[Federal Register Volume 65, Number 23 (Thursday, February 3, 2000)]
[Notices]
[Pages 5380-5383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2340]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24267; File No. 812-11802]


The Lincoln National Life Insurance Company, et al.

January 28, 2000.
AGENCY:  U.S. Securities and Exchange Commission (the ``Commission'' or 
``SEC'')

ACTION:  Notice of application for an order of approval under Section 
26(b) of the Investment Company Act of 1940 (the ``1940 Act'' or 
``Act'').

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SUMMARY OF APPLICATION:  Applicants seek an order to permit The Lincoln 
National Life Insurance Company (``Lincoln Life''), on behalf of 
Lincoln National Variable Annuity Account C (the ``Account''), to 
substitute securities issued by certain management investment companies 
and held by the Account to support the eAnnuity\TM\ individual variable 
annuity contract (the ``eAnnuity Contract'' or the ``Contract'') issued 
by Lincoln Life.


APPLICANTS:  The Lincoln National Life Insurance Company and Lincoln 
National Variable Annuity Account C (together, the ``Applicants'').

FILING DATE:  The Application was filed on October 5, 1999.

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 
23, 2000, 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, U.S. Securities and Exchange Commission, 450 
Fifth Street, NW, Washington, D.C. 20549-0609. Applicants, Brian Burke, 
Esq., The Lincoln National Life Insurance Company, 1300 South Clinton 
Street, Fort Wayne, IN 46802. Copies to Kimberly J. Smith, Esq., 
Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW, 
Washington, DC 20004-2415.

FOR FURTHER INFORMATION CONTACT:  Lorna MacLeod, Senior Counsel, or 
Susan Olson, Branch Chief, 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 Life, a stock life insurance company incorporated under 
the laws of the State of Indiana, is the depositor and sponsor of the 
Lincoln National Account C. Lincoln Life is wholly owned by Lincoln 
National Corporation, a publicly-held insurance holding company.
    2. The Account is registered under the Act as a unit investment 
trust (File No. 811-3214). The assets of the Account support certain 
individual variable annuity contracts, including the eAnnuity Contract, 
and interests in the Account offered through such contracts have been 
registered under the Securities Act of 1933 (``1933 Act'') on Form N-4 
(Reg. File Nos. 333-50817). Twenty-one sub-accounts are currently 
available as investment options under the Contract.
    3. Each of the twenty-one sub-accounts invests in a corresponding 
open-end management investment company that is registered on Form N-1A 
(each a ``Fund'') or a portfolio thereof. The twenty-one funds/
portfolios are: Lincoln National Aggressive Growth Fund, Inc., Lincoln 
National Bond Fund, Inc., Lincoln National Capital Appreciation Fund, 
Inc., Lincoln National Equity-Income Fund, Inc., Lincoln National 
Global Asset Allocation Fund, Inc., Lincoln National Growth and Income 
Fund, Inc., Lincoln National International Fund, Inc., Lincoln National 
Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln 
National Social Awareness Fund, Inc., Lincoln National Special 
Opportunities Fund, Inc., Delaware Group Premium Fund, Inc.--Growth and 
Income Series, Delaware Group Premium Fund, Inc.--Global Bond Series, 
Delaware Group Premium Fund, Inc.--Trend Series, BT Insurance Funds 
Trust--Equity 500 Index Fund, BT Insurance Funds Trust--Small Cap Index 
Fund, American Century Variable Portfolios, Inc.--VP International 
Fund, Baron Capital Funds Trust--Baron Capital Asset Fund, Neuberger 
Berman Advisors Management Trust--(``AMT'') Partners Portfolio, 
Neuberger Berman Advisors Management Trust--(``AMT'') Mid Cap Growth 
Portfolio, Janus Aspen Series--Worldwide Growth Portfolio.
    4. The Contract reserves to Lincoln Life the right, subject to 
Commission approval, to substitute shares of another open-end 
management investment company for shares of an open-end management 
investment company held by a sub-account of the Account. The prospectus 
for the Contract discloses this right.
    5. Currently, Contract owners may transfer cash value in unlimited 
amounts among and between the sub-accounts available as investment 
options under the Contract without the imposition of a transfer charge. 
The Contract reserves to Lincoln Life the right to restrict transfer 
privileges.
    6. Applicants state that in 1999 they received notice from Putnam 
Investment Management, Inc. (``Putnam'') that it no longer wished to 
serve as sub-adviser to any fund made available through the eAnnuity 
Contract. Putnam currently serves as sub-advisor to two such portfolios 
of the Fund: Lincoln National Aggressive Growth Fund (the ``Aggressive 
Growth Fund'') and Lincoln National Global Asset Allocation fund (the 
``Global Asset Allocation Fund''). Lincoln Investment Management, Inc., 
is the advisor to the fund. Applicants assert that this notice is 
consistent with Putnam's business plan to make Putnam-managed 
investments available through financial advisors, including brokers or 
other financial intermediaries, and not sold directly to investors. The 
eAnnuity Contract is sold directly to the public via the internet. 
Applicants state that Putnam further notified Lincoln Life that it 
would not continue as sub-advisor to the Aggressive Growth Fund and the 
Global Asset Allocation Fund if they continued to be available through 
the eAnnuity Contract. At present, Fund management does not seek to 
replace Putnam as sub-advisor to the two funds, which are available 
through a number of other Lincoln Life variable contracts that are sold 
through financial advisors. For this reason, Lincoln Life has 
determined that the Aggressive Growth Fund and the Global Asset 
Allocation Fund (the ``Replaced Funds'') are appropriate candidates for 
substitution within the eAnnuity Contract.
    7. The Applicants propose to replace the portfolios with two 
comparable portfolios that are currently offered through the eAnnuity 
Contract. Applicants propose to replace shares of the Aggressive Growth 
Fund with shares of the AMT Mid Cap Growth Portfolio,

[[Page 5381]]

which is advised and sub-advised by Neuberger Berman Management, Inc. 
and Neuberger Berman, LLC, respectively, and shares of the Global Asset 
Allocation Fund with shares of the Lincoln National Managed Fund (the 
``Managed Fund'', together with the AMT Mid Cap Growth Portfolio, the 
``Substitute Funds'').
    8. The investment objective of the Aggressive Growth Fund is to 
increase the value of its shares. The fund invests primarily in equity 
securities of companies comparable to those included in the Russell 
Mid-Cap Growth Index, but may also invest in convertible bonds, 
convertible preferred stock, and warrants to purchase common stock. The 
fund limits its investment in foreign securities to 15% of its assets.
    9. The investment objective of the AMT Mid Cap Growth Portfolio is 
growth of capital. The AMT Mid Cap Growth Portfolio invests primarily 
in equity securities of mid-capitalization companies, but may also 
invest up to 35% of its net assets in debt securities, including 
commercial paper that has received the highest rating. The portfolio 
limits its investment in foreign currency denominated securities to 20% 
of its total assets.
    10. The investment objective of the Global Asset Allocation Fund is 
long-term total return consistent with preservation of capital. The 
fund pursues its investment objective by buying and holding three 
categories of securities: Equity securities (conservative, growth, 
aggressive growth and international), fixed-income securities (U.S. 
fixed-income, international fixed-income and lower-rated fixed-income), 
and money market securities. The fund invests in securities of both 
U.S. and foreign issuers. Under normal circumstances, the fund will not 
invest more than 50% of its total assets in conservative stocks, more 
than 15% of its assets in Lower-Rated Fixed-Income debt obligations and 
more than 35% of its asset in any other category.
    11. The investment objective of the Managed Fund is maximum long-
term total return consistent with prudent investment strategy. The fund 
is a balanced fund that pursues its investment objective by buying and 
holding three categories of securities: equity securities of U.S. 
companies, high and medium grade fixed-income securities and money 
market securities. The fund may not invest more than 75% of its assets 
in either the stock or debt obligations categories.
    12. The following chart shows the total returns for the Replaced 
Funds for the past three calendar years and for the six months ended 
June 30, 1999.

                                              [Figures in percent]
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                                                               Six months
                       Replaced funds                         ended 6/30/    Calendar     Calendar     Calendar
                                                                   99       year 1998    year 1997    year 1996
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Lincoln National Aggressive Growth Fund (inception date:             4.80       (6.20)        23.09        17.02
 February 3, 1994)..........................................
Lincoln National Global Asset Allocation Fund (inception             3.49        13.50        19.47        15.04
 date: August 3, 1987.......................................
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    13. The following chart shows the total returns for the 
Substitute Funds for the past three calendar years and for the six 
months ended June 30, 1999.

                                              [Figures in percent]
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                                           Six months
            Substitute funds              ended 6/30/    Calendar          Calendar year 1997          Calendar
                                               99       year 1998                                     year 1996
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AMT Mid Cap Growth Portfolio (inception          5.13        39.28  17.20 (from Nov. 3, 1997)......          N/A
 date: February 3, 1997).
Lincoln National Managed Fund (inception         3.65        12.72  21.82..........................        12.05
 date: April 27, 1983.
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    14. The following chart shows the approximate size and expense 
ratios for each of the Replaced Funds.\1\
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    \1\ Expense ratios include management fees and operation 
expenses. Each fund currently pays a monthly management fee based on 
its average daily net assets at the following annual rates: 
Aggressive Growth Fund, 0.81% and Global Asset Allocation Fund, 
0.91%.

------------------------------------------------------------------------
                                                              Calendar
                                                Net assets    year 1998
                Replaced funds                 at June 30,     expense
                                                 1999 (in       ratio
                                                thousands)    (percent)
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Lincoln National Aggressive Growth Fund, June     $318,400         0.81
 30, 1999 (inception date: February 3, 1994).
Lincoln National Global Asset Allocation           499,900         0.91
 Fund, June 30, 1999 (inception date: August
 3, 1987)....................................
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    15. The following chart shows the approximate size and expense 
ratios for each of the Substitute Funds.\2\
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    \2\ 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 June 30, 1999, is as follows: AMT Mid Cap 
Growth, 1.00% and Managed Fund, 0.39%. Without the voluntary 
reimbursement of certain operating expenses by NBMI (the Advisor), 
total expenses for the year ended 12/31/98 for the fund would have 
been 1.43%

[[Page 5382]]



------------------------------------------------------------------------
                                                              Calendar
                                               Net assets     year 1998
              Substitute funds                 at June 30,     expense
                                                1999 (in       ration
                                               thousands)     (percent)
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AMT Mid Cap Growth Portfolio, (inception          $51,700          1.00
 date: November 3, 1997)....................
Lincoln National Managed Fund (inception          960,900          0.39
 date: April 27, 1983)......................
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    16. By a supplement to the prospectus for the Contract, all owners 
and perspective owners of the Contract have been notified of Lincoln 
Life's intention to take the necessary actions, including seeking the 
order requested by the Application, to substitute portfolios. The 
supplements advise owners and prospective owners that they will be 
unable to allocate net purchase payments to, or transfer cash values 
to, the sub-accounts of the Account corresponding to each of the 
Replaced Funds after May 1, 2000, and that on the date of the proposed 
substitution (on or about May 1, 2000, after the relief requested has 
been obtained and all necessary systems support changes have been 
made), the Substitute Funds will replace the Replaced Funds as they 
underlying investments for such sub-accounts. In addition, the 
supplements will inform owners and prospective owners that Lincoln Life 
will not exercise any rights reserved by it under the Contract to 
impose restrictions or fees on transfers until at least thirty days 
after the proposed substitutions.
    17. At least sixty days before the date of the proposed 
substitutions, affected owners will also be provided with a prospectus 
for each Substitute Fund which includes current information concerning 
the Substitute Funds.
    18. The proposed substitutions will take place at relative net 
asset value with no change in the amount of any Contract owners's cash 
value or death benefit or in the dollar value of his or her investment 
in either of the sub-accounts. Contract owners will not incur any 
additional fees or charges as a result of the proposed substitutions 
nor will their rights or Lincoln Life's obligations under the Contract 
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 Life. 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. Lincoln 
Life does not currently impose any restrictions or fees on transfers 
under the Contract, and will not exercise any right it may have under 
the Contract to impose restrictions on transfers under the Contract for 
a period of at lest thirty days following the proposed substitutions.
    19. Within five days after the proposed substitutions any owner who 
was affected by the substitutions will be sent a written notice 
informing them that the substitutions were carried out and that they 
may transfer all cash value under a Contract invested in either or both 
of the affected sub-accounts to other available sub-account(s). The 
notice will also reiterate that Lincoln Life will not exercise any 
right reserved by it under the Contract to impose any restriction or 
fee on transfers until at least thirty days after the proposed 
substitution.

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. Specially, Section 26(b) states:

    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. 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 policy and provisions of 
this title.

    2. Applicants state that the proposed substitution of shares of the 
Substitute Portfolios for those of the Replaced Portfolios involves a 
substitution of securities within the meaning of Section 26(b) of the 
Act. Applicants therefore request an order from the Commission pursuant 
to Section 26(b) approving the proposed substitutions.
    3. The investment objective of the Aggressive Growth Fund and the 
AMT Mid Cap Growth Portfolio are substantially similar. While their 
specific investment policies differ somewhat, both portfolios seek 
growth or appreciation in value by investing in equity securities of 
medium-sized growth companies. Applicants assert that, although there 
are differences in the objectives and policies of the portfolios, their 
objectives and policies are sufficiently consistent to assure that, 
following the substitution, the achievement of the core investment 
goals of the affected owners in the Aggressive Growth Fund will 
continue to be pursued.
    4. Applicants assert that the investment objectives of the Global 
Asset Allocation Fund and the Managed Fund are substantially similar. 
Although the Global Asset Allocation Fund invests globally while the 
Managed Fund only invests in domestic issuers, both portfolios invest 
in the same broad categories of securities: equity securities, fixed-
income securities and money market instruments. Applicants assert that, 
although there are differences in the objectives and policies of the 
portfolios, their objectives and policies are sufficiently consistent 
to assure that following the substitution, the achievement of the core 
investment goals of the affected owners in the Global Asset Allocation 
Fund will continue to be pursued.
    5. The AMT Mid Cap Growth Portfolio has performed substantially 
better than the Aggressive Growth Fund since its inception in 1998. The 
Global Asset Allocation Fund and the Managed Fund performed very 
similarly over the last three years. While past performance is not 
necessarily indicative of future performance, Applicants assert that 
the proposed substitutions are appropriate in light of the performance 
comparisons of the Replaced Funds and the Substitute Funds.
    6. Applicants assert that although the AMT Mid Cap Growth Portfolio 
currently has a higher expense ratio than the Aggressive Growth Fund, 
as a newer fund, it has a good potential for further growth in assets 
and that its expense ratio may come down in the future due to increased 
assets under management and the potential to leverage the assets of the 
other nine portfolios offered within the Neuberger Berman Advisers 
Management Trust.
    7. The Managed Fund has a much lower expense ratio and is larger 
than the Global Asset Allocation Fund.
    8. Last year, Putnam informed Applicants that it would no longer 
serve as adviser to the Aggressive Growth

[[Page 5383]]

Fund and the Global Asset Allocation Fund if Lincoln Life continued to 
make the funds available through the Annuity Contract.

Conclusion

    Applicants submit that, for all the reasons stated above, the 
proposed substitutions are consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-2340 Filed 2-2-00; 8:45 am]
BILLING CODE 8010-01-M