55438 Federal Register / Vol. 62, No. 206 / Friday, October 24, 1997 / Notices

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22859; File No. 812–10738]

Integrity Life Insurance Company, et

al.; Notice of Application

October 17, 1997.

AGENCY: Securities and Exchange

Commission (the ‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of application for an

order pursuant to Section 26(b) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’).

SUMMARY OF APPLICATION: Applicants

seek an order pursuant to Section 26(b)

of the 1940 Act, approving the

substitution of shares of certain

registered management investment

companies (‘‘Current Portfolios’’) with

shares of other registered management

investment companies (‘‘Substitute

Portfolios’’). Applicants also seek an

order pursuant to Section 17(b) of the

1940 Act to permit Applicants to carry

out the above-referenced substitution

(the ‘‘Substitution’’) by redeeming

shares of the Current Portfolios in-kind,

and using the redemption proceeds to

purchase shares of the Substitute

Portfolios, and to permit Applicants to

combine certain subaccounts holding

shares of the same Substitute Portfolio

after the Substitution.

APPLICANTS: Integrity Life Insurance

Company (‘‘Integrity’’), Integrity Life

Insurance Company Separate Account II

(‘‘Integrity Separate Account’’), National

Integrity Life Insurance Company

(‘‘National Integrity,’’ together with

Integrity, the ‘‘Companies’’) and

National Integrity Life Insurance

Company Separate Account II

(‘‘National Integrity Separate Account,’’

together with Integrity Separate

Account, the ‘‘Separate Accounts’’).

FILING DATE: The application was filed

on July 23, 1997, and amended and

restated on October 9, 1997.

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 on this application by writing

to the Secretary of the SEC and serving

Applicants with a copy of the request,

in person or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on November 12, 1997, and

accompanied by proof of service on the

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 SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549.

Applicants, 515 West Market Street,

Louisville, Kentucky 40202–3319.

FOR FURTHER INFORMATION CONTACT:

Megan L. Dunphy, Attorney, or Mark

Amorosi, Branch Chief, Office of

Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application is available for a

fee from the Public Reference Branch of

the SEC, 450 Fifth Street, NW.,

Washington, DC 20549 (tel. (202) 942–

8090).

Applicants’ Representations

1. Integrity, a stock life insurance

company, is authorized to sell life

insurance and annuities in 45 states and

the District of Columbia. Integrity is the

sponsor and depositor of the Integrity

Separate Account.

2. National Integrity, a stock life

insurance company, is authorized to sell

life insurance and annuities in 8 states

and the District of Columbia. National

Integrity is the sponsor and depositor of

the National Integrity Separate Account.

3. Both Integrity and National

Integrity are wholly owned subsidiaries

of ARM Financial Group, Inc. (‘‘ARM’’).

Approximately 53% of the outstanding

shares of ARM’s common stock is

owned by private equity funds

sponsored by Morgan Stanley, Dean

Witter, Discover & Co.

4. The Integrity Separate Account was

established by Integrity Life Insurance

Company pursuant to the insurance

laws of Arizona, and was

redomesticated under the insurance

laws of Ohio, to fund variable unity

contracts. Integrity Separate Account is

registered under the 1940 Act as a unit

investment trust.

5. The National Integrity Separate

Account was established by National

Integrity Life Insurance Company

pursuant to the insurance laws of New

York, to fund variable annuity contracts

(collectively with the variable annuity

contracts referred to above, the

‘‘Contracts’’). National Integrity Separate

Account is registered under the 1940

Act as a unit investment trust.

6. Each Separate Account consists of

ten investment divisions, each of which

invests its assets in the shares of one of

ten designated investment portfolios

(each a ‘‘Portfolio’’ and collectively, the

‘‘Portfolios’’) of The Legends Fund, Inc.

(‘‘Legends Fund’’), a registered openend management investment company.

There are currently ten different

Portfolios offered as investment options

under the Contracts. The investment

adviser for each Portfolios is ARM

Capital Advisors, Inc.

7. Due to higher relative expenses

and/or the poor performance of the

Current Portfolios, Applicants are

proposing the following substitutions:

Current portfolio Substitute portfolio

1. Morgan Stanley Asian Growth (Asian Growth’’) .................................. Morgan Stanley Asian Equity (‘‘Asian Equity’’).

2. Morgan Stanley Worldwide High Income (‘‘Worldwide High Income’’) Morgan Stanley Emerging Markets Debt (‘‘Emerging Markets’’).

3. Renaissance Balanced ......................................................................... Janus Aspen Series Balanced (‘‘Janus Balanced’’).

4. Nicholas-Applegate Balanced .............................................................. Janus Aspen Series Balanced (‘‘Janus Balanced’’).

5. Pinnacle Fixed Income (‘‘Fixed Income’’) ............................................ JPM Bond.

6. ARM Capital Advisors Money Market (‘‘ARM Money Market’’) ........... Janus Aspen Series Money Market (‘‘Janus Money Market’’).

8. For each substitution, the

Applicants have concluded that the

investment objectives of the Substitute

Portfolios are the same as or

substantially similar to those of the

Current Portfolios, and, therefore,

sufficiently consistent so as to ensure

that the investment objectives and

expectations of the contractowners will

be met.

9. Applicants state that the Contracts

give the Companies the right to add to

or remove investment divisions,

combine two or more divisions, or

substitute one or more underlying

mutual funds or portfolios for others in

which one or more investment divisions

are invested. These contractual

provisions have also been disclosed in

the prospectuses or statement of

additional information relating to the

Contracts.

10. Applicants represent that the

proposed Substitution will be effected

by redeeming shares of the Current

Portfolios on an in-kind basis at net
Federal Register / Vol. 62, No. 206 / Friday, October 24, 1997 / Notices 55439

asset value and using the proceeds to

purchase shares of the Substitute

Portfolios at net asset value on the same

date. Net asset value will be calculated

in accordance with Section 22(c) of the

Act and Rule 22c–1 thereunder. All

contract values will remain unchanged

and fully invested and the Substitution

will not result in any change in the

dollar value of any contractowner’s

investment in his or her contract.

11. Applicants represent that each

Substitute Portfolio’s investment adviser

will review the in-kind redemption to

assure that the assets are suitable for the

Substitute Portfolio. The assets will be

valued based on the normal valuation

procedures of the redeeming and

purchasing Portfolios.

12. Applicants state that after the

Substitution is completed, there will be

two investment divisions holding shares

of the same Substitute Portfolio.

Applicants intend to combine those two

investment divisions into a single

investment division by transferring

shares from one investment division to

the other. The transfer will be done at

net asset value on the same date as the

Substitution so that there is no financial

impact to any contractowner.

13. Applicants represent that a

preliminary notice advising affected

contractowners of the proposed

Substitution was mailed on September

19, 1997. The notice described the

reasons for engaging in the Substitution

and referred contractowners to the

prospectus supplement adding the

Substitute Portfolios to the investment

options underlying the Separate

Accounts.

14. Prospectus supplements for each

of the Companies were filed with the

Commission on September 12, 1997 and

amended on September 22 and 26, 1997.

The prospectus supplements provide

complete information on each new

Portfolio including its investment

objectives and policies, its investment

adviser and applicable fees and

expenses. The supplement states that

contractowners can reallocate contract

values from the Portfolios to be replaced

and the proposed Substitute Portfolios

to other Portfolios available under the

Contract, without imposition of any

transfer charge or limitation. No. such

transfers from the date of initial notice,

through a date thirty days following the

Substitution will count against the

number of free transfers permitted in a

year. The supplement was mailed to

contractowners of Integrity on October

1–2, 1997, and is expected to be mailed

to contractowners of National Integrity

on October 31, 1997.

15. Amendments to the prospectuses

for the Contracts reflecting the proposed

Substitution were filed with the

Commission on September 5, 1997. The

Applicants represent that within five

days after the Substitution, the

companies will send to affected

contractowners written confirmation

that the Substitution has occurred,

identifying the Portfolios that were

substituted and disclosing the

Substitute Portfolios.

16. Applicants represent that the

Companies will pay all expenses and

transaction costs of the Substitution.

Affected contractowners will not incur

any fees or charges as a result of the

Substitution, nor will the rights or

obligations of the Companies under the

Contracts be altered in any way. The

proposed Substitution will not cause the

fees and charges under the Contracts

currently being paid by contractowners

to be greater after the proposed

Substitution than before the proposed

Substitution.

17. Applicants state that their request

satisfies the requirements of Section

26(b) of the 1940 Act because: (i) The

proposed Substitutions involve

Portfolios with the same or substantially

similar investment objectives; and (ii)

after the Substitution, contractowners

will be invested in Portfolios whose

performance has been better on an

historical basis or whose performance

should be identical because the new

Portfolios will have the same

investment adviser and investment

objectives, but whose net performance

should be better as a result of lower

Portfolio expenses due to lower

management fees, lower total expenses,

greater combined assets, and, therefore,

greater economies of scale.

Applicants’ Legal Analysis

1. Applicants request an order

pursuant to Section 26(b) of the 1940

Act approving the substitutions. Section

26(b) of the 1940 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. Section 26(b)

of the 1940 Act also provides that the

Commission will approve such

Substitution if the evidence establishes

that the Substitution is consistent with

the protection of investors and the

purposes fairly intended by the policy

and provisions of the Act.

2. Applicants assert that the purposes,

terms, and conditions of the proposed

Substitutions are consistent with the

protection of investors and the purposes

of Section 26(b) and do not entail any

of the abuses that Section 26(b) is

designed to prevent Applicants

represent that a substitution is an

appropriate solution to the unfavorable

performance, on a relative basis, and/or

higher relative expenses of the

Portfolios to be eliminated. Applicants

anticipate that the Substitute Portfolios

will better serve contractowners

interests because their performance has

been significantly better than the

performance of the Portfolios to be

eliminated and/or their expenses have

been or can be expected to be

significantly lower, as applicable.

3. Applicants represent that the

Substitution will not result in the type

of costly forced redemption that Section

26(b) was intended to guard against and

is consistent with the protection of

investors and the purposes fairly

intended by the 1940 Act:

1. The Substitute Portfolios have

objectives, policies and restrictions the same

as or substantially similar to the objectives,

policies and restrictions the Portfolios being

replaced so as to continue fulfilling

contractowners’ objectives and expectations.

2. The costs of the Substitution will be

borne by Integrity and National Integrity and

will not be borne by contractowners. No

charges will be assessed to effect the

Substitution.

3. The Substitution will, in all cases, be at

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 contractowner’s account

value.

4. The proposed Substitution will not

cause the contract fees and charges currently

being paid by existing contractowners to be

greater after the proposed Substitution than

before the proposed Substitution.

5. The contractowners have been given

notice of the Substitution and will have the

opportunity to reallocate contract values

among the available Portfolios without the

imposition of any transfer charge or

limitation, nor will any such transfers from

the date of the initial notice, through a date

30 days following the Substitution count

against the number of free transfers permitted

in a year.

6. Within five days after the Substitution,

the Companies will send to contractowners

written notice that the Substitution has

occurred, identifying the Portfolios that were

substituted and disclosing the Substitute

Portfolios.

7. The Substitution will in no way alter the

insurance benefits to contractowners or the

contractual obligations of the Companies.

8. The Substitution will in no way alter the

tax benefits to contractowners. Counsel for

the Companies has advised that the

Substitution will not give rise to any tax

consequences to the contractowners.

4. Section 17(a) (1) and (2) of the 1940

Act prohibits any affiliated person of a

registered investment company, or an

affiliated person of an affiliated person,

from selling any security or other

property to or purchasing any security
55440 Federal Register / Vol. 62, No. 206 / Friday, October 24, 1997 / Notices

or other property from such registered

investment company.

5. Applicants state that the

redemptions and purchases in-kin

involve the purchase of property from

the Current Portfolios by the Separate

Accounts, affiliated persons of those

Portfolios, and the sale of property to

the Substitute Portfolios by the Separate

Accounts, which may be considered

affiliates of the Substitute Portfolios.

Similarly, by combining two investment

divisions holding shares of the same

Substitute Portfolios into a single

investment division, the Companies,

each being the depositor for and

therefore each an affiliated person of the

respective Separate Account, could be

said to be transferring property of one

investment division to another

investment division. This transfer of

property could be said to involve

purchase and sale transactions between

the investment divisions such that an

affiliated person (the ‘‘first investment

division’’) of an investment division

(the ‘‘second investment division’’)

could be said to be selling its shares of

a Portfolio to the second investment

division in return for units of the second

investment division, which are

immediately credited to the accounts of

the contractowners participating in the

first investment division. Conversely,

the second investment division could be

said to be purchasing from the first

investment division shares of a Portfolio

owned by the first investment division.

6. Applicants request an order

pursuant to Section 17(b) of the 1940

Act exempting the in-kind redemptions

and purchases and the merger of

investment divisions from the

provisions of Section 17(a). Section

17(b) of the 1940 Act provides that the

Commission may grant an order

exempting a proposed transaction from

Section 17(a) if evidence establishes

that: (1) The terms of the proposed

transaction, including the consideration

to be paid or received, are reasonable

and fair and do not involve

overreaching on the part of any person

concerned; (2) the proposed transaction

is consistent with the policy of each

registered investment company

concerned, as recited in its registration

statement and reports filed under the

1940 Act; and (3) the proposed

transaction is consistent with the

general purposes of the 1940 Act.

7. Applicants assert that the terms of

the in-kind redemptions and purchases

are reasonable and fair and do not

involve overreaching on the part of any

person concerned and that the interests

of contractowners will not be diluted.

The in-kind redemptions and purchases

will be done at values consistent with

the policies of both the Current

Portfolios and Substitute Portfolios. The

investment advisers will review the

asset transfers to assure that the assets

meet the objectives and policies of the

Substitute Portfolios and that they are

valued under the appropriate valuation

procedures of the Current and

Substitute Portfolios.

8. Applicants represent that the

merger of investment divisions is

intended to reduce administrative costs

and thereby benefit contractowners with

assets in those investment divisions.

The purchase and sale transactions

described in the application will be

effected based on the net asset value of

the shares held in the investment

divisions and the value of the units of

the investment division involved.

Therefore, there will be no change in the

value to any contractowner.

Conclusion

Applicants assert that, for the reasons

summarized above, the requested orders

approving the Substitution and related

transactions involving in-kind

redemptions and the merger of certain

investment divisions should be granted.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28176 Filed 10–23–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22860; International Series Rel

No. 1105; 812–10552]

Old Mutual South Africa Equity Trust,

et al.; Notice of Application

October 17, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application under

section 17(b) of the Investment

Company Act of 1940 (the ‘‘Act’’) for an

exemption from section 17(a) of the Act.

SUMMARY OF APPLICATION: Order

requested to permit a non-registered

investment company to sell certain

securities to a registered investment

company.

APPLICANTS: Old Mutual South Africa

Equity Trust (the ‘‘Trust’’) and Old

Mutual Global Assets Fund Limited (the

‘‘Global Fund’’).

FILING DATES: The application was filed

on March 7, 1997, and amended on

August 28, 1997.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicants with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

November 12, 1997, 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 SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549.

Applicants, 61 Front Street, Hamilton,

Bermuda, Attention: Melanie Saunders.

FOR FURTHER INFORMATION CONTACT:

Lawrence W. Pisto, Senior Counsel, at

(202) 942–0527, or Christine Y.

Greenlees, Branch Chief, at (202) 942–

0564 (Office of Investment Company

Regulation, Division of Investment

Management).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee at the SEC’s

Public Reference Branch, 450 fifth

Street, NW., Washington, D.C. 20549

(tel. (202) 942–8090).

Applicants’ Representations

1. The Trust is an open-end

management investment company

organized as a trust under

Massachusetts law and registered under

the Act. The investment objective of the

Trust is long-term total return in excess

of that of the Johannesburg Stock

Exchange (the ‘‘JSE’’) Actuaries All

Share Index through investment in

equity securities of South African

issuers that are listed on a securities

exchange. Beneficial interests in the

Trust are issued solely in a private

placement transactions to investment

companies, common or commingled

trust funds, or similar entities that are

‘‘accredited investors’’ within the

meaning of Regulation D under the

Securities Act of 1933, as well as to

certain investment funds organized

outside the United States. As of August

12, 1997, 91.96% of the voting securities

of the Trust was owned by Old Mutual

Fund Holdings (Bermuda) Limited

(‘‘Old Mutual Fund Holdings’’), a

wholly-owned subsidiary of the South

African Mutual Life Assurance Society

(‘‘Old Mutual’’).