[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