
[Federal Register: March 18, 2010 (Volume 75, Number 52)]
[Notices]               
[Page 13147-13151]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18mr10-105]                         

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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'').

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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'' 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

