0.52        -2.04         4.87         5.52         8.09
    Janus Capital Appreciation.................        -7.05       -15.90        -8.04        10.72          N/A
    Janus Core Equity..........................        -7.12       -12.63        -4.29        12.16          N/A

[[Page 72004]]

 
    Franklin Growth and Income.................        -4.09        -6.06         1.11         6.39        10.86
    Janus Strategic Value......................        -9.59       -15.22          N/A          N/A          N/A
    Franklin Mutual Shares.....................        -3.89        -7.83         4.98         7.69          N/A
    Janus Money Market.........................           --         2.55         4.69         4.87          N/A
    Fidelity Money Market......................           --         2.46         4.69         4.96          N/A
Institutional Class Shares to Initial Class or
 Class 1 Shares:*
    Janus Balanced.............................        -3.19        -4.44         0.67        10.79          N/A
    Franklin Income Securities.................        -0.46        -1.90         5.12         5.70         8.17
    Janus Capital Appreciation.................        -6.90       -15.69        -7.45        11.16          N/A
    Franklin Growth and Income.................        -4.02        -5.87         1.32         6.55       10.95
----------------------------------------------------------------------------------------------------------------
*Applicable only to older Contracts offered by certain registration statements.

    27. The Substitution will take place at the portfolios' relative 
net asset values determined on the date of the Substitution in 
accordance with Section 22 of the Act and Rule 22c-1 thereunder with no 
change in the amount of any contract owner's cash value or death 
benefit or in the dollar value of his or her investment in any of the 
subaccounts. Accordingly, there will be no financial impact on any 
contract owner. The Substitution will be effected by having each of the 
subaccounts that invests in the Replaced Portfolios redeem its shares 
at the net asset value calculated on the date of the Substitution and 
purchase shares of the respective Replacement Portfolios at the net 
asset value calculated on the same date.
    28. The Substitution will be described in supplements to the 
prospectuses for the Contracts (``Stickers'') filed with the Commission 
and mailed to contract owners. The Stickers will give contract owners 
notice of the Substitution and will describe the reasons for engaging 
in the Substitution. The Stickers will also inform contract owners with 
assets allocated to a subaccount investing in the Replaced Portfolios 
that no additional amount may be allocated to those subaccounts on or 
after the date of the Substitution. In addition, the Stickers will 
inform affected contract owners that they will have the opportunity to 
reallocate accumulation value:
    [sbull] Prior to the Substitution from the subaccounts investing in 
the Replaced Portfolios, and
    [sbull] For 30 days after the Substitution from the subaccounts 
investing in the Replacement Portfolios,

to subaccounts investing in other portfolios available under the 
respective Contracts, without the imposition of any transfer charge or 
limitation and without diminishing the number of free transfers that 
may be made in a given contract year.
    29. The prospectuses for the Contracts, as supplemented by the 
Stickers, will reflect the Substitution. Each contract owner will be 
provided with a prospectus for the Replacement Portfolios before the 
Substitution. Within five days after the Substitution, Integrity and 
National Integrity will each send affected contract owners written 
confirmation that the Substitution has occurred. The confirmation will 
remind contract owners that they have 30 days from the date of the 
Substitution to make a transfer from the subaccounts investing in the 
Replacement Portfolios to subaccounts investing in other portfolios 
under the Contracts without paying a transfer charge or diminishing the 
number of available free transfers.
    30. Integrity and National Integrity, as applicable, will pay all 
expenses and transaction costs of the Substitution, including all 
legal, accounting and brokerage expenses relating to the Substitution. 
No costs will be borne by contract owners. Affected contract owners 
will not incur any fees or charges as a result of the Substitution, nor 
will their rights or the obligations of the Applicants under the 
Contracts be altered in any way. The Substitution will not cause the 
fees and charges under the Contracts currently being paid by contract 
owners to be greater after the Substitution than before the 
Substitution. The Substitution will have no adverse tax consequences to 
contract owners and will in no way alter the tax benefits to contract 
owners.
    31. Applicants believe that their request satisfies the standards 
for relief of Section 26(c) of the Act, as set forth below, because the 
affected contract owners will have:
    (a) Contract values allocated to a subaccount invested in a 
Replacement Portfolio with an investment objective and policies 
substantially similar to the investment objective and policies of the 
Replaced Portfolio;
    (b) In all cases the Replacement Portfolios have superior or equal 
performance for the three years ended June 30, 2002 to that of the 
Replaced Portfolios; and
    (c) Total annual expenses that are lower than those of the Replaced 
Portfolio.

Applicants' Legal Analysis

    1. Section 26(c) of the Act makes it 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 approves the substitution. The Commission will approve 
such a 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 the Act.
    2. The purpose of Section 26(c) is to protect the expectation of 
investors in a unit investment trust that the unit investment trust 
will accumulate shares of a particular issuer by preventing 
unscrutinized substitutions that might, in effect, force shareholders 
dissatisfied with the substituted security to redeem their shares, 
thereby possibly incurring either a loss of the sales load deducted 
from initial premium payments, an additional sales load upon 
reinvestment of the redemption proceeds, or both. Moreover, in the 
insurance product context, a contract owner forced to redeem may suffer 
adverse tax consequences. Section 26(c) affords this protection to 
investors by preventing a depositor or trustee of a unit investment 
trust that holds shares of one issuer from substituting for those 
shares the shares of another issuer, unless the Commission approves 
that substitution.
    3. The purposes, terms and conditions of the Substitution are 
consistent with the principles and purposes of Section 26(c) and do not 
entail any of the abuses that Section 26(c) is designed to

[[Page 72005]]

prevent. Applicants have reserved the right to make such a substitution 
under the Contracts and this reserved right is disclosed in each 
Contract's prospectus.
    4. Substitutions have been common where the substituted portfolio 
has investment objectives and policies that are similar to those of the 
eliminated portfolio, current expenses that are similar to or lower 
than those of the eliminated portfolio, and performance that is similar 
to or better than that of the eliminated portfolio.
    5. In all cases the investment objectives and policies of the 
Replacement Portfolios are sufficiently similar to those of the 
corresponding Replaced Portfolios that contract owners will have 
reasonable continuity in investment expectations. Accordingly, the 
Replacement Portfolios are appropriate investment vehicles for those 
contract owners who have contract values allocated to the Replaced 
Portfolios.
    6. In addition, the Replacement Portfolios have lower annual 
expenses than the Replaced Portfolios and superior or equal performance 
for the three years ended June 30, 2002. Integrity and National 
Integrity will not increase separate account fees and charges of the 
subaccounts that invest in the Replacement Portfolios for those 
contract owners who were contract owners on the date of the 
Substitution for a period of one year from the date of the Substitution 
except to the extent of any increase in premium or similar taxes 
charges by a state or other locality.
    7. Moreover, Integrity and National Integrity will not receive, for 
three years from the date of the Substitution, any direct or indirect 
benefit from the Replacement Portfolios, their advisers or 
underwriters, or from affiliates of the Replacement Portfolios, their 
advisers or underwriters, in connection with the assets attributable to 
the Contracts affected by the Substitution, at a higher rate than 
Integrity and National Integrity received from the Replaced Portfolios, 
their advisers or underwriters, or from affiliates of the Replaced 
Portfolios, their advisers or underwriters, including without 
limitation Rule 12b-1 fees, shareholder service, administrative, or 
other service fees, revenue sharing or other arrangements. The 
Substitution and the selection of the Replacement Portfolios were not 
motivated by any financial consideration paid or to be paid to 
Integrity or National Integrity or their affiliates by the Replacement 
Portfolios, their advisers or underwriters, or their affiliates.
    8. The Substitution will not result in the type of costly forced 
redemption that Section 26(c) was intended to guard against and, for 
the following reasons, is consistent with the protection of investors 
and the purposes fairly intended by the Act:
    (a) Each of the Replacement Portfolios is an appropriate portfolio 
to which to move contract owners with values allocated to the Replaced 
Portfolios because the portfolios have substantially similar investment 
objectives and policies.
    (b) The costs of the Substitution, including any brokerage costs, 
will be borne by Integrity and National Integrity and will not be borne 
by contract owners. No charges will be assessed to effect the 
Substitution.
    (c) The Substitution will be at the net asset values of the 
respective shares without the imposition of any transfer or similar 
charge and with no change in the amount of any contract owner's 
accumulation value.
    (d) The Substitution will not cause the fees and charges under the 
Contracts currently being paid by contract owners to be greater after 
the Substitution than before the Substitution and will result in 
contract owners' contract values being moved to a Replacement Portfolio 
with lower total annual expenses.
    (e) All contract owners will be given notice of the Substitution 
prior to the Substitution and will have an opportunity for 30 days 
after the Substitution to reallocate accumulation value among other 
available subaccounts without the imposition of any transfer charge or 
limitation and without being counted as one of the contract owner's 
free transfers in a contract year.
    (f) Within five days after the Substitution, Integrity and National 
Integrity will send to its affected contract owners written 
confirmation that the Substitution has occurred.
    (g) The Substitution will in no way alter the insurance benefits to 
contract owners or the contractual obligations of Integrity and 
National Integrity.
    (h) The Substitution will have no adverse tax consequences to 
contract owners and will in no way alter the tax benefits to contract 
owners.

Conclusion

    Applicants request an order of the Commission pursuant to Section 
26(c) of the Act approving the Substitution. Section 26(c), in 
pertinent part, provides that the Commission shall issue an order 
approving a substitution of securities if the evidence establishes that 
it is consistent with the protection of investors and the purposes 
fairly intended by the policy and provisions of the Act. For the 
reasons and upon the facts set forth above, the requested order meets 
the standards set forth in Section 26(c) and should, therefore, be 
granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-30531 Filed 12-2-02; 8:45 am]
BILLING CODE 8010-01-P