[Federal Register Volume 60, Number 154 (Thursday, August 10, 1995)]
[Notices]
[Pages 40873-40875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19717]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21267; File No. 812-9590]
The Lincoln National Life Insurance Company, et al.
August 3, 1995.
Agency: Securities and Exchange Commission (``SEC'' or ``Commission'').
Action: Notice of application for an order under the Investment Company
Act of 1940 (``1940 Act'').
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Applicants: The Lincoln National Life Insurance Company (``Lincoln
Life''), Lincoln National Variable Annuity Fund A (``Fund A''), and
Lincoln National Variable Annuity Fund B (``Fund B'', and together with
Fund A, the ``Funds'').
Relevant 1940 Act Provisions: Order requested under Section 17(b)
granting an exemption from the provisions of Section 17(a) of the 1940
Act.
Summary of Application: Applicants seek an order of exemption to the
extent necessary to permit the merger of Fund B into Fund A.
Filing Date: The application was filed on May 5, 1995. Applicants have
represented that they will file an amendment to the application during
the notice period to include the representations summarized 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 by 5:30 p.m. on August 28, 1995, 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 requestor'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 5th
Street NW., Washington, DC 20549. Applicants, Jack D. Hunter, Esq., The
Lincoln National Life Insurance Company, 1300 South Clinton Street,
P.O. Box 1110, Fort Wayne, Indiana 46801.
For Further Information Contact: Mark C. Amorosi, Attorney, or Wendy
Finck Friedlander, Deputy Chief, (202) 942-0670, Office of Insurance
Products (Division of Investment Management).
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.
Applicants' Representations
1. Lincoln Life, a wholly-owned subsidiary of Lincoln National
Corporation, is a stock life insurance company organized under the laws
of Indiana. Lincoln Life is the sponsoring insurance company,
investment adviser and principal underwriter for Fund A and Fund B.
2. Fund A was established by Lincoln Life pursuant to Indiana law
on September 16, 1966, and is registered with the Commission as an
open-end, management investment company. Fund A was organized as the
investment vehicle for individual and group variable annuity contracts
for use with certain tax-qualified retirement plans, annuity purchase
plans, individual retirement annuities and government plans. Fund A's
principal investment objective is the long-term growth of capital. A
secondary investment objective is the production of current income.
Fund A seeks to accomplish these objectives by investing in equity
securities, principally common stocks. Fund A is managed by a three
person Board of Managers elected by Fund A contract owners.
3. Fund B was established by Lincoln Life pursuant to Indiana law
on
[[Page 40874]]
December 1, 1966, and is registered with the Commission as an open-end,
management investment company. Fund B was organized as the investment
vehicle for variable annuity contracts for individual use and for use
with plans and trusts on a non-tax qualified basis. Fund B has the same
investment objectives and policies of Fund A, and is managed by a three
person Board of Managers elected by Fund B contract owners. The
membership of the Board of Managers for Fund A and Fund B is identical.
4. Prior to 1984, federal tax law required that capital gains of
Fund B be treated differently from capital gains of Fund A because the
contracts for which Fund B serves as the investment vehicle were not
for use with tax-qualified plans. In 1984, federal tax law was amended
to eliminate this difference. Because of this change in federal tax
law, the principal reason for the separate existence and operation of
Fund A and Fund B no longer applies.
5. The Board of Directors of Lincoln Life has determined that the
efficiency of the operations of the Funds could be improved by merging
Fund B into Fund A. Accordingly, the respective Board of Managers for
Fund A and Fund B, none of whom are ``interested persons,'' as defined
in Section 2(a)(19) of the 1940 Act, considered and approved an
Agreement and Plan of Reorganization (the ``Reorganization
Agreement''). Pursuant to the Reorganization Agreement, the assets and
liabilities of Fund B will be transferred to Fund A in exchange for
accumulation and annuity units of Fund A to be credited to contract
owners of Fund B. The aggregate value of the accumulation and annuity
units credited by Fund A would correspond to the value of the net
assets transferred by Fund B to Fund A. Following the proposed
reorganization, each Fund B contract owner will possess a number of
Fund A accumulation or annuity units (both full and fractional) that
when multiplied by the accumulation unit value of Fund A units, would
result in an aggregate accumulation unit value equal to the aggregate
accumulation unit value of the accumulation and annuity units the
contract owner had in Fund B immediately before the consummation of the
proposed reorganization.
6. Applicants state that the Funds are seeking contract owner
approval of the reorganization. The Reorganization Agreement provides
that the consummation of the proposed reorganization is conditioned
upon approval of the contract owners of Fund A and Fund B. Lincoln Life
will pay all of the costs in connection with the proposed
reorganization including costs of printing and distributing proxy
materials, counting contract owner instructions, legal and auditing
fees, and expenses of holding the contract owners' meeting. Applicants
state that they do not expect that the proposed reorganization will
entail any liquidation expenses because the Funds have identical
investment objectives. However, Lincoln Life will pay any liquidation
expenses in the event that, as investment adviser to Fund A, it
considers any securities held by Fund B to be unsuitable for Fund A.
Applicants state that the reorganization will have no tax consequences
for contract owners.
Applicants' Legal Analysis
1. Section 17(a) of the 1940 Act provides generally that it is
unlawful for any affiliated person of a registered investment company
acting as principal knowingly to purchase from or to sell any security
or other property to such registered investment company. Section 17(b)
of the 1940 Act provides generally that the Commission may grant an
order exempting a transaction otherwise prohibited by Section 17(a) of
the 1940 Act if evidence establishes that: (1) the terms of the
proposed transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned; (2) the proposed transaction is
consistent with the policy of each registered investment company
concerned, as recited in its registration statement and reports filed
under the 1940 Act; and (3) the proposed transaction is consistent with
the general purposes of the 1940 Act.
2. The proposed reorganization may be subject to the provisions of
Section 17(a) of the 1940 Act since it could be viewed as one
investment company (Fund B) selling its assets to another investment
company (Fund A) that is affiliated by reason of having the same
sponsoring insurance company, investment adviser and principal
underwriter (Lincoln Life) that may be deemed to be in control of both
investment companies.
3. Rule 17a-8 under the 1940 Act exempts mergers of certain
affiliated investment companies from the provisions of Section 17(a) of
the 1940 Act under certain conditions. However, the exemption provided
by Rule 17a-8 may not be available in this case since Rule 17a-8 is
limited to mergers of registered investment companies that are
affiliated persons solely by reason of having a common investment
adviser, common directors, and/or common officers. Fund A and Fund B
also may be affiliates of each other because they have a common
sponsoring insurance company and common principal underwriter.
Applicants maintain, however, that the proposed reorganization falls
within the spirit and intent of Rule 17a-8.
4. Applicants assert that the proposed reorganization is fair and
reasonable to the Fund B contract owners and to Fund A because the
proposed reorganization will not affect any rights to annuity payments,
the annuity options that are offered under any contract of either Fund,
the death benefit or the federal income tax treatment during the
accumulation or payment periods of any contract of either Fund. There
are no material differences between the voting or other rights of
contract owners or annuitants of Fund B and the rights such contract
owners or annuitants will have as contract owners or annuitants of Fund
A. Applicants state that Fund A will pay the same fees to Lincoln Life
after the proposed reorganization as Fund B currently pays.
Applicants state that identical methods and procedures are used to
determine the value of the assets and accumulation units of each of
Fund A and Fund B, and, at the time of the proposed reorganization,
each Fund is expected to have a portfolio similar to that of the other
Fund. Thus, Applicants maintain that the interests of Fund A contract
owners will not be diluted by the proposed reorganization.
5. Applicants also maintain that the proposed transaction does not
involve overreaching on the part of any party to the transaction
because of the similarity of the Funds' portfolios and the use of an
objective standard to value the portfolio securities of each of the
Funds. Furthermore, the Board of Managers of both Fund A and Fund B,
none of whom are interested persons of Fund A, Fund B or Lincoln Life,
determined that the terms of the proposed reorganization do not involve
overreaching on the part of any persons concerned.
6. Applicants state that the proposed reorganization is not
inconsistent with the investment policy of each Fund as set forth in
the registration statements and reports filed under the 1940 Act. Both
Funds have identical investment objectives and the same investment
adviser.
7. Applicants also state that the proposed reorganization is
necessary or appropriate in the public interest and consistent with the
purposes fairly intended by the policy and provisions of the 1940 Act.
In particular, Applicants maintain that the proposed reorganization
will reduce operating costs due primarily to economies of
[[Page 40875]]
scale, compared to the costs of continuing the operation of Fund B
separately from Fund A. Applicants assert that enhanced flexibility in
the management of Fund B's relatively small investment portfolio, and
enhanced opportunities for portfolio diversification, may be obtained
through combining the assets of Fund B with those of Fund A.
Conclusion
Applicants submit that, for the reasons and upon the facts set
forth above, the requested exemption from Section 17(a) of the 1940 Act
to permit the proposed reorganization meets the standards in Section
17(b) of the 1940 Act. In this regard, Applicants assert that the
proposed reorganization is fair and reasonable, does not involve
overreaching on the part of any person concerned, is consistent with
the policy of each registered investment company concerned, as recited
in its registration statement and reports filed under the 1940 Act, and
is consistent with the provisions, policies and purposes of the 1940
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-19717 Filed 8-9-95; 8:45 am]
BILLING CODE 8010-01-M