[Federal Register Volume 61, Number 173 (Thursday, September 5, 1996)]
[Notices]
[Pages 46880-46884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22626]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22189; File No. 812-10180]


The Lincoln National Life Insurance Company, et al.

August 29, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'' or 
``Commission'').

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

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APPLICANTS: The Lincoln National Life Insurance Company (``Lincoln 
Life''), Lincoln Life & Annuity Company of New York (``Lincoln Life of 
NY''), Lincoln National Variable Annuity Account L (``Account L''), 
Lincoln Life & Annuity Company of New York Variable Annuity Account L 
(``Account L-NY), and LNC Equity Sales Corporation (``LNC'').

RELEVANT ACT SECTIONS: Order requested pursuant to Section 17(b) of the 
1940 Act from Section 17(a) thereof, and pursuant to Section 11 of the 
1940 Act.

SUMMARY OF APPLICATION: Applicants request an order approving: (i) the 
transfer of assets from the VA-1 Separate Account of UNUM Life 
Insurance Company of America (``UNUM VA-1 Separate Account'') to 
Account L and Account L-NY, and from the VA-1 Separate Account of First 
UNUM Life Insurance Company of America (``First UNUM VA-1 Separate 
Account'') to Account L-NY; and (ii) the offer of exchange of interests 
in the UNUM VA-1 Separate Account for interests in Account L and 
Account L-NY, and the offer of exchange of interests in the First UNUM 
VA-1 Separate Account for interests in Account L-NY, through the 
assumption reinsurance by Lincoln Life and Lincoln Life of NY of group 
variable annuity contracts issued by UNUM Life Insurance Company of 
America (``UNUM'') and First UNUM Life Insurance Company of America 
(``First UNUM'').

FILING DATE: The application was filed on June 3, 1996, and amended and 
restated on August 28, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the Secretary of the SEC and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on September 23, 
1996, 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 SEC.

ADDRESSES: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, John L. Steinkamp, Esq., The Lincoln National Life 
Insurance Company, 1300 South Clinton Street, P.O. Box 1110, Fort 
Wayne, Indiana 46801.

FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, Staff Attorney, 
or Patrice M. Pitts, Special Counsel, 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 may be obtained for a fee from 
the Public Reference Branch of the SEC.

Applicants' Representations

    1. Lincoln Life, a stock life insurance company organized in 
Indiana in 1905, is principally engaged in the sale of life insurance 
and annuity policies. Lincoln Life is wholly-owned by Lincoln National 
Corporation, a publicly-held insurance and financial services company.
    2. Lincoln Life of NY is a stock life insurance company 
incorporated under the laws of New York in 1996. Lincoln Life of NY is 
principally engaged in the sale of life insurance and annuity policies 
in the State of New York, and is a wholly-owned subsidiary of Lincoln 
Life.
    3. LNC will serve as the principal underwriter and distributor of 
group variable annuity contracts issued through Account L (the 
``Lincoln Life Contracts'') and group variable annuity contracts issued 
through Account L-NY (the ``Lincoln Life of NY Contracts''). LNC is 
registered under the Securities Exchange Act of 1934 as a broker-dealer 
and is a member of the National Association of Securities Dealers, Inc. 
LNC is a wholly-owned subsidiary of Lincoln National Corporation.
    4. Account L, a separate account established in Indiana on April 
29, 1996, pursuant to a resolution of the board of directors of Lincoln 
Life, will be the funding medium for Lincoln Life Contracts.
    5. Account L-NY, a separate account established in New York on July 
24, 1996, pursuant to a resolution of the board of directors of Lincoln 
Life of NY, will be the funding medium for Lincoln Life of New 
Contracts
    6. Lincoln Life and UNUM have entered into an amended and restated 
asset transfer and acquisition agree, dated as of January 24, 1996 (the 
``UNUM Acquisition Agreement''), which provides for the sale of UNUM's 
tax-sheltered annuity business to Lincoln Life and the assumption of 
UNUM's obligations under its group variable annuity contracts by 
Lincoln Life. The UNUM Acquisition Agreement provides that UNUM's group 
variable annuity contracts issued in states other than New York (the 
``UNUM Non-NY Contracts'') will be assumed directly by Lincoln Life, 
and that UNUM's group variable annuity contracts issued in New York 
(the ``UNUM NY Contracts'') will be assumed by Lincoln Life of NY.\1\ 
The UNUM Acquisition Agreement also provides that, for a limited period 
of time after the acquisition is effected and at Lincoln Life's 
request, UNUM will issue in certain states group variable annuity 
contracts of the type being assumed by Lincoln Life. The acquisition is 
to be effected on September 30, 1996, subject to certain state 
insurance regulatory approvals (the ``Closing Date'').
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    \1\ UNUM formerly issued contracts in New York but no longer 
does business in that state.
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    7. Lincoln Life, on behalf of Lincoln Life of NY, has entered into 
a virtually identical acquisition agreement with First UNUM dated March 
20, 1996 (the ``First UNUM Acquisition Agreement''), which provides for 
the sale of First UNUM's tax-sheltered annuity business to Lincoln Life 
of NY and the assumption of First UNUM's obligations under its group 
variable annuity contracts (the ``First UNUM Contracts'') by Lincoln 
Life of NY. The First UNUM Acquisition Agreement also provides that for 
a limited period of time after the acquisition is effected (also on the 
Closing Date), and at the request of Lincoln Life of NY, First UNUM 
will issue in New York group variable annuity contracts of the type 
being assumed by Lincoln Life of NY.

[[Page 46881]]

    8. Assumption of the UNUM NY Contracts, the UNUM Non-NY Contracts, 
and the First UNUM Contracts by Lincoln Life and Lincoln Life of NY 
will occur sometime after the Closing Date, depending on when 
applicable state insurance department approval and other regulatory 
approvals are obtained, and subject to giving contractholders and 
participants the opportunity to opt-out of the transfer to Lincoln Life 
Contracts or Lincoln Life of NY Contracts. Any participants who opt-out 
will have either UNUM or First UNUM as the insurer; those participants 
who do not opt-out will have either Lincoln Life or Lincoln Life of NY 
as the insurer.
    9. The UNUM Non-NY Contracts and the UNUM NY Contracts (together, 
the ``UNUM Contracts'') represent three types of group variable annuity 
contracts sold to retirement programs meeting the requirements of 
Section 403(b) of the Internal Revenue Code of 1986, as amended (the 
``Code''). The three types of First UNUM Contracts correspond with the 
three types of UNUM Contracts, except where differences are required by 
New York law.
    10. Each type of UNUM Contract and each type of First UNUM Contract 
is registered separately under the Securities Act of 1933 (the ``1933 
Act''). The three types of UNUM Contracts are funded by the UNUM VA-1 
Separate Account; the three types of First UNUM Contracts are funded by 
the First UNUM VA-1 Separate Account. Both the UNUM VA-1 Separate 
Account and the First UNUM VA-1 Separate Account are registered with 
the Commission under the 1940 Act as unit investment trusts. Each of 
these separate accounts consists of nine subaccounts; each subaccount 
invests exclusively in a matching underlying fund.
    11. Lincoln Life will enter into administrative services agreements 
with both UNUM and First UNUM under which, as of the Closing Date, 
Lincoln Life will be solely responsible for administering the UNUM 
Contracts, the First UNUM Contracts, the UNUM VA-1 Separate Account, 
and the First UNUM VA-1 Separate Account.
    12. Additionally, Lincoln Life will enter into an indemnity 
reinsurance agreement (the ``Lincoln Life Indemnity Agreement'') with 
UNUM which provides for the indemnity reinsurance by Lincoln Life of 
the general account liabilities of UNUM with respect to the UNUM Non-NY 
Contracts as of the Closing Date, pending assumption of those contracts 
by Lincoln Life. Lincoln Life of NY will enter into similar indemnity 
reinsurance agreements with both UNUM and First UNUM with respect to 
the UNUM NY Contracts and the First UNUM Contracts (the ``Lincoln Life 
of NY Indemnity Agreements,'' together with the Lincoln Life Indemnity 
Agreement, the ``Indemnity Reinsurance Agreements'').
    13. Furthermore, Lincoln Life will enter into an assumption 
reinsurance agreement with UNUM pursuant to which Lincoln Life will 
assumptively reinsure all of UNUM's obligations under the UNUM Non-NY 
Contracts. Lincoln Life of NY will enter into virtually identical 
assumption reinsurance agreements with UNUM and First UNUM pursuant to 
which Lincoln Life of NY will assumptively reinsure all of UNUM's and 
First UNUM's obligations under the UNUM NY Contracts and the First UNUM 
Contracts, respectively. Upon novation, the assets supporting the 
variable benefits of the reinsured UNUM Non-NY Contracts will be 
transferred from the UNUM VA-1 Separate Account to Account L, which 
thereafter will support the relevant UNUM Non-NY Contracts; Lincoln 
Life will assume all obligations and liabilities of UNUM under those 
contracts. Similarly, all assets supporting the variable benefits of 
the reinsured UNUM NY Contracts and First UNUM Contracts will be 
transferred from the UNUM VA-1 Separate Account and the First UNUM VA-1 
Separate Account, respectively, to Account L-NY, which thereafter will 
support the reinsured UNUM NY Contracts and First UNUM Contracts; 
Lincoln Life of NY will assume all obligations and liabilities of UNUM 
and First UNUM under those contracts. (The transactions implementing 
the various assumption reinsurance agreements described above are 
referred to herein collectively as the ``Reinsurance Transactions.'')
    14. The Reinsurance Transactions are subject to certain state 
insurance regulatory approvals and, in certain states, may require the 
affirmative consent of contractholders and individual participants. 
Each UNUM and First UNUM contractholder (collectively, 
``Contractholders'') will be given the right to opt-in or opt-out of 
the Reinsurance Transaction; these options will be described in a 
notice that will be sent to Contractholders. The notice will be 
accompanied by a rejection or acceptance form, a certificate of 
assumption, and a definitive prospectus for the applicable Lincoln Life 
Contract or Lincoln Life of NY Contract. The notice will: (i) state 
that the underlying assumption reinsurance transaction has been 
approved by the insurance departments of the domiciliary states of the 
insurance companies that are parties to the assumption reinsurance 
agreement; (ii) describe the options available to the Contractholder to 
either accept the transfer of the Contract from UNUM or First UNUM to 
Lincoln Life or Lincoln Life of NY as appropriate, or reject the 
proposed transfer by completing and returning the rejection form; and 
(iii) state that Lincoln Life will administer the Contract whether or 
not the Contractholder accepts the assumption reinsurance. If the 
Contractholder accepts the assumption reinsurance, a certificate 
notice, a rejection or acceptance form, a certificate of assumption, 
and a definitive prospectus for the applicable Lincoln Life Contract or 
Lincoln Life of NY Contract will be sent to each participant under the 
respective contract, giving those participants a similar opportunity to 
accept or reject the assumption reinsurance (i.e., an ``opt-out 
right'').
    15. Upon the assumption reinsurance of each UNUM Contract and First 
UNUM Contract (each now a ``Novated Contract''), Lincoln Life or 
Lincoln Life on NY will assume all of UNUM's or First UNUM's 
liabilities under the Novated Contract. Any premiums from participants 
who do not opt-out of the Reinsurance Transactions will be sent 
directly to either Lincoln Life or Lincoln Life of NY for allocation to 
Account L or Account L-NY, as appropriate. If Contractholders or 
participants reject the assumption reinsurance, premiums will be sent 
to the UNUM VA-1 Separate Account or First UNUM VA-1 Separate Account, 
as appropriate. Accordingly, whether Contractholders or participants 
opt-in or opt-out of the Reinsurance Transactions, Contractholders will 
deal directly with Lincoln Life as the administrator for the UNUM 
Contracts and the First UNUM Contracts, as well as for the Lincoln Life 
Contracts and the Lincoln Life of NY Contracts.
    16. The Novated Contracts will be identical to the relevant UNUM 
Contracts and First UNUM Contracts, but for the separate account 
supporting variable contract benefits and the identity of the depositor 
for such separate account. The same underlying funds will be available 
under the Novated Contracts as are available under the UNUM Contracts 
and the First UNUM Contracts. Lincoln Life will establish accumulation 
units in its separate account for the Novated Contracts with the same 
values as those in the UNUM VA-1 Separate Account for the UNUM Non-NY 
Contracts. Likewise, Lincoln Life of NY will establish accumulation 
units in its

[[Page 46882]]

separate account for the Novated Contracts with the same values as 
those in the UNUM VA-1 Separate Account for the UNUM NY Contracts.\2\ 
Since the accumulation unit values will be based on the net asset 
values of the same underlying funds, and will reflect identical 
deductions for asset-based charges, the accumulation unit values of the 
UNUM VA-1 Separate Account for the UNUM Non-NY Contracts and the First 
UNUM VA-1 Separate Account for the First UNUM Contracts that are not 
assumed by Lincoln Life or Lincoln Life of NY will be identical to the 
corresponding values in Account L and Account L-NY for the Novated 
Contracts for each valuation period after the Reinsurance Transactions 
have been effected.
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    \2\ Applicants state that because of differences in accumulation 
unit values between the UNUM NY Contracts and the First UNUM 
Contracts, the accumulation unit values in Account L-NY will not 
correspond to the accumulation unit values in the First UNUM VA-1 
Separate Account for the First UNUM Contracts. The number of 
accumulation units will be adjusted so that for the First UNUM 
Contracts that are reinsured, participant interests under such 
contracts will not be diluted as a result of the reinsurance.
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    17. The Reinsurance Transactions will be carried out by 
transferring supporting underlying fund shares from the UNUM VA-1 
Separate Account or First UNUM VA-1 Separate Account L or Account L-NY, 
as appropriate, as of the close of business on the day the reinsurance 
is effected. Therefore, there will be no interruption of investment of 
contract value in the underlying funds. No charge or expense will be 
incurred by the UNUM VA-1 Separate Account, the First UNUM VA-1 
Separate Account, Account L, Account L-NY, or the underlying funds in 
connection with the transfer of shares of the underlying funds. 
Accordingly, the contract values under the Novated Contracts will be 
the same as they would have been under the corresponding UNUM Contracts 
and First UNUM Contracts had the Reinsurance Transactions not been 
effected. Finally, Lincoln Life and Lincoln Life of NY will not assess 
any charge as a result of the Reinsurance Transactions.
    18. If either the Contractholder or participant exercises opt-out 
rights, the participant's interest in the UNUM Contract or the First 
UNUM Contract will not be reinsured with Lincoln Life or Lincoln Life 
of NY, and the assets supporting the variable benefits of such 
participant's interest in such contract will remain in either the UNUM 
VA-1 Separate Account or First UNUM VA-1 Separate Account, as 
appropriate. In that event, UNUM and First UNUM will continue to accept 
purchase payments under the terms of their respective contracts.
    19. There will be no adverse tax consequences to Contractholders 
and participants as a result of the assumption reinsurance of the UNUM 
Contracts and the First UNUM Contracts or the exercise of any opt-out 
rights in connection with the Reinsurance Transactions.
    20. UNUM has agreed to continue to issue its contracts in each 
state except New York for up to 18 months after the Closing Date in the 
event Lincoln Life has not received policy form approval or other 
necessary regulatory approvals to issue the Lincoln Life Contracts to 
the residents of a particular state. LNC will be the principal 
underwriter for such sales.
    21. Lincoln Life and UNUM will enter into a coinsurance and 
assumption agreement (the ``UNUM Coinsurance Agreement'') which will 
provide for the indemnity reinsurance, on a coinsurance basis, by 
Lincoln Life of the general account obligations of UNUM under the UNUM 
Contracts issued in states where Lincoln Life has not yet received the 
necessary regulatory approvals to issue its Contracts (the ``UNUM 
Coinsured Contracts''). Lincoln Life will assume by novation the UNUM 
Coinsured Contracts on a state-by-state basis as Lincoln Life receives 
the necessary regulatory approvals. Lincoln Life of NY will enter into 
a similar arrangement and coinsurance and assumption agreement with 
First UNUM (the ``First UNUM Coinsurance Agreement''). (First UNUM 
Contracts issued under such an arrangement are referred to herein as 
the ``First UNUM Coinsured Contracts.'') LNC will be the principal 
underwriter of the First UNUM Coinsured Contracts. The First UNUM 
Coinsured Contracts will be assumed by Lincoln Life of NY as the 
necessary state approvals are obtained. When the UNUM Coinsured 
Contracts and First UNUM Coinsured Contracts and certificates 
thereunder are issued, the Contractholder and participants will consent 
to the assumption of the contract and certificate by Lincoln Life or 
Lincoln Life of NY.

Applicants' Legal Analysis and Conditions

Section 17(b) of the 1940 Act

    1. Section 2(a)(3) of the 1940 Act defines ``affiliated person'' of 
another person to include any person directly or indirectly 
controlling, controlled by, or under common control with such other 
person. Section 2(a)(9) of the 1940 Act defines control as the power to 
exercise controlling influence over management or policies of a 
company. Section 17(a)(1) of the 1940 Act, in pertinent part, prohibits 
any affiliated person of or principal underwriter for a registered 
investment company, or any affiliated person of such a person, acting 
as principal, to knowingly sell to or purchase from such registered 
company any security or other property. Section 17(b) of the 1940 Act 
provides that a person may apply for an order of exemption from the 
provisions of Section 17(a) and that the Commission shall grant such an 
application if the evidence establishes that:
    (i) the terms of the proposed transaction, including the conditions 
to be paid or received, are reasonable and fair and do not involve 
overreaching on the part of any person concerned;
    (ii) the proposed transaction is consistent with the policy of each 
registered investment company concerned; and (iii) the proposed 
transaction is consistent with the general purposes of the 1940 Act.
    2. After the Closing Date, LNC will serve as principal underwriter 
for the UNUM VA-1 Separate Account and the First UNUM VA-1 Separate 
Account. Applicants submit that LNC and Lincoln Life, as wholly-owned 
subsidiaries of Lincoln National Corporation, may be deemed to be under 
common control for purposes of Section 2(a)(3) of the 1940 Act and, 
therefore, affiliates of one another. Similarly, Lincoln Life of NY, as 
an indirect wholly-owned subsidiary of Lincoln National Corporation, 
may be deemed to be under common control with LNC and, therefore, an 
affiliate of LNC. As such, Lincoln Life and Lincoln Life of NY, as 
affiliates of LNC, would be deemed for purposes of Section 17(a) to be 
affiliated persons of the principal underwriter of the UNUM VA-1 
Separate Account and the First UNUM VA-1 Separate Account.
    3. Because of these relationships, Applicants submit, the 
Reinsurance Transactions may be deemed to involve purchase and/or sale 
transactions between a registered investment company and an affiliated 
person of its principal underwriter in that the Reinsurance 
Transactions will be effected by a transfer of separate account assets 
(i.e., shares of the underlying funds) from: (i) the UNUM VA-1 Separate 
Account to Account L with regard to the UNUM Non-NY Contracts and the 
UNUM Coinsured Contracts; (ii) the UNUM VA-1 Separate Account to 
Account L-NY with regard to the UNUM NY Contracts; and (iii) the First 
UNUM VA-1 Separate Account to Account L-NY with regard to the First 
UNUM Contracts and the First UNUM

[[Page 46883]]

Coinsured Contracts. Accordingly, Applicants suggest that these 
transfers may be prohibited by Section 17(a) of the 1940 Act in the 
absence of an exemption pursuant to Section 17(b) thereof, and note 
that none of the rules granting self-executing exemptions under Section 
17(a) appear to be relevant to the Reinsurance Transactions.
    4. Applicants state that the 1940 Act does not provide any specific 
standards or guidelines for the Commission to apply in determining 
whether a transaction being considered under Section 17(b) is 
reasonable and fair and does not involve overreaching. Applicants 
submit that the Reinsurance Transactions are reasonable and fair 
because: (i) the contractual rights of Contractholders and participants 
vis-a-vis the separate account supporting the variable benefits of 
their contracts will not change as a result of the Reinsurance 
Transactions; (ii) the same underlying funds will be available after 
the Reinsurance Transactions; (iii) no charges will be imposed in 
connection with effecting the Reinsurance Transactions; (iv) the 
charges under the contracts will not change after the Reinsurance 
Transactions; and (v) the respective operations and objectives of the 
Lincoln Life and Lincoln Life of NY separate accounts will be identical 
to the operations and objectives of the UNUM and First UNUM separate 
accounts.
    5. Applicants assert that the Reinsurance Transactions do not 
involve overreaching on the part of any person concerned. Applicants 
represent that neither Lincoln Life nor Lincoln Life of NY will impose 
any charge in connection with the Reinsurance Transactions, and that 
participants' interests will not be diluted as a result of the 
Reinsurance Transactions. Applicants also note that the Reinsurance 
Transactions will have been subjected to regulatory approval in most 
states before being implemented.
    6. Section 17(b) requires that the proposed transaction be 
consistent with the policy of each registered investment company 
concerned, as recited in its registration statement and reports filed 
under the 1940 Act. Applicants represent that the UNUM VA-1 Separate 
Account, the First UNUM VA-1 Separate Account, Account L and Account L-
NY have the same policies insofar as the Novated Contracts are 
concerned. In particular, Applicants represent that because the assets 
underlying the Novated Contracts will continue to be invested in shares 
of the same underlying funds--in the same manner and subject to the 
same rules--before and after the Reinsurance Transactions have been 
effected, the assets underlying the Novated Contracts will continue to 
be invested according to the investment policies recited in the 
registration statements for the UNUM Contracts and the First UNUM 
Contracts.
    7. Applicants assert that the Reinsurance Transactions are 
consistent with the general purposes of the 1940 Act, and do not 
present any of the issues or abuses that Section 17(a), in particular, 
and the 1940 Act, in general, were designed to prevent. The interests 
of participants will not be adversely effected by the reinsurance of 
their contracts: the terms and provisions of the Novated Contracts will 
remain unchanged and participants' interests will be unaffected by the 
Reinsurance Transactions. Further, Contractholders and participants 
will be provided with the definitive prospectus for the Novated 
Contracts, and will thereby be informed about Lincoln Life, Lincoln 
Life of NY, and their respective separate accounts.

Section 11 of the 1940 Act

    8. Section 11(a) of the 1940 Act provides, in relevant part, that 
it shall be unlawful for any registered open-end management investment 
company (a ``fund'') or its principal underwriter to make an offer to a 
shareholder of that fund or of another fund to exchange his or her 
security for a security in the same or another fund on a basis other 
than the relative net asset values of the securities to be exchanged, 
unless the terms of the offer have first been submitted to and approved 
by the Commission or the offer compiles with the Commission's rules. 
Section 11(c) makes this prohibition applicable, regardless of the 
basis of the exchange, to any type of offer of exchange of the 
securities of a registered unit investment trust for the securities of 
any other investment company. In other words, prior Commission approval 
is required for exchange offers subject to Section 11(c) even if made 
on the basis of relative net asset values.
    9. Rule 11a-2 under the 1940 Act permits registered insurance 
company separate accounts and their principal underwriters to make 
certain exchange offers to holders of variable contracts supported by 
separate accounts having the same or an affiliated insurance company 
depositor or sponsor without prior Commission approval, provided that 
certain conditions are met. With respect to variable annuity contracts, 
these conditions require that: (i) the exchange be made on the basis of 
the relative net asset values of the securities to be exchanged (less 
any administrative fee disclosed in the offering account's registration 
statement and certain front-end sales loads); and (ii) any deferred 
sales loads which may be imposed be calculated and deducted to give 
full credit for the sales load paid under the exchanged security.
    10. Applicants note that Section 11 does not set forth specific 
standards for Commission approval of exchange offers. Applicants 
maintain that the public policy underlying Section 11 may be inferred 
from Section 1(b)(1) of the 1940 Act, which declares that the national 
public interest and the interests of investors are adversely affected 
when, among other things, investors exchange securities issued by 
investment companies without ``adequate, accurate, and explicit 
information, fairly presented, concerning the character of such 
securities and the circumstances, policies, and financial 
responsibility of such [investment] companies and their management.'' 
Applicants also maintain that the legislative history of the 1940 Act 
indicates that Section 11(a) is designed to provide assurance that 
exchange offers are not being proposed ``solely for the purpose of 
exacting additional selling charges and profits'' from investors by 
inducing them to ``switch'' one security for another.
    11. Applicants represent that, as soon as practicable following the 
receipt of necessary state insurance department approvals and other 
regulatory approvals: UNUM will transfer its liabilities under the UNUM 
Non-NY Contracts and the UNUM Coinsured Contracts to Lincoln Life 
pursuant to assumption reinsurance agreements and the UNUM Coinsurance 
Agreement; UNUM will transfer its liabilities under the UNUM NY 
Contracts to Lincoln Life of NY pursuant to an assumption reinsurance 
agreement; and First UNUM will transfer its liabilities under the First 
UNUM Contracts and the First UNUM Coinsured Contracts to Lincoln Life 
of NY pursuant to an assumption reinsurance agreement and the First 
UNUM Coinsurance Agreement.
    12. Applicants state that for participants who opt-in or are deemed 
to have opted-in to the Reinsurance Transactions, assets held in the 
UNUM VA-1 Separate Account will be transferred to Account L or Account 
L-NY, as appropriate, and assets held in the First UNUM VA-1 Separate 
Account will be transferred to Account L-NY. Thus, Applicants submit, a 
participant under a UNUM Non-NY Contract or a UNUM Coinsured Contract 
who opts-in or is deemed to have opted-in to the Reinsurance 
Transactions, in effect, will be exchanging his or her interest in such

[[Page 46884]]

contracts for a Lincoln Life Contract, and a participant under a UNUM 
NY Contract who opts-in or is deemed to have opted-in to the 
Reinsurance Transactions, in effect, will be exchanging his or her 
interest in a UNUM NY Contract for a Lincoln Life of NY Contract. 
Likewise, Applicants submit, the participant under a First UNUM 
Contract or a First UNUM Coinsured Contract who opt-in or is deemed to 
have opted-in to the Reinsurance Transactions, in effect, will be 
exchanging his or her interest in a First UNUM Contract or a First UNUM 
Coinsured Contract for an interest in a Lincoln Life of NY Contract. 
Applicants state that the granting of a right to make an election to 
opt-in or opt-out of the Reinsurance Transactions may be considered an 
offer to exchange securities of one unit investment trust for another 
unit investment trust, for purposes of Section 11 of the 1940 Act.
    13. Applicants represent that the terms of the exchange offers 
proposed herein do not involve any of the practices Section 11 of the 
1940 Act was designed to prevent, and are fair to Contractholders and 
participants, because: (i) participants will be fully apprised of their 
rights in connection with the exchange offers and will receive 
definitive prospectuses for the relevant Lincoln Life Contract or 
Lincoln Life of NY Contract; (ii) no charges will be imposed in 
connection with effecting the exchanges and, therefore, the exchanges 
will be made on the basis of the relative net asset value; (iii) 
participants who opt-in to the Reinsurance Transactions will have their 
interests assumptively reinsured under a materially similar Lincoln 
Life Contract or Lincoln Life of NY Contract with an identical sales 
charge structure; (iv) when appropriate, participants under a UNUM 
Contract or First UNUM Contract will receive credit for the time 
invested in such contract for purposes of determining any applicable 
sales charge under the corresponding Lincoln Life Contract or Lincoln 
Life of NY Contract; (v) the same underlying funds will be available 
upon reinsurance and, thus, there will be no interruption in the 
underlying funds serving as an investment media for the contracts; and 
(vi) participants who do not wish to accept the assumption reinsurance 
by Lincoln Life or Lincoln Life of NY may elect to opt-out of the 
Reinsurance Transactions, and their existing contractual rights under 
the UNUM Contract or First UNUM Contract will remain unchanged. 
Applicants also assert that there will be no adverse tax consequences 
to Contractholders and participants as a result of the assumption 
reinsurance of their contracts or the exercise of any opt-out rights in 
connection with the proposed exchange offers.
    14. Applicants submit that if, through common ownership, UNUM were 
affiliated with Lincoln Life and UNUM and First UNUM were affiliated 
with Lincoln Life of NY, Rule 11a-2 would permit the proposed exchange 
offers to be made without the prior approval of the Commission. 
Applicants submit that the proposed exchange offers between non-
affiliates--which would be permitted under Rule 11a-2 if the companies 
were affiliated--should not be held to a more stringent standard than 
Rule 11a-2.

Conclusion

    For the reasons set forth above, Applicants represent that the 
requested exemptions satisfy the standards of Section 17(b) of the 1940 
Act, and that the terms of the proposed exchange offers satisfy the 
standards of Section 11 of the 1940 Act. Applicants, therefore, request 
that the Commission issue an order granting the requested exemptions 
and approving the proposed exchange offers.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22626 Filed 9-4-96; 8:45 am]
BILLING CODE 8010-01-M