[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Notices]
[Pages 2927-2929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1089]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23643; File No. 812-11334]
The Lincoln National Life Insurance Company, et al.
January 12, 1999.
AGENCY: Securities and Exchange Commission (the ``Commission'' or
``SEC'').
ACTION: Notice of application for an order of approval pursuant to
Section 26(b) of the Investment Company Act of 1940 (the ``1940 Act''
or ``Act'').
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SUMMARY OF APPLICATIONS: Applicants seek an order to permit Lincoln
National and LLANY, on behalf of Lincoln National Account L and LLANY
Account L, to substitute securities issued by certain management
investment companies and held by the Accounts to support certain group
variable annuity contracts (the ``Contracts'') issued by Lincoln
National and LLANY.
APPLICANTS: The Lincoln National Life Insurance Company (``Lincoln
National''), Lincoln National Variable Annuity Account L (``Lincoln
National Account L''), Lincoln Life & Annuity Company of New York
(``LLANY'') and Lincoln Life & Annuity Variable Annuity Account L
(``LLANY Account L'') (Lincoln National Account L and LLANY Account L
together, the ``Accounts'') (all collectively, the ``Applicants'').
FILING DATE: The application was filed on October 1, 1998.
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
the Applicants with a copy of the request, personally or by mail.
Hearing requests must be received by the SEC by 5:30 p.m. on February
8, 1999, and should be accompanied by proof of service on the
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 SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, D.C. 20549. Applicants, Jeremy Sachs, Esquire,
The Lincoln National Life Insurance Company, 1300 South Clinton Street,
Fort Wayne, IN 46801-1110, Robert O. Sheppard, Esquire, Lincoln Life &
Annuity Company of New York, 120 Madison Street, Suite 1700, Syracuse,
NY 13202-2802. Copies to Kimberly J. Smith, Esquire, Sutherland Asbill
& Brennan LLP, 1275 Pennsylvania Avenue, NW, Washington, DC 20004-2415.
FOR FURTHER INFORMATION CONTACT: Lorna MacLeod, Attorney, or Mark
Amorosi, Special Counsel, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application is available for a fee from the SEC's Public
Reference Branch.
Applicants' Representations
1. Lincoln National, a stock life insurance company incorporated
under the laws of Indiana, is the depositor and sponsor of the Lincoln
National Account L. Lincoln National is wholly-owned by Lincoln
National Corporation, a publicly-held insurance holding company.
2. LLANY is a life insurance company chartered under New York law
and is a subsidiary of Lincoln National. LLANY is the depositor and
sponsor of LLANY Account L.
3. Lincoln National Account L is registered under the Act as a unit
investment trust (Rile No. 811-7645). The assets of Lincoln National
Account L support certain group flexible premium deferred variable
annuity contracts. Interests in Lincoln National Account L offered
through such contracts are registered under the Securities Act of 1933
(``1933 Act'') on Form N-4 (File Nos. 333-4999, 333-5827, and 333-
5815). The following nine sub-accounts are currently available as
options under Lincoln National Account L Contracts: Index Account;
Growth I Account; Asset Manager Account; Growth II Account; Balanced
Account; International Stock Account; Socially Responsible Account;
Equity-Income Account; and Small Cap Account.
4. LLANY Account L is registered under the Act as a unit investment
(File No. 811-7785). The assets of LLANY Account L support certain
group flexible premium deferred variable annuity contracts. Interests
in LLANY Account L offered through such contracts are registered under
the 1933 Act on Form N-4 (Reg. File Nos. 333-10963, 333-10805, and 333-
10861). LLANY Account L is invested in the same investment sub-accounts
as are available under Lincoln National Account L.
5. Each of the nine sub-accounts of the Lincoln National Account L
and LLANY Account L invests exclusively in the shares of a single
portfolio that is a separate series of an open-end management
investment company registered on Form N-1A. The nine portfolios are:
Dreyfus Stock Index Fund, Calvert Social Balanced Portfolio of Calvert
Variable Series, Small Cap Portfolio of Dreyfus Variable Investment
Fund, Fidelity Variable Insurance Products Fund (``VIP'') Equity-Income
Portfolio, VIP Growth Portfolio, and VIP Money Market Portfolio,
Fidelity Variable Insurance Products Fund II Asset Manager Portfolio,
American Century VP Capital Appreciation and American Century VP
Balanced of American Century Variable Portfolios, Inc., and
International Stock Portfolio of T. Rowe Price International Series,
Inc.
6. The Contracts reserve to Lincoln National and LLANY the right,
subject to Commission approval, to substitute shares of another open-
end management investment company for the shares of an open-end
management investment company held by any sub-account. The reservation
is disclosed in the prospectuses for the Contracts.
7. Currently, Contract owners may transfer cash value among and
between the sub-accounts without the imposition of a transfer charge.
All the Contracts, however, reserve to Lincoln National or LLANY, as
applicable, the right to restrict transfer privileges.
8. The Applicants propose on or about April 30, 1999, to replace
shares of the Calvert Social Balanced Portfolio with shares of the
Lincoln National Social Awareness Fund, Inc. (the ``Social Awareness
Fund''), and shares of the American Century VP Capital Appreciation
with shares of the Lincoln National Aggressive Growth Fund, Inc. (the
``Aggressive Growth Fund'') (the Social Awareness Fund and the
Aggressive Growth Fund together, the ``Substitute Funds''). Lincoln
National and LLANY, on behalf of Lincoln National Account L and LLANY
Account L respectively, will redeem shares of the replaced funds for
cash and use the proceeds to purchase shares in the Substitute Funds.
The companies will place redemption requests and purchase orders
simultaneously so that contract values are fully invested at all times.
9. The investment objective of the Calvert Social Balanced
Portfolio, a nondiversified fund, is to achieve a total return above
the rate of inflation through an actively managed, nondiversified
portfolio of common and preferred stocks, bonds, and money market
instruments which offer income and capital growth opportunity and which
satisfy the social concern criteria
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established for the fund. The fund invests in enterprises that make a
significant contribution to society through their products and services
and through the way they do business. The Calvert Social Balanced
Portfolio's investment objective is not fundamental and may be changed
at any time with 60 days notice to shareholders.
10. The investment objective of the Social Awareness Fund, a
diversified fund, is to achieve long-term capital appreciation. It
seeks to achieve this objective by investing primarily in common stocks
of established companies which satisfy certain social criteria, with
the objective of maximizing long-term capital appreciation, while
giving some emphasis to income. The fund invests in common stock and
securities convertible into common stock, all selected in accordance
with the fund's social criteria. The Social Awareness Fund's investment
objective is fundamental, and cannot be changed without a shareholder
vote.
11. The investment objective of the American Century VP Capital
Appreciation is to seek capital growth. The fund seeks to achieve its
investment objective by investing in common stocks and other securities
that meet certain fundamental and technical standards of selection and
have, in the opinion of the fund's investment manager, better than
average potential for appreciation. The fund seeks to stay fully
invested in such securities, regardless of the movement of stock prices
generally.
12. The investment objective of the Aggressive Growth Fund is to
seek to maximize capital appreciation. The fund pursues its objective
by investing in a diversified portfolio of equity securities of small
and medium-sized companies which have a dominant position within their
respective industries, are undervalued or have potential for growth in
earnings.
13. The following chart shows the total returns for the replaced
funds for the past two years as well as the average annual total return
since each fund's date of inception.
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Total return \1\ of replaced funds
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Inception of
Replaced funds portfolio
through 12/31/ 1997 (percent) 1996 (percent)
97 \2\
(percent)
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Calvert Social Balanced (inception date: September 2, 1986)..... 11.20 20.08 12.62
American Century VP Capital Appreciation (inception date:
November 20, 1987)............................................. 9.34 -3.26 -4.32
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\1\ Total return for the replaced funds represents the historic performance of the Funds calculated in
accordance with methods prescribed in Form N-1A.
\2\ Total returns for the period from inception through December 31, 1997 have been annualized.
14. The following chart shows the total returns for the Substitute
Funds for the past two years as well as average annual total return
since each fund's date of inception. Each Substitute Fund has
outperformed the corresponding replaced fund during each period shown.
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Total return \3\ of substitute portfolios
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Inception of
Substitute funds fund through
12/31/97 \4\ 1997 (percent) 1996 (percent)
(percent)
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Social Awareness Fund (inception date: May 2, 1988)............. 19.03 37.53 28.94
Aggressive Growth Fund (inception date: February 3, 1994)....... 15.04 23.09 17.02
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\3\ Total return for the Substitute Funds represents historic performance calculated in accordance with methods
prescribed in Form N-1A.
\4\ Total returns for the period from inception through December 31, 1997 are annualized.
15. The following chart shows the approximate size and expense
ratio for each of the replaced funds for the past two and one-half
years.\5\
\5\ Expense ratios include management fees and operating
expenses. Each Fund currently pays a monthly management fee based on
its average daily net assets at the following annual rates: Calvert
Social Balanced Portfolio, 0.70% (plus or minus a fee adjustment of
0.05% to 0.15%) and American Century VP Capital Appreciation, 1.00%.
As of October 1, 1998, the management fee for the American Century
VP Capital Appreciation will be: 1.00% of the first $500 million,
0.95% of the next $500 million, and 0.90% of the excess over $500
million.
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Net assets at
Replaced funds December 31 Expense ratio
(in thousands) (percent)
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Calvert Social Balanced:
1996................................ $161,473 0.81
1997................................ 227,834 0.80
June 30, 1998 (inception date:
September 2, 1986)................. 275,385 0.77
American Century VP Capital
Appreciation:
1996................................ 1,313,865 1.00
1997................................ 593,698 1.00
June 30, 1998 (inception date:
November 20, 1987)................. 515,262 1.00
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16. The following chart provides the approximate size and expense
ratios for each of the Substitute Funds for the past two and one-half
years.\6\
\6\ Expense ratios include management fees and operating
expenses. Each Substitute Fund currently pays a monthly management
fee based on its average daily net assets. The management fee for
each Substitute Fund as of December 31, 1997 is as follows: Social
Awareness Fund--0.48% of the first $200 million, 0.40% of the next
$200 million, 0.30% of the excess over $400 million; and Aggressive
Growth Fund--0.75% of the first $200 million, 0.70% of the next $200
million, 0.65% of the excess over $400 million.
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Net assets at
Substitute funds December 31 Expense ratio
(in thousands) (percent)
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Social Awareness Fund:
1996................................ $636,595 0.46
1997................................ 1,255,494 0.41
June 30, 1998 (inception date: May
2, 1988)........................... 1,708,434 0.38
Aggressive Growth Fund:
1996................................ 242,609 0.82
1997................................ 342,763 0.81
June 30, 1998 (inception date:
February 3, 1994).................. 381,554 0.79
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17. All Contract owners will be notified of the substitution before
it occurs by supplements to the prospectus for the Contracts dated
October 1, 1998. The supplements will also disclose that neither
Lincoln National nor LLANY will exercise any rights resered by it under
any of the Contracts to impose restrictions or fees on transfers until
at least thirty days after the proposed substitutions.
18. At least sixty days before the date of the substitutions,
Contract owners invested in the affected subaccounts will receive a
prospectus for each Substitute Fund.
19. The proposed substitutions will take place at relative net
asset value with no change in the amount of any Contract owner's cash
value or death benefit or the dollar value of his or her investment in
any of the Accounts. Contract owners will not incur any additional fees
or charges as a result of the proposed substitutions nor will their
rights or Lincoln National's and LLANY's obligations under the
Contracts be altered in any way. All expenses incurred in connection
with the proposed substitutions, including legal, accounting and other
fees and expenses, will be paid by Lincoln National and LLANY. In
addition, the proposed substitutions will not impose any tax liability
on Contract owners. The proposed substitutions will not cause the
Contract fees and charges currently paid by existing Contract owners to
be greater after the proposed substitutions than before the proposed
substitutions.
20. Within five days after the substitutions, the companies will
send to all Contract owners invested in the affected subaccounts notice
that the substitutions were completed. The notice will also advise the
Contract owners of their right to transfer cash value from either of
the affected sub-accounts to other available sub-accounts and reiterate
that neither Lincoln National nor LLANY will impose any restriction or
fee on transfers for at least 30 days after the substitutions.
Applicants' Legal Analysis
1. Section 26(b) of the Act requires the depositor of a registered
unit investment trust holding the securities of a single issuer to
obtain Commission approval before substituting the securities held by
the trust. The section further provides that the Commission shall issue
an order approving such substitution if the evidence establishes that
the substitution is consistent with the protection of investors and the
purposes fairly intended by the policies and provisions of the 1940
Act.
2. The purpose of Section 26(b) is to protect the expectation of
investors in a unit investment trust that the unit investment trust
will accumulate shares of a particular issuer and to prevent
unscrutinized substitutions that might, in effect, force shareholders
dissatisfied with the substituted security to redeem their shares and,
thereby, possibly incur a sales charge. Section 26(b) protects
investors by preventing a depositor or trustee of a unit investment
trust from substituting the shares of one issuer for those of another
issuer unless the Commission approves the substitution.
3. Applicants assert that the proposed substitutions meet the
standards that the Commission has applied to past substitutions.
4. Applicants assert that despite some differences, the investment
objectives and policies of the Substitute Funds are sufficiently
similar to those of the replaced funds to assure that the core
investment goals of the affected Contract owners can continue to be
met. The Social Awareness Fund, like the Calvert Social Balanced Fund
uses social criteria to select investments. The Aggressive Growth Fund,
like the American Century VP Capital Appreciation Portfolio, is a
growth-oriented stock fund.
5. Applicants further assert that Contract owners will benefit from
the proposed substitutions. In both cases, the performance of the
Substitute Fund has been superior to that of the fund it will replace
as measured in each of the past two calendar years and since the
inception of the fund. In addition, the fees and expenses of the
Substitute Fund are lower than those of the respective replaced fund.
Applicants assert that the fees and expenses of the Substitute Funds
are likely to remain lower for the foreseeable future because the
Social Awareness Fund has substantially more assets than the Calvert
Social Balanced Fund and because the asset base of the Aggressive
Growth Fund, though currently lower than the American Century VP
Capital Appreciation Portfolio, is growing, while the asset base of the
American Century portfolio is declining.
Conclusion
Applicants assert, for the reasons stated above, that the proposed
substitutions are consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act and
that the requested order approving the substitution should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1089 Filed 1-15-99; 8:45 am]
BILLING CODE 8010-01-M