[Federal Register Volume 64, Number 168 (Tuesday, August 31, 1999)]
[Notices]
[Pages 47548-47550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22551]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23968; No. 812-11556]
The Union Central Life Insurance Company, et al.; Notice of
Application
August 24, 1999.
AGENCY: 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 ``Act'').
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Summary of Application
Applicants seek an order approving the substitution of: (a) Shares
of the Balanced Index Portfolio of Carillon Fund (``Balanced Index
Portfolio'') for shares of the Capital Portfolio of Carillon Fund
(``Capital Portfolio''); and (b) shares of the AIM V.I. Capital
Appreciation Fund of the AIM Fund (``AIM Portfolio'') for shares of the
American Century VP Capital Appreciation Portfolio of American Century
Fund (``American Century Portfolio'').
Applicants
The Union Central Life Insurance Company (``Union Central''),
Carillon Account and Carillon Life Account.
Filing Date
The application was filed on March 31, 1999, and amended and
restated on July 23, 1999. Applicants represent that they will file a
second amended and restated application during the notice period to
conform to the representations set forth herein.
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 no later than 5:30 p.m. on
September 20, 1999, 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 Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, c/o Union Central
Life Insurance Company, 1876 Waycross Road, P.O. Box 40888, Cincinnati,
Ohio 45240.
FOR FURTHER INFORMATION CONTACT:
Paul G. Cellupica, Senior Counsel, or Kevin M. Kirchoff, Branch Chief,
Office of Insurance Products, Division of Investment Management, at
(202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
Public Reference Branch of the Commission, 450 Fifth Street, NW,
Washington, DC 20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. Union Central is a mutual insurance company organized in 1867
under the laws of Ohio. Union Central is primarily engaged in the sale
of life and disability insurance and annuities and is currently
licensed to operate in all states and the District of Columbia.
2. Carillon Account is a separate account of Union Central that is
registered with the Commission as a unit investment trust. Carillon
Account is used in connection with Union Central's variable annuity
contracts (the ``VA Contracts''). Carillon Life Account is a separate
account of Union Central that is registered with the Commission as a
unit investment trust. Carillon Life Account is used in connection with
Union Central's variable life insurance policies (the ``VUL
Contracts,'' collectively with the VA Contracts, the ``Contracts'').
3. The VA Contracts are individual flexible premium, combination
fixed and variable annuity contracts. The VA Contracts' variable
investment options consist of 12 portfolios. Prior to annunitization,
contract owners may transfer accumulation values among the subaccounts
or from Carillon Account to Union Central's general account as
frequently as they want. The first six transfers in a contract year may
be made without charge. A charge (currently $10) is imposed for each
transaction in excess of six in a contract year.
4. The VUL Contracts are individual, combination fixed and variable
universal life insurance contracts. Contractowners may transfer
accumulation values among the subaccounts or from Carillon Life Account
to Union Central's general account as frequently as they want. The
first twelve transfers in a contract year may be made without charge. A
charge (currently $10) is imposed for each transaction in excess of
twelve in a contract year.
5. The Contracts permit Union Central (subject to any applicable
law) to make additions to, deletions from, or substitutions for, the
portfolio shares purchased by any subaccount. Substitutions are
specifically permitted if the shares of a portfolio are no longer
available for investment, or if in Union Central's judgment, investment
in any portfolio would be inappropriate. To the extent required by
applicable law, substitutions of shares attributable to a subaccount
will not be made unless affected contractowners have been notified of
the change and until the Commission has approved the change. In the
case of such a substitution, VA Contract owners have the right, within
30 days after notification, to surrender their VA Contract without the
imposition of any surrender charge.
6. Applicants proposed the following substitutions: (a) the
substitution of shares of the Balanced Index Portfolio for shares of
the Capital Portfolio, and (b) the substitution of shares of the AIM
Portfolio for shares of the American Century Portfolio.
7. The Capital Portfolio is currently an investment option under
each of the Contracts. The Capital Portfolio is managed by Carillon
Advisers, Inc. Its investment objective is to provide the highest total
return through a combination of income and capital appreciation
consistent with the reasonable risks associated with an investment
portfolio of above-average quality to investing in equity securities,
debt instruments and money market instruments.
8. The expense ratio of the Capital Portfolio for 1998 was 0.79%.
The total return of the Capital Portfolio (exclusive of Contract or
subaccount charges) was -13.25% and 4.30% respectively for the one-year
and five-year periods ending December 31, 1998, and 7.60% for the
period from its inception on May 2, 1990 to December 31, 1998.
[[Page 47549]]
9. On or shortly after the date of the proposed substitutions,
Union Central will eliminate the subaccounts that invest in the Capital
Portfolio. Union Central has decided to eliminate this portfolio as an
investment option under the Contracts because of its investment
performance.
10. The American Century Portfolio (collectively with the Capital
Portfolio, the ``Eliminated Portfolios'') is another investment option
currently available under the Contracts. The investment adviser of the
American Century Portfolio is American Century Investment Management,
Inc. Its investment objective is to seek capital growth. It seeks to
achieve its investment objective by investing primarily in common
stocks that are considered by its investment adviser to have better
than average prospects for appreciation.
11. The expense ratio of the American Century Portfolio for 1998
was 1.00%. The total return of the American Century Portfolio
(exclusive of Contract or subaccount charges) was -2.16%, 3.25% and
8.70% respectively for the one-year, five-year, and ten-year periods
ending on December 31, 1998.
12. On or shortly after the date of the proposed substitutions,
Union Central will eliminate the subaccounts that invest in the
American Century Portfolio. The reason for eliminating this portfolio
as an investment option under the Contracts is its investment
performance.
13. The Balanced Index Portfolio became an investment option under
the VA Contracts on or about May 3, 1999 and will become an investment
option under the VUL Contracts shortly before the date of the
substitutions. The Balanced Index Portfolio is managed by Carillon
Advisers, Inc. Its investment objectives is to seek investment results,
with respect to 60% of its assets, that correspond to the total return
performance of U.S. common stocks, as represented by the S&P 500 Index
and, with respect to 40% of its assets, that correspond to the total
return performance of investment grade bonds, as represented by the
Lehman Brothers Aggregate Bond Index (the ``Lehman Index'').
14. The Balanced Index Portfolio is a new portfolio that has had no
meaningful historical expense ratio or investment performance data. Its
expense ratio is estimated at 0.60%. Because management of the Balanced
Index Portfolio involves almost no discretionary investments, it is
possible to estimate pro forma performance based on the performance of
the benchmark indices and estimated portfolio expenses. While there
can, of course, be no guarantee that the two segments of the Balanced
Index Portfolio could have tracked their respective benchmarks exactly,
or that expenses would have been precisely as estimated, these
estimates should provide a useful ``order of magnitude'' with which to
compare the performance of the Capital Portfolio that is to be
eliminated. The estimated pro forma performance of the Balanced Index
Portfolio (40% of the portfolio's assets assumed to have the total
return of the Lehman Index, minus estimated portfolio expenses, and 60%
of the portfolio's assets assumed to have the total return of the S&P
500 Index, minus portfolio expenses) would be 20.38%. 16.73% and 14.71%
for the one-year, five-year and ten-year periods ending December 31,
1998.
15. The AIM Portfolio (collectively with the Balanced Index
Portfolio, the ``Substitute Portfolios'') became an investment option
under the VA Contracts on or about May 3, 1999 and will become an
investment option under the VA Contracts shortly before the date of the
substitutions. The AIM Portfolio is managed by AIM Advisors, Inc. Its
investment objective is to seek capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
16. The expense ratio of the AIM Portfolio for 1998 was 0.67%. The
total return of the AIM Portfolio (exclusive of Contract or subaccount
charges) was 19.30% and 17.23% respectively for the one-year and five-
year periods ending on December 31, 1998 and 18.77% for the period from
its exception on May 5, 1993 to December 31, 1998.
17. Applicants represent that each substitution will take place at
the relative share values determined on the date of the substitution in
accordance with Section 22 of the Act and Rule 22c-1 thereunder.
Accordingly, there will be no financial impact to any contractowner.
The substitutions will be effective by: (a) redeeming the shares of the
Capital Portfolio held in the subaccounts that invest in that portfolio
and substituting for them shares of the Balanced Index Portfolio; and
(b) redeeming the shares of the American Century Portfolio held in the
subaccounts that invest in that portfolio and substituting for them
shares of the AIM Portfolio.
18. Immediately following the substitutions, Union Central will:
(a) combine the Capital and Balanced Index Subaccounts that each hold
shares of the Balanced Index Portfolio after the substitution; and (b)
combine the American Century and AIM Subaccounts that each hold shares
of the AIM Portfolio after the substitution. Union Central will reflect
this treatment in disclosure documents for the Carillon Account and
Carillon Life Account and in the financial statements and Form N-SAR
annual reports filed by the Carillon Account and Carillon Life Account.
19. Applicants represent that the proposed substitutions have been
described in supplements to the prospectuses for the Contracts
(``Stickers'') that were filed with the Commission and mailed to
contractowners. Since that filing, a Sticker has been affixed to each
prospectus for the Contracts. The Stickers gave contractowners notice
of the substitutions and described the reasons for engaging in the
substitutions. The Stickers also informed existing contractowners that
no additional amounts may be allocated to the subaccounts that invest
in the Eliminated Portfolios on or after the date of substitution. In
addition, the Stickers informed affected contractowners that they will
have an opportunity to reallocate accumulation value:
(a) Prior to the substitutions, from the subaccounts investing in
the Eliminated Portfolios; or
(b) For 30 days after the substitutions, from the subaccounts
investing in the Substitute Portfolios, to subaccounts investing in
other portfolios available under the Contracts,
without the imposition of any transfer charge. Any such transfer will
not count against the number of free transfers permitted under that
Contract.
20. Applicants represent that within five days after the
substitutions, Union Central will send to affected contractowners
written confirmation that the substitutions have occurred. At least 30
days prior to the substitutions, a notice of the substitutions will be
sent to all affected contractowners and any affected contractowner who
has not already received a fund prospectus that includes a description
of the Substitute Portfolios will be mailed such a prospectus with that
notice.
21. Applicants represent that Union Central will pay all fees and
expenses of the substitutions, including legal, accounting brokerage
commissions and other fees and expenses; none will be borne by
contractowners. Affected contractowners will not incur any fees or
charges as a result of the substitutions, nor will their rights or the
obligations of Union Central under the Contracts be altered in any way.
The substitutions will not cause the fees and
[[Page 47550]]
charges under the Contracts currently being paid by contractowners to
be greater after the substitutions than before the substitutions. The
substitutions will have no adverse tax consequences to contractowners
and will in no way alter the tax benefits to contractowners.
22. Applicants believe that their request satisfies the standards
for relief of Section 26(b) because:
(a) Each substitution involves portfolios with similar investment
objectives;
(b) after each substitution, affected contractowners will be
invested in a Substitute Portfolio whose actual performance, or pro-
forma performance, has been better on a historical basis than that of
the Eliminated Portfolio; and
(c) after each substitution affected contractowners will be
invested in a Substitute Portfolio whose expenses have been less, or
are expected to be less on an estimated basis, than those of the
Eliminated Portfolio.
Applicants' Legal Analysis
1. Applicants request an order pursuant to Section 26(b) of the Act
approving the substitutions. Section 26(b) of the 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. The
Commission will approve such a substitution if the evidence establishes
that it 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
substitutions are consistent with the principles and purposes of
Section 26(b) and do not entail any of the abuses that Section 26(b) is
designed to prevent. Substitution is an appropriate solution to the
unfavorable relative performance and higher relative expenses of the
portfolio to be eliminated. Applicants believe that each Substitute
Portfolio will better serve constractowner interests because its
performance has been significantly better than the performance of, and
its expenses have been lower than the expenses of, the corresponding
Eliminated Portfolio. Moreover, Union Central has reserved this right
in each of the Contracts and disclosed this reserved right in the
prospectus for each Contract.
3. Applicants represent that the substitutions will not result in
the type of costly forced redemption that Section 26(b) was intended to
guard against and, for the following reasons, are consistent with the
protection of investors and the purposes fairly intended by the Act:
(a) Each Substitute portfolio has investment objectives that are
similar to those of the corresponding Eliminated Portfolio, and permits
contractowners continuity of their investment objectives and
expectations.
(b) The costs of the substitutions will be borne by Union Central
and will not be borne by contractowners. No charges will be assessed to
effect the substitutions.
(c) The substitutions will, in all cases, be at 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
contractowner's accumulation value.
(d) The substitutions will not cause the fees and charges under the
Contracts currently being paid by contractowners to be greater after
the substitutions than before the substitutions.
(e) The contractowners will be given notice prior to the
substitutions and will have an opportunity to reallocate accumulation
value among other available subaccounts without the imposition of any
transfer charge or limitation. No transfer:
(i) from a subaccount investing in an Eliminated Portfolio from the
date of the notice through the date of the substitutions, or
(ii) for 30 days after the substitutions, of accumulation value
that had been transferred to a subaccount that invests in a Substitute
Portfolio as a result of the substitutions, will count as one of the
limited number of transfers permitted in a contract year free of
charge.
(f) Within five days after the substitutions, Union Central will
send to affected contractowners written confirmation that the
substitutions have occurred.
(g) The substitutions will in no way alter the insurance benefits
to contractowners or the contractual obligations of Union Central.
(h) The substitutions will have no adverse tax consequences to
contractowners and will in no way alter the tax benefits to
contractowners.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the substitutions should be granted.
For the Commission, by the Division of Investment Management
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22551 Filed 8-30-99; 8:45 am]
BILLING CODE 8010-01-M