[Federal Register Volume 75, Number 52 (Thursday, March 18, 2010)]
[Notices]
[Pages 13147-13151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5921]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-29171; File No. 812-13690]
Integrity Life Insurance Company, et al.; Notice of Application
March 10, 2010.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an order of approval pursuant to
Section 26(c) of the Investment Company Act of 1940, as amended (the
``Act'').
-----------------------------------------------------------------------
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'' and together with Integrity, the
``Integrity Companies''), 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,'' together with Integrity
Separate Account I, Integrity Separate Account II, and National
Integrity Separate Account I, the ``Separate Accounts'').
Summary of Application: Applicants seek an order approving the
proposed substitution of shares of certain portfolios of the Variable
Insurance Products Fund III held by the Separate Accounts for shares of
portfolios of Variable Insurance Products Fund III and in the case of
the Fidelity Contrafund, shares of Variable Insurance Products Fund II
as follows: Fidelity VIP Dynamic Capital Appreciation: Service Class 2
with Fidelity VIP Contrafund: Service Class 2; Fidelity VIP Growth &
Income: Service Class 2 with Fidelity VIP Balanced: Service Class 2;
Fidelity VIP Growth & Income: Service Class with Fidelity VIP Balanced:
Service Class; Fidelity VIP Growth & Income: Initial Class with
Fidelity VIP Balanced: Initial Class; Fidelity VIP Growth
Opportunities: Service Class 2 with Fidelity VIP Contrafund: Service
Class 2; Fidelity VIP Growth Opportunities: Service Class with Fidelity
VIP Contrafund: Service Class; Fidelity VIP Growth Opportunities:
Initial Class with Fidelity VIP Contrafund: Initial Class; and Fidelity
VIP Value Strategies: Service Class 2 with Fidelity VIP Mid Cap:
Service Class 2 (the ``Substitution'').
Filing Date: The application was originally filed on September 3, 2009
and amended on January 19, 2010, and March 10, 2010.
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 April 6, 2010, 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, 100 F Street,
NE., Washington, DC 20549-1090. Applicants, c/o Rhonda S. Malone, Esq.,
Associate Counsel--Securities, Western and Southern Financial Group,
Inc., 400 Broadway, Cincinnati, Ohio 45202.
FOR FURTHER INFORMATION CONTACT: Michelle Roberts, Senior Counsel, or
Joyce M. Pickholz, Branch Chief, Office of Insurance Products, Division
of Investment Management, at (202) 551-6795.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Integrity is a stock life insurance company organized under the
laws of Ohio. Integrity is a wholly owned subsidiary of The Western and
Southern Life Insurance Company, a stock life insurance company
organized under the laws of Ohio. The Western and Southern Life
Insurance Company is wholly owned by an Ohio-domiciled intermediate
holding company, Western & Southern Financial Group, Inc., which is
wholly owned by an Ohio-domiciled mutual insurance holding company,
Western & Southern Mutual Holding Company.
2. Integrity Separate Account I and Integrity Separate Account II
are registered under the Act as unit investment trusts (File Nos. 811-
04844 and 811-07134, respectively). They are used to fund variable
annuity contracts issued by Integrity. (``Integrity Contracts'')
3. National Integrity is a stock life insurance company organized
under the laws of New York. National Integrity is a wholly owned direct
subsidiary of Integrity and an indirect subsidiary of The Western and
Southern Life Insurance Company.
4. National Integrity Separate Account I and National Integrity
Separate Account II are registered under the Act as unit investment
trusts (File Nos. 811-04846 and 811-07132, respectively). They are used
to fund variable annuity contracts issued by National Integrity
(``National Integrity Contracts'').
5. Integrity Contracts and the National Integrity Contracts cited
in the application and affected by the Substitution are flexible
premium deferred variable annuities (the ``Contracts'').
[[Page 13148]]
6. Each Contract permits allocations of value to available fixed
and variable subaccounts; each variable subaccount invests in a
specific investment portfolio of an underlying mutual fund. Of the 24
Contracts affected by this application, 18 Contracts offer the same 56
portfolios (``Subset 1''), four Contracts offer the same 54 portfolios
(``Subset 2'') and two Contracts offer the same 43 portfolios (``Subset
3'').
7. Each Contract permits transfers 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 value among subaccounts. The Contracts permit up to
twelve free transfers during any contract year. A fee of $20 is imposed
on transfers in excess of twelve transfers in a contract year.
8. Each Contract 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. Each Contract's prospectus provides that
Applicants may add, remove or combine subaccounts or withdraw assets
relating to a Contract from one subaccount and put them into another.
9. The Integrity Companies propose the substitution of four
portfolios (two of which include three classes each) of Variable
Insurance Products Fund III (the ``Existing Portfolios''). As
replacements, the Integrity Companies propose three portfolios (two of
which include three classes) of Variable Insurance Products Fund III
and, in the case of Fidelity VIP Contrafund, Variable Insurance
Products II (the ``Replacement Portfolios''). All of the Replacement
Portfolios are currently available in the Contracts. Neither Variable
Insurance Products Fund III, Variable Insurance Products Fund II, nor
Fidelity Management and Research Company (collectively referred to as
``Fidelity'') are affiliated with Applicants.
10. The investment objective, strategies and risks of each
Replacement Portfolio are the same as, or similar to, the investment
objective, strategies and risks of the corresponding Existing
Portfolio. For each Existing Portfolio and each Replacement Portfolio,
the investment objective, principal investment strategies and principal
risks are shown in the table that follows.
------------------------------------------------------------------------
Replacement
Replacement 1 Existing portfolio portfolio
------------------------------------------------------------------------
Name Fidelity VIP dynamic Fidelity VIP
capital Contrafund
appreciation.
------------------------------------------------------------------------
Investment Objective........ Capital appreciation Long-term capital
appreciation.
Principal Investment Invests primarily in Invests primarily in
Strategies. common stocks-- common stocks--
either growth either growth
stocks, value stocks, value
stocks or both--of stocks or both--of
domestic and domestic and
foreign issuers foreign issuers
using fundamental using fundamental
analysis to select analysis to select
investments. investments in
companies believed
to be undervalued
by the public;
allocates assets
across different
market sectors
using different
managers.
Principal Risks............. Stock Stock
market volatility. market volatility.
Issuer- Issuer-
specific changes. specific changes.
Foreign Foreign
exposure. exposure.
------------------------------------------------------------------------
Replacement
Replacements 2, 3 and 4 Existing portfolio portfolio
------------------------------------------------------------------------
Name Fidelity VIP growth Fidelity VIP
& income. balanced
------------------------------------------------------------------------
Investment Objective........ High total return Income and capital
through a growth consistent
combination of with reasonable
current income and risk.
capital
appreciation.
Principal Investment Invests a majority Invests
Strategies. of assets in common approximately 60%
stock with current of assets in stocks
dividends and or other equity
potential for securities--either
capital growth stocks,
appreciation; value stocks or
potentially invests both--of domestic
in bonds, including and foreign
lower quality debt issuers, and
securities and remainder in bonds
stocks not or other debt
currently paying securities
dividends but including lower
offering prospects quality debt
for future income securities when the
and capital outlook is neutral;
appreciation; investing at least
invests primarily 25% of assets in
in common stocks-- fixed income senior
either growth securities; using
stocks, value fundamental
stocks or both--of analysis to select
domestic and investments;
foreign issuers engaging in
using fundamental transactions that
analysis to select have a leveraging
investments. effect on the fund;
investing in
Fidelity's central
funds.
Principal Risks............. Stock Stock
market volatility. market volatility.
Issuer- Issuer-
specific changes. specific changes.
Foreign Foreign
exposure. exposure.
Interest Interest
rate changes. rate changes.
Leverage
risk.
Prepayment.
------------------------------------------------------------------------
Replacement
Replacements 5, 6 and 7 Existing portfolio portfolio
------------------------------------------------------------------------
Name Fidelity VIP growth Fidelity VIP
opportunities. contrafund
------------------------------------------------------------------------
Investment Objective........ Capital growth...... Long-term capital
appreciation.
Principal Investment Invests primarily in Invests primarily in
Strategies. common stocks of common stocks--
domestic and either growth
foreign issuers stocks, value
using fundamental stocks or both--of
analysis to select domestic and
investments in foreign issuers
companies believed using fundamental
to have above analysis to select
average growth investments in
potential. companies believed
to be undervalued
by the public;
allocates assets
across different
market sectors
using different
managers.
Principal Risks............. Stock Stock
Market Volatility. Market Volatility.
Issuer- Issuer-
Specific Changes. Specific Changes.
Foreign Foreign
exposure. exposure.
[[Page 13149]]
Growth ....................
investing.
------------------------------------------------------------------------
Replacement
Replacement 8 Existing portfolio portfolio
------------------------------------------------------------------------
Name Fidelity VIP value Fidelity VIP mid cap
strategies.
------------------------------------------------------------------------
Investment Objective........ Capital appreciation Long-term capital
growth.
Principal Investment Invests primarily in Invests primarily in
Strategies. common stocks of common stocks--
domestic and either growth
foreign issuers stocks, value
using fundamental stocks or both--of
analysis to select domestic and
investments in foreign issuers
companies believed using fundamental
to be undervalued analysis to select
in the marketplace investments;
in relation to normally invests at
factors such as least 80% of assets
assets, sales, in companies with
earnings or growth medium market
potential; focusing capitalizations
investment in similar to
medium sized companies in the
companies but may Russell Midcap
invest in larger or Index \1\ or
smaller companies. Standard & Poor's
MidCap 400 Index;
\2\ potentially
investing in
companies with
smaller or larger
market
capitalizations.
Principal Risks............. Stock Stock
market volatility. market volatility.
Foreign Foreign
exposure. exposure.
Issuer- Issuer-
specific changes. specific changes.
Value Mid cap
investing. investing.
------------------------------------------------------------------------
\1\ The capitalization range for the Russell Midcap Index is $829
million to $12.2 billion as of May 31, 2009.
\2\ The capitalization range for the Standard & Poor's MidCap 400 Index
is $750 million to $3.3 billion as of June 30, 2009.
11. Applicants state that the proposed substitutions are expected
to provide benefits to the Contract owners, including better performing
funds and simplification of fund offerings through the elimination of
overlapping and duplicative portfolios in certain asset categories,
particularly the large growth category. After the Substitution,
Contract owners will continue to be able to select among funds with a
full range of investment objectives, investment strategies and risks.
Of the 24 Contracts affected by the Substitution, Contract owners in
Subset 1 (18 Contracts) will be able to select among 52 portfolios,
Contract owners in Subset 2 (four Contracts) will be able to select
among 50 portfolios, and Contract owners in Subset 3 (two Contracts)
will be able to select among 40 portfolios.
12. Applicants represent that each Replacement Portfolio has lower
total gross and net expense ratios and equal or lower management fees
than the corresponding Existing Portfolio. Service fees charged by each
Replacement Portfolio pursuant to a 12b-1 plan are equal to those
charged by the Existing Portfolio. The management fees the Replacement
Portfolios and Existing Portfolios (the ``Portfolios'') pay to Fidelity
Management and Research Company (``FMR'') have two components: A group
fee rate and an individual fund fee rate. The group fee rate is based
on the monthly average net assets of all the registered investment
companies with which FMR has management contracts. The second component
is the individual fund fee rate, which for each Existing Portfolio
(except one) is the same as the rate for the Replacement Portfolio,
0.30%. In the one instance, the rate paid on the Fidelity VIP Balanced
Portfolio (Replacement Portfolio) is 0.15%, which is lower than is paid
on the Fidelity VIP Growth and Income Portfolio (Existing Portfolio) of
0.20%. Detailed expense information is set forth in the Chart below. By
reducing expenses, the Applicants represent that the Integrity
Companies are offering their Contract owners and prospective investors
a selection of better-managed funds at a reduced cost.
Expenses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Management Other Total Waivers and
Name fee 12b-1 fee expense expense reimbursements Net expense
(percent) (percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing............................. Fidelity VIP Dynamic Capital 0.56 0.25 0.31 1.12 0.03 1.09
Appreciation: Service Class 2.
Replacement.......................... Fidelity VIP Contrafund: Service 0.56 0.25 0.10 0.91 0.01 0.90
Class 2.
Existing............................. Fidelity VIP Growth & Income: 0.46 0.25 0.13 0.84 0.00 0.84
Service Class 2.
Replacement.......................... Fidelity VIP Balanced: Service 0.41 0.25 0.15 0.81 0.01 0.80
Class 2.
Existing............................. Fidelity VIP Growth & Income: 0.46 0.10 0.13 0.69 0.00 0.69
Service Class.
Replacement.......................... Fidelity VIP Balanced: Service 0.41 0.10 0.17 0.68 0.00 0.68
Class.
Existing............................. Fidelity VIP Growth & Income: 0.46 0.00 0.13 0.59 0.00 0.59
Initial Class.
Replacement.......................... Fidelity VIP Balanced: Initial 0.41 0.00 0.14 0.55 0.00 0.55
Class.
Existing............................. Fidelity VIP Growth 0.56 0.25 0.16 0.97 0.00 0.97
Opportunities: Service Class 2.
Replacement.......................... Fidelity VIP Contrafund: Service 0.56 0.25 0.10 0.91 0.01 0.90
Class 2.
[[Page 13150]]
Existing............................. Fidelity VIP Growth 0.56 0.10 0.15 0.81 0.00 0.81
Opportunities: Service Class.
Replacement.......................... Fidelity VIP Contrafund: Service 0.56 0.10 0.10 0.76 0.01 0.75
Class.
Existing............................. Fidelity VIP Growth 0.56 0.00 0.15 0.71 0.00 0.71
Opportunities: Initial Class.
Replacement.......................... Fidelity VIP Contrafund: Initial 0.56 0.00 0.10 0.66 0.01 0.65
Class.
Existing............................. Fidelity VIP Value Strategies: 0.56 0.25 0.18 0.99 0.01 0.98
Service Class 2.
Replacement.......................... Fidelity VIP Mid Cap: Service 0.56 0.25 0.12 0.93 0.01 0.92
Class 2.
--------------------------------------------------------------------------------------------------------------------------------------------------------
13. Applicants submit that each of the Replacement Portfolios has
demonstrated better performance than the corresponding Existing
Portfolios during each of the periods measured. Detailed performance
information is set forth in the Application.
Applicants Legal Analysis and Conditions
1. 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, death benefit, living
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 Existing 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.
2. The Substitution will be described in detail in a written notice
mailed to Contract owners. The notice will inform Contract owners of
the Integrity Companies' intent to implement the Substitution and
describe the Substitution, the reasons for engaging in the Substitution
and how the Substitution will be implemented. Details regarding the
effect on any investment in a GLWB will also be provided. The notice
will be mailed to all Contract owners at least 30 days prior to the
Substitution and will inform affected Contract owners that they may
transfer assets from the subaccounts investing in the Existing
Portfolios at anytime after receipt of the notice, and from the
subaccounts investing in the Replacement Portfolios for 30 days after
the Substitution, 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. A supplement
will be filed with the Commission for all current prospectuses
containing the information to be included in the notice.
3. Each Contract owner will be provided with a prospectus for the
Replacement Portfolios applicable to them. Within five days after the
Substitution, the Integrity Companies will send each affected Contract
owner written confirmation that the Substitution has occurred.
4. The Integrity Companies will pay all expenses and transaction
costs of the Substitution, including all legal, accounting and
allocated 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 Integrity Companies 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.
5. Each Contract and its prospectus expressly discloses the
reservation of the Applicants' right, subject to applicable law, to
substitute shares of another portfolio for shares of the portfolio in
which a subaccount is invested.
6. The investment objectives and policies of the Replacement
Portfolios are similar to those of the corresponding Existing
Portfolios such that Contract owners will have reasonable continuity in
investment expectations.
7. The Substitution will not result in the type of costly forced
redemption that Section 26(c) was intended to guard against because the
Contract owner will continue to have the same type of investment
choices, with better potential returns and the same or lower expenses
and will not otherwise have any incentive to redeem their shares or
terminate their Contracts.
8. The purposes, terms and conditions of the proposed Substitution
are consistent with the protection of investors, and the principles and
purposes of Section 26(c), and do not entail any of the abuses that
Section 26(c) is designed to prevent.
9. Current gross and net annual expenses in each Replacement
Portfolio are lower than those of the corresponding Existing
Portfolios.
10. Each Replacement Portfolio is an appropriate portfolio to move
Contract owners' values currently allocated to the Existing Portfolios
because the portfolios have similar investment objectives, strategies
and risks.
11. The Substitution will be at the net asset values of the
respective portfolio shares without the imposition of any transfer or
similar charge and with no change in the amount of any Contract owners'
values.
12. 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 portfolios with the
lower current total net annual expenses.
13. In connection with assets held under Contracts affected by the
Substitution, the Integrity Companies will not receive, for three years
from the date of the Substitution, any direct or indirect benefits from
the Replacement Portfolios, their advisors or
[[Page 13151]]
underwriters (or their affiliates) at a rate higher than that which
they had received from the Existing Portfolios, their advisors or
underwriters (or their affiliates), including without limitation 12b-1
Fees, shareholder service, administration or other service fees,
revenue sharing or other arrangements in connection with such assets.
Applicants represent that the Substitution and the selection of the
Replacement Portfolios were not motivated by any financial
consideration paid or to be paid by the Replacement Portfolios, their
advisors or underwriters, or their respective affiliates.
14. Notice of the proposed Substitution will be mailed to all
Contract owners at least 30 days prior to the Substitution. All
Contract owners will have an opportunity at anytime after receipt of
the notice of the Substitution and for 30 days after the Substitution
to transfer Contract account value affected by the Substitution to
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.
15. Within five days after the Substitution, the Integrity
Companies will send to its affected Contract owners a written
confirmation that the Substitution has occurred.
16. The Substitution will in no way alter the insurance benefits to
Contract owners or the contractual obligations of the Integrity
Companies.
17. The Substitution will have no adverse tax consequences to
Contract owners and will in no way alter the tax benefits to Contract
owners.
Conclusion
For the reasons and upon the facts set forth above, the Applicants
believe that 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,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5921 Filed 3-17-10; 8:45 am]
BILLING CODE 8011-01-P