[Federal Register Volume 59, Number 108 (Tuesday, June 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13740]


[[Page Unknown]]

[Federal Register: June 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20324; File No. 812-8904]

 

Western-Southern Life Assurance Company, et al.

May 31, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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applicants: Western-Southern Life Assurance Company (``Western 
Southern''), Western-Southern Life Assurance Company Separate Account I 
(the ``Account'') and Interactive Financial Solutions, Inc. 
(``Interactive'') (collectively, ``Applicants'').

relevant 1940 act sections: Order requested under Section 6(c) of the 
1940 Act for exemptions from sections 26(a)(2)(C) and 27(c)(2) of the 
1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting them to 
deduct a daily charge from the assets of the Account for mortality and 
expense risks in connection with the offering of certain variable 
annuity contracts.

filing DATE: The application was filed on March 27, 1994.

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, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on June 25, 1994 and should be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, by certificate. Hearing requests should state the nature of 
the interest, the reason for the request and the issues contested. 
Persons may request notification of the date of a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants: Donald J. Wuebbling, Vice President and General Counsel, 
Western & Southern Life Insurance Company, 400 Broadway, Cincinnati, 
Ohio 45202.

FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney, or Wendell M. Faria, Deputy Chief, 
both at (202) 942-0670, Office of Insurance Products, Division of 
Investment Management.

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.

Applicants' Representations

    1. Western Southern, a stock life insurance company organized under 
Ohio law, is a wholly owned subsidiary of the Western and Southern Life 
Insurance Company, a mutual life insurance company also organized under 
Ohio law. Western Southern serves as the sponsor and the depositor of 
the Account.
    2. The Account, established by Western Southern on July 27, 1992 as 
a separate investment account of Western Southern under Ohio law, will 
be used to support certain variable annuity contracts (the 
``Contracts'') and for other lawful purposes. The Account is registered 
with the Commission under the 1940 Act as a unit investment trust. The 
application incorporates by reference the registration statement, 
currently on file with the Commission (File No. 33-76582), for the 
Account.
    3. Interactive, a wholly owned subsidiary of IFS Financial 
Services, Inc. (``IFS Financial''), is the distribution of the 
Contracts. IFS Financial is a wholly owned subsidiary of Western 
Southern. Interactive is registered as a broker-dealer under the 
Securities Exchange Act of 1934 and is a member of the National 
Association of Securities Dealers, Inc.
    4. The Contracts are flexible payment, tax-deferred variable 
annuities available to both individual investors and group plans on 
either a nonqualified (``Nonqualified Contract'') or qualified 
(``Qualified Contract'') basis. Qualified Contracts qualify for 
favorable federal income tax treatment under Sections 401, 403 or 408 
of the Internal Revenue Code of 1986, as amended.
    5. Nonqualified Contracts require a minimum initial purchase 
payment of $2000. Qualified Contracts require a minimum initial 
purchase payment of $1000. Subsequent purchase payments under both 
types of Contracts may be made at any time and must be at least $100. 
Maximum cumulative total of all purchase payments under any Contract 
may not exceed $500,000 without the prior approval of Western Southern. 
Purchase payments may be allocated to the Account, to the general 
account (the ``Fixed Account'') of Western Southern, or, to a 
combination of the Account and the Fixed Account.
    6. The Account has seven subaccounts, each of which invest in 
shares of an investment portfolio of either The IFS Variable Insurance 
Trust (the ``IFS Trust'') or The Select Advisers Portfolio (the ``SA 
Trust''). The IFS Trust, a no load open-end diversified investment 
management company organized as a Massachusetts business trust, 
consists of five portfolios available through the subaccounts for 
investment of funds allocated by Contract owners to the Account. The SA 
Trust, a no load open-end diversified investment management company 
organized as a business trust, has two portfolios available for 
investment by Contract owners.
    7. The Contracts permit transfers among the subaccounts of the 
Account and between the Account and the Fixed Account. There is 
currently no charge for transfers although Western Southern reserves 
the right to impose such a charge in the future.
    8. Western Southern reserves the right to impose a deduction for 
premium taxes when the applicable jurisdiction imposes the tax 
liability. The application states that the applicable premium taxes 
depend upon the Contract owner's then current place of residence and 
generally range from 0 to 3% of purchase payments or of the amount 
annuitized. Applicants state that Western Southern will not make a 
profit on premium taxes.
    9. Applicants impose an annual Contract maintenance charge of $35 
per Contract and this charge is deducted from the Contract value. A 
Contract administration charge is also deducted and this charge is 
deducted as a percentage of and from the assets of the Account of an 
annual effective rate of .15%. Western Southern represents that the 
administrative charges will not increase for the life of the Contracts. 
Western Southern represents that it does not expect that the total 
revenues from the administrative charges will exceed the expected costs 
of administering the Contracts. Further, Applicants state that Western 
Southern will monitor the relationship of the administrative expenses 
and the proceeds collected from the administrative expenses and the 
proceeds collected from the administrative charges for compliance with 
Rule 26a-1 under the 1940 Act.
    10. A contingent deferred sales charge (the ``Sales Charge'') of up 
to 7% of the amount withdrawn is imposed upon total surrender, partial 
withdrawal or commencement of an annuity payment option within the 
first seven years of the Contract. The Sales Charge is a percentage of 
the amount of each purchase payment that is withdrawn. The percentage 
declines depending upon how many years have passed since the withdrawn 
purchase payment was originally credited to a Contract owner.
    11. Western Southern will impose a daily charge equal to an annual 
effective rate of 1.20% of the value of the net assets of the Account 
to compensate for Western Southern bearing certain mortality and 
expense risks in connection with the Contracts. Approximately .80% of 
the 1.20% charge is attributable to mortality risk, and approximately 
.40% is attributable to expense risk. Applicants represent that the 
charge for mortality and expense risks will not increase. If the 
mortality and expense risk charge is insufficient to cover assumed 
costs and expenses, Western Southern will bear the loss. Conversely, if 
the charge exceeds costs, this excess will be profit to Western 
Southern. If Western Southern realizes a gain from the charge for 
mortality and expense risks, the amount of such gain will be placed in 
the general account of Western Southern and may be used in its 
discretion, including for payment of a portion of the costs relating to 
the distribution of the Contracts.
    12. Applicants state that the mortality risk borne by Western 
Southern is threefold. First, Western Southern assumes a mortality risk 
because of its contractual obligation to pay a death benefit in a lump 
sum (which sum may also be taken in the form of an annuity payment 
option) upon the death of an annuitant prior to the date on which 
annuity payments are scheduled to begin. Second, Western Southern 
assumes a mortality risk because of its agreement not to impose any 
surrender charge or any other charge on the death benefit. Finally, 
Western Southern assumes a mortality risk because of its contractual 
obligation to continue to make annuity payments for the entire life of 
the annuitant under annuity payment options involving life 
contingencies, thereby assuring each annuitant that neither the 
annuitant's longevity nor an improvement in life expectancy generally 
will have an adverse effect on annuity payments received under the 
Contract.
    13. Applicants state that the expense risk assumed by Western 
Southern is the risk that the administrative charges, which are 
guaranteed not to increase under outstanding Contracts, will be 
insufficient to cover actual administrative expenses.

Applicants' Legal Analysis and Conditions

    1. Applicants request that the Commission, pursuant to Section 6(c) 
of the 1940 Act, grant the exemptions from sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act in connection with Applicants' assessment of 
the daily charge for the mortality and expense risks. Sections 
26(a)(2)(C) and 27(c)(2) of the 1940 Act, in pertinent part, prohibit a 
registered unit investment trust and any depositor thereof or 
underwriter therefor from selling periodic payment plan certificates 
unless the proceeds of all payments (other than sales load) are 
deposited with a qualified bank as trustee or custodian and held under 
arrangements which prohibit any payment to the depositor or principal 
underwriter except a fee, not exceeding such reasonable amount as the 
Commission may prescribe, for performing bookkeeping and other 
administrative services of a character normally performed by the bank 
itself.
    2. Applicants assert that the charge for mortality and expense 
risks is reasonable compensation for the risks assumed.
    3. Applicants represent that the charge of 1.20% for the mortality 
and expense risks assumed by Western Southern is within the range of 
industry practice with respect to comparable annuity products. 
Applicants state that this representation is based upon their analysis 
of publicly available information regarding products of other 
companies, taking into consideration such factors as: Guaranteed 
minimum death benefits and guaranteed annuity purchase rates; minimum 
initial and subsequent purchase payments; other contract charges and 
the manner in which such charges are imposed; investment options 
available under other contracts; and the availability of other 
contracts to individual qualified and nonqualified plans. Applicants 
represent that Western Southern will maintain at its principal office, 
available to the Commission upon request, a memorandum setting forth in 
detail the variable annuity products analyzed and the methodology and 
results of Western Southern's comparative review.
    4. Applicants acknowledge that the Sales Charge may be insufficient 
to cover all costs relating to the distribution of the Contracts and 
that, if a profit is realized from the mortality and expense risk 
charge, all or a portion of such profit may be offset by distribution 
expenses not reimbursed by the Sales Charge. Applicants represent that 
Western Southern has concluded that there is a reasonable likelihood 
that the proposed distribution financing arrangement will benefit the 
Account and the Contract owners. The basis for such conclusion is set 
forth in a memorandum which will be maintained by Western Southern at 
its principal office and will be made available to the Commission upon 
request.
    5. Western Southern also represents that the Account will invest 
only in management investment companies which undertake, in the event 
such company adopts a plan under Rule 12b-1 of the 1940 Act to finance 
distribution expenses, to have such plan formulated and approved by the 
company's board of directors, a majority of whom are not interested 
persons of such company within the meaning of the 1940 Act.

Conclusion

    Applicants assert that for the reasons and upon the facts set forth 
above, the requested exemptions from sections 26(a)(2)(C) and 27(c)(2) 
of the 1940 Act are necessary and appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13740 Filed 6-6-94; 8:45 am]
BILLING CODE 8010-01-M