[Federal Register Volume 63, Number 236 (Wednesday, December 9, 1998)]
[Notices]
[Pages 67954-67956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32597]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23584; File No. 812-11228]


Western-Southern Life Assurance Company; et al.; Notice of 
Application

December 2, 1998.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (the ``1940 Act'') approving certain 
substitutions of securities, and pursuant to Section 17(b) of the 1940 
Act exempting related transactions from Section 17(a) of the 1940 Act.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered unit investment trusts to substitute shares of certain 
registered open-end investment companies for shares of certain 
registered investment companies currently held by those unit investment 
trusts, and to permit certain in-kind redemptions of portfolio 
securities in connection with the substitutions.

APPLICANTS: For purposes of the order requested pursuant to Section 
26(b), Western-Southern Life Assurance Company, (``WSLAC''), Western-
Southern Life Assurance Company Separate Account 1 (``Separate Account 
1''), and Western-Southern Life Assurance Company Separate Account 2 
(``Separate Account 2'') (collectively, the ``Section 26(b) 
Applicants''). For purposes of the order pursuant to Section 17(b), the 
Section 26(b) applicants, the Western and Southern Life Insurance 
Company (``WSLIC''), and The Western and Southern Life Insurance 
Company Separate Account A (``Separate Account A'') (collectively, the 
``Section 17(b) Applicants'').

FILING DATE: The application was filed on July 20, 1998, and amended 
and restated on October 2, 1998.

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 should be received by the 
Commission by 5:30 p.m. on December 28, 1998, 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 may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Donald J. 
Wuebbling, Esq., Western-Southern Life Assurance Company, The Western 
and Southern Life Insurance Company, 400 Broadway, Cincinnati, Ohio 
45202. Copies to Mark H. Longenecker, Esq. and Karen M. McLaughlin, 
Esq., Frost & Jacobs LLP, 2500 PNC Center, 201 East Fifth Street, 
Cincinnati, Ohio 45202.

FOR FURTHER INFORMATION CONTACT: Ethan D. Corey, Senior Counsel, at 
(202) 942-0675, or Kevin M. Kirchoff, Branch Chief, at (202) 942-0672, 
Office of Insurance Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application may be obtained for a fee from 
the Public Reference Branch of the Commission, 450 5th Street, N.W., 
Washington, D.C. 20549 (tel. (202) 942-8090).

Applicants Representations

    1. WSLAC is an Ohio stock life insurance company. WSLAC is the 
depositor and sponsor of Separate Account 1 and Separate Account 2, 
separate investment accounts established under Ohio law (collectively, 
the ``WSLAC Accounts'').
    2. WSLAC is a wholly owned subsidiary of WSLIC, a mutual life 
insurance company originally organized under Ohio law. WSLIC owns of 
record the assets of Separate Account A, a separate investment account 
established under Ohio law, which holds the assets of WSLIC's defined 
benefit employee pension plan.
    3. Each of the WSLAC Accounts is registered with the Commission as 
a unit investment trust. The assets of the WSLAC Accounts support 
certain individual and group flexible premium deferred variable annuity 
contracts (collectively, the ``Contracts''). Each of the WSLAC Accounts 
is divided into eight sub-accounts. Each sub-account invests 
exclusively in shares representing an interest in a separate 
corresponding portfolio (each, a ``Portfolio'') of one of two 
registered open-end diversified management investment companies, Select 
Advisors Portfolios (``SA Trust'') and Select Advisors Variable 
Insurance Trust (``VIT''). Two new VIT Portfolios, Touchstone Growth 
and Income Portfolio and Touchstone Bond Portfolio (collectively, the 
``New Touchstone Portfolios'') will be established in connection with 
the transactions described below.
    4. Separate Account A also invests in shares representing an 
interest in certain Portfolios of the SA Trust. Separate Account A is 
not registered as an investment company under the 1940 Act pursuant to 
the exemption provided under Section 3(c)(11) of the 1940 Act.
    5. SA Trust has proposed a reorganization in which the master-
feeder structure currently employed by SA Trust and its spoke funds, 
Select Advisors Trust A (``Trust A'') and Select Advisors Trust C, will 
be replaced with a multi-class structure within Trust A (the 
``Reorganization'').
    6. As a part of the Reorganization, the Board of Trustees of SA 
Trust has notified Separate Account 1, Separate Account 2 and Separate 
Account A (collectively, the ``Accounts'') that it intends to dissolve 
the SA Trust Growth & Income II Portfolio and the SA Trust Bond II 
Portfolio (collectively, the ``SAT II Portfolios''). Therefore, the SAT 
II Portfolios will no longer be available as investment options for the 
Accounts. Currently, the Accounts are the only interest holders in the 
SAT II Portfolios.
    7. All of the Contracts expressly reserve WSLAC's right, subject to 
compliance with applicable law, to substitute shares of another open-
end management investment company for shares of an open-end management 
investment company held by a sub-account.
    8. In response to the Reorganization, WSLAC, on its own behalf and 
on behalf of Separate Account 1 and Separate Account 2, and WSLIC, on 
its own behalf and on behalf of Separate Account A, propose to 
substitute: (a) shares of VIT Touchstone Growth & Income Portfolio for 
shares of SA Trust Growth & Income II Portfolio currently held by 
corresponding sub-accounts of Separate Account 1 and Account 2 and

[[Page 67955]]

by Separate Account A; and (b) shares of VIT Touchstone Bond Portfolio 
for shares of SA Trust Bond II Portfolio currently held by 
corresponding sub-accounts of Separate Account 1 and Separate Account 2 
and by Separate Account A (the ``Substitution''). Applicants assert 
that the Substitution will benefit the Contract owners and Separate 
Account because it is designed to provide the affected Contract owners 
and Separate Account A with an opportunity to continue their investment 
programs without interruption. In addition, the Substitution will 
consolidate in VIT all of the investment options related to the sub-
accounts of the WSLAC Accounts, thereby permitting WSLAC to present 
information to Contract owners in a simpler and more concise manner.
    9. VIT Touchstone Growth & Income Portfolio will have a 
substantially identical investment objective, investment policies and 
investment risks as those of the SA Trust Growth & Income II Portfolio, 
and will have the same investment adviser and employ the same 
investment techniques. VIT Touchstone Bond Portfolio will have a 
substantially identical investment objective, investment policies and 
investment risks as those of the SA Trust Bond II Portfolio, and will 
have the same investment adviser and employ the same investment 
techniques.
    10. The total expenses of the SA Trust Growth & Income II Portfolio 
currently are 0.85%. Likewise, the total expenses of the VIT Touchstone 
Growth & Income Portfolio are 0.85%. The total expenses of the SA Trust 
Bond II Portfolio are 0.70%. Likewise, the total expenses of the VIT 
Touchstone Bond Portfolio are 0.70%.
    11. By supplements to the various prospectuses for the Contracts 
(``Supplements''), all Contract owners will be notified of WSLAC's 
intention to take the necessary actions, including seeking the order 
requested by the application, to carry out the Substitution. The 
Supplements will advise Contract owners that (a) from the date of the 
Supplement until the date of Substitution, owners will be permitted to 
make one transfer of all amounts under a Contract invested in the 
Growth & Income sub-account or the Bond sub-account to another sub-
account (except the Bond sub-account or Growth & Income sub-account), 
(b) such transfer will not count as the one transfer permitted in any 
30-day period and (c) such transfer may be in an amount less than the 
$250 normally required to effect a transfer. The Supplements will also 
inform Contract owners that WSLAC will not exercise any rights reserved 
under any Contract to impose additional restrictions on transfers until 
at least 30 days after the Substitution.
    12. WSLAC, on behalf of itself and on behalf of Separate Account 1 
and Separate Account 2, states that, within 5 days after the 
Substitution, it will send to any Contract owner who was affected by 
the Substitution a written notice informing him or her that the 
Substitution was carried out. The notice will repeat the information 
contained in the Supplement about the special rules for transfers from 
the Growth & Income sub-accounts and/or the Bond sub-accounts. The 
notice will repeat that WSLAC will not exercise any rights reserved by 
it under any of the Contracts to impose additional restrictions on 
transfers until at least 30 days after the Substitution. The notice 
will explain how to obtain the current VIT prospectus.
    13. The Substitution will not result in any change to the Contract 
fees and charges currently being paid by existing Contract owners.

Applicants' Legal Analysis and Conditions

    1. Section 26(b) of the 1940 Act provides that it shall be 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 shall have approved such 
substitution; and the Commission shall issue an order approving such 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the 1940 Act. Section 26(b) protects the 
expectation of investors that the unit investment trust will accumulate 
shares of a particular issuer and is intended to insure that 
unnecessary or burdensome sales loads, additional reinvestment costs or 
other charges will not be incurred due to unapproved substitutions of 
securities.
    2. The Section 26(b) Applicants request an order pursuant to 
Section 26(b) of the 1940 Act approving the Substitution. Applicants 
represent that the purposes, terms, and conditions of the Substitution 
are consistent with the protection for which Section 26(b) was 
designed. The Section 26(b) Applicants believe the Substitution will 
benefit Contract owners by: (a) minimizing the impact of the 
Reorganization on Contract owners; and (b) consolidating in VIT all of 
the investment options related to the sub-accounts of the WSLAC 
Accounts, thereby permitting WSLAC to present information to Contract 
owners in a simpler and more concise manner.
    3. Contract owners who do not want their assets allocated to the 
New Touchstone Portfolios would be able to transfer assets to any one 
of the other sub-accounts available under their Contract without charge 
prior to or after the Substitution.
    4. WSLAC, on behalf of itself and on behalf of Separate Account 1 
and Separate Account 2, represents that the Substitution and related 
redemptions in kind and purchases by WSLAC will not change the dollar 
value of any Contract owner's investment in either Separate Account 1 
or Separate Account 2, the value of any Contract, the accumulation 
value accredited to any Contract or the death benefit payable under any 
Contract. Contract owners will not incur any fees, expenses or charges 
as a result of the proposed transactions nor will their rights or 
WSLAC's obligations under the Contracts be altered in any way. In 
addition, Contract owners will not incur any adverse tax consequences 
because of the proposed substitutions. Furthermore, the proposed 
transactions will not result in any change to the Contract fees and 
charges currently being paid by existing Contract owners.
    5. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
or an affiliate of an affiliated person, of a registered investment 
company, from selling any security or other property to such registered 
investment company. Section 17(a)(2) of the 1940 Act prohibits such 
affiliated persons from purchasing any security or other property from 
such registered investment company.
    6. Section 17(b) of the 1940 Act authorizes the Commission to issue 
an order exempting a proposed transaction from Section 17(a) if: (a) 
the terms of the proposed transaction are fair and reasonable and do 
not involve overreaching on the part of any person concerned; (b) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned; and (c) the proposed transaction is 
consistent with the general purposes of the 1940 Act.
    7. The Section 17(b) Applicants request an order pursuant to 
Section 17(b) of the 1940 Act exempting them from the provisions of 
Section 17(a) to the extent necessary to carry out the proposed 
redemptions in kind from the SAT II Portfolios and subsequent purchases 
of shares of the New Touchstone Portfolios (the ``In Kind 
Transactions'').
    8. The Section 17(b) Applicants assert that the proposed In Kind 
Transactions, including the consideration to be paid

[[Page 67956]]

and received, are reasonable and fair and do not involve overreaching 
on the part of any person concerned. As part of the In Kind 
Transactions, the purchase and sale of the shares of SA Trust and VIT 
will be effected at the respective net asset value. The In Kind 
Transactions will not have a material financial impact on the Contract 
owners or Separate Account A. The Section 17(b) Applicants also state 
that the transactions will conform substantially with the conditions 
enumerated in Rule 17a-7. To the extent that the In Kind Transactions 
do not comply fully with the provisions of paragraphs (a) and (b) of 
Rule 17a-7, the Section 17(b) Applicants assert that the terms of the 
proposed In Kind Transactions provide the same degree of protection to 
the participating companies and their shareholders as if the In Kind 
Transactions satisfied all of the conditions enumerated in Rule 17a-7. 
The Section 17(b) Applicants can also assert that the proposed In Kind 
Transactions by WSLAC and WSLIC do not involve overreaching on the part 
of any person concerned. Furthermore, the Section 17(b) Applicants 
represent that the proposed substitutions will be consistent with the 
policies of: (a) VIT and the New Touchstone Portfolios; and (b) SA 
Trust and the SAT II Portfolios, as is, or will be, stated in the 
registration statement or reports filed under the 1940 Act by each.
    9. The Section 17(b) Applicants assert that the In Kind 
Transactions are consistent with the general purposes of the 1940 Act 
and that the In Kind Transactions do not present any of the conditions 
or abuses that the 1940 Act was designed to prevent.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the Substitution and In Kind Transactions 
should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-32597 Filed 12-8-98; 8:45 am]
BILLING CODE 8010-01-M