[Federal Register Volume 68, Number 53 (Wednesday, March 19, 2003)]
[Notices]
[Pages 13342-13343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6495]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25957; File No. 812-12668]


Lincoln Benefit Life Co. et al.; Notice of Application

March 12, 2003.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an amended order pursuant to 
Section 26(c) of the Investment Company Act of 1940 (the ``1940 Act'').

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Applicants: Lincoln Benefit Life Company (``Lincoln Benefit''), Lincoln 
Benefit Life Variable Annuity Account (the ``VA Account''), and Lincoln 
Benefit Life Variable Life Account (the ``VL Account'') (collectively, 
``Applicants'').

Summary of Application: Applicants seek an order of the Commission 
amending a prior order granted April 30, 2002 (Release No. IC-25562) 
(the ``April 30 Order''), which authorized Applicants to effect a 
substitution of shares of one underlying portfolio for shares of 
another portfolio. The purpose of the Amendment is to modify a term of 
the April 30 Order pertaining to limits on the receipt of direct or 
indirect future benefits from the Replacement Fund, its adviser, or 
their affiliates.

Filing Date: The application was filed on June 11, 2002.

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 on this application by writing to the 
Commission's Secretary and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on April 7, 2003, and must 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 may request notification of a hearing 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 Jorden Burt 
LLP, 1025 Thomas Jefferson Street, NW., Suite 400 East, Washington, DC 
20007-0806, Attention: Christopher S. Petito, Esq.

FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 [tel. (202) 942-8090].

Applicants' Representations

    1. Lincoln Benefit is a stock life insurance company organized 
under the laws of the state of Nebraska. The VA Account is a segregated 
asset account of Lincoln Benefit. It was established in 1992 and is 
registered as a unit investment trust under the 1940 Act. Lincoln 
Benefit issues certain variable annuity contracts through the VA 
Account.
    2. The VL Account was established in 1992 and is registered as a 
unit investment trust under the 1940 Act. The VL Account is used to 
fund certain variable life insurance policies issued by Lincoln 
Benefit. (The VA Account and the VL Account are referred to 
collectively as the ``Separate Account Applicants.'' Certain variable 
annuity contracts and variable life policies are referred to herein as 
``Contracts.'').
    3. In the substitution approved by the April 30 Order (the 
``Substitution''), Lincoln Benefit, on behalf of the Separate Account 
Applicants, substituted shares of T. Rowe Price MidCap Growth Fund (the 
``Replacement Fund''), a series of the T. Rowe Price Equity Series, 
Inc., for shares of the Strong Discovery Fund II (the ``Replaced 
Fund''). The Substitution is described in more detail in the Notice of 
Application for the April 30 Order [Release No. IC-25509 (April 4, 
2002) (the ``Notice'')].
    4. One of the representations (the ``Service Fee Representation'') 
in the Notice, which Applicants now seek to amend, is the following:

    Lincoln Benefit does not currently receive, and will not receive 
for three years from the date of the requested Commission order, any 
direct or indirect benefit from the Replacement Fund, T. Rowe Price 
Inc., or any of its affiliates at a higher rate than Lincoln Benefit 
has received from the Replaced Fund, SCM, or any of its affiliates, 
including without limitation Rule 12b-1 fees, shareholder service or 
administrative or other service fees, revenue sharing or other 
arrangements, either with specific reference to the Replacement Fund 
or as part of an overall business arrangement.

    5. Applicants state that on May 17, 2002, they effected the 
Substitution in full compliance with the April 30 Order. Applicants 
represent that they intend to continue to comply with Service Fee 
Representation unless and until the amended order is granted.
    6. Applicants seek to amend the April 30 Order to permit the 
replacement of the Service Fee Representation with the following 
representation (the ``Amended Service Fee Representation''):

    Lincoln Benefit will not receive, for three years from the date 
of the Substitution, any direct or indirect benefits from the 
Replacement Fund, its adviser or underwriter, or their respective 
affiliates, in connection with assets attributable to Contracts 
affected by the Substitution, at a higher rate than it received from 
the Replaced Fund, its adviser or underwriter, or their respective 
affiliates, including without limitation Rule 12b-1 fees, 
shareholder service or administrative or other service fees, 
revenue-sharing or other arrangements in connection with such 
assets. Lincoln Benefit represents that the Substitution and its 
selection of the Replacement Fund was not motivated by any financial 
consideration paid or to be paid to it by the Replacement Fund, its 
adviser or underwriter, or their respective affiliates.

Applicants state that the effect of the Amended Service Fee 
Representation would be to limit the effects of the Service Fee 
Representation to assets attributable to Contracts actually affected by 
the Substitution.
    7. Applicants state that after the Notice was issued, they learned 
that another substitution order involving similar circumstances would 
be issued to other insurance companies and their respective separate 
accounts in part based on a representation identical in substance to 
the Amended Service Fee Representation.\*\ Applicants contacted the 
Commission staff during the notice period and participated in 
discussions with the staff. Through those discussions, Applicants 
determined that applying for an amendment before issuance of the April 
30 Order would have required issuance of a new notice and a new notice 
period, thereby delaying the Substitution. Applicants were particularly 
concerned that delaying the Substitution could possibly harm affected 
Contract owners because of the potentially adverse effects of dwindling 
assets on the Replaced Fund's expenses and performance. Because 
Applicants thought it would be in the best interests of Contract owners 
to effect the Substitution without delay, they decided to effect the 
Substitution on the terms set forth in the Notice and wait to seek the 
amendment until after the April 30 Order issued. Applicants believed 
that following this course of action would not prejudice their ability 
to obtain the requested relief. On May

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1, 2002, an order was issued to American Enterprise Life Insurance 
Company, et al. (Release No. IC-25561) (the ``May 1 Order''). 
Applicants note that the Amended Service Fee Representation is 
consistent with the corresponding representation made in the exemptive 
application filed by American Enterprise Life Insurance Company, et al.
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    \*\ American Enterprise Life Insurance Company, et al., Release 
No. IC-25518 (April 10, 2002) (notice).
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Applicants' Legal Analysis

    1. Section 26(c) of the 1940 Act provides, in pertinent part, that 
``[i]t 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 purpose of Section 26(c) 
is both to protect the expectations of investors that the unit 
investment trust will accumulate the shares of a particular issuer and 
to prevent unscrutinized substitutions which might, in effect, force 
shareholders dissatisfied with a substituted security to redeem their 
shares, thereby incurring either a loss of the sales load deducted from 
initial purchase payments, an additional sales load upon reinvestment 
of the redemption proceeds, or both. Section 26(c) affords this 
protection to investors by preventing a depositor or trustee of a unit 
investment trust holding the shares of one issuer from substituting for 
those shares the shares of another issuer, unless the Commission 
approves the substitution.
    2. By approving the April 30 Order, the Commission determined that 
the Substitution was ``consistent with the protection of the investors 
and the purposes fairly intended by the policy and provisions of [the 
1940 Act].'' Applicants submit that the amended order also will meet 
this standard. Applicants submit that the requested amendment is 
appropriate and in the public interest, and that the interests of 
fairness require that the April 30 Order be amended to be no more 
restrictive than the relief granted other parties in the same 
circumstances.
    3. Applicants submit that a restriction of the type in the April 30 
Order is less necessary in the context of a liquidation. Applicants 
submit that in this situation, the need for a substitution is forced on 
the insurer and is not a product of the insurer's independent business 
planning. Accordingly, Applicants argue, it is less likely that an 
improper or self-interested motive has prompted the insurer's action, 
and it should not be presumed that a prophylactic measure like the 
Service Fee Representation is necessary. Moreover, Applicants believe 
that because the Amended Service Fee Representation directly and fully 
denies the existence of any financial incentive from the Replacement 
Fund or its affiliates, the broad restriction imposed by the existing 
Service Fee Representation is wholly unnecessary.
    4. Second, Applicants submit that the existing Service Fee 
Representation places a significant burden on assets that are entirely 
unrelated to the Substitution. Applicants state that because the 
Replaced Fund was not popular among investors, only a few Contracts and 
a small amount of Applicants' subaccount assets were invested in the 
Replaced Fund. On the other hand, a significant amount of subaccount 
assets were invested in the Replacement Fund, which was an existing 
investment option under the Contracts. Applicants submit that in the 
absence of the Substitution, the service fee rate was set and could be 
changed as a product of arm's length bargaining between Applicants and 
the Replacement Fund's adviser. Applicants submit that it is unfair to 
impose an artificial restriction on Applicants' negotiating posture 
with respect to all service fees for all of those assets, as well as 
assets relating to new product developments entirely unrelated to the 
Substitution, because of a substitution that was compelled by 
circumstances beyond Applicants' control.
    5. Applicants also argue that imposing the restriction in the 
existing Service Fee Representation may discourage insurers in some 
circumstances from selecting the most appropriate replacement fund in 
future substitutions. Applicants argue that limiting service fees with 
respect to all other funds in a replacement fund's fund complex creates 
an incentive for insurers to effect substitutions only with members of 
fund families in which the insurer does not already invest, and that 
this incentive may conflict with the interests of investors.
    6. Applicants submit that fairness requires that the Service Fee 
Representation be amended to conform with the representation on which 
the May 1 Order was based. Applicants submit that the circumstances 
there were identical in all material respects with the circumstances 
presented by this substitution. Applicants state that both cases 
involved the liquidation of an unaffiliated fund for reasons unrelated 
to the affected insurers and the substitution into another unaffiliated 
fund. Applicants submit that by granting the May 1 Order, the 
Commission determined that a representation such as the Amended Service 
Fee Representation was in the public interest in circumstances 
involving a substitution prompted by liquidation of an unaffiliated 
fund. Given the similarity of the two cases, Applicants submit that 
here also, the proposed change in the Service Fee Representation would 
be fair and in the public interest.
    7. Applicants submit that, for the reasons summarized above, their 
request meets the standards set out in Section 26(c) of the 1940 Act. 
Accordingly, Applicants request an order, pursuant to Section 26(c) of 
the 1940 Act, amending the April 30 Order as requested above.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary. **FOOTNOTES**
[FR Doc. 03-6495 Filed 3-18-03; 8:45 am]
BILLING CODE 8010-01-P