Lincoln National Life Insurance Company, et al; Notice of Application
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Notice of application for an order approving the substitution of certain securities pursuant to Section 26(c) of the Investment Company Act of 1940, as amended (the "1940 Act" or "Act") and an order of exemption pursuant to Section 17(b) of the Act from Section 17(a) of the Act.
Citation: "78 FR 24249"
Document Number: "Release No. IC-30468; File No. 812-14063"
"Notices"
APPLICANTS:
SUMMARY: The Section 26 Applicants seek an order pursuant to Section 26(c) of the 1940 Act, approving the substitution of certain shares of the Trust for shares of other registered investment companies unaffiliated with the Section 26 Applicants (the "Substitutions") each of which is currently used as an underlying investment option for certain variable annuity contracts (collectively, the "Contracts"). The Section 17 Applicants seek an order pursuant to Section 17(b) of the 1940 Act exempting them from Section 17(a) of the Act to the extent necessary to permit them to engage in certain in-kind transactions ("In-Kind Transfers") in connection with the Substitutions.
FILING DATE: The application was filed on
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 the Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by
ADDRESSES: Secretary,
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or for an applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. Lincoln Life is the depositor and sponsor of the Lincoln Life Separate Accounts. LNY is the depositor and sponsor of the LNY Separate Accounts.
2. Each of the Separate Accounts is a registered unit investment trust used to issue one or more Contracts issued by the Insurance Companies. Each Separate Account is divided into sub-accounts, each of which invests in the securities of a single underlying mutual fund. The application sets forth the registration statement file numbers for the Contracts and the Separate Accounts.
3. The Trust is organized as a
4.
5. The Trust received an exemptive order from the Commission (In the Matter of
6. Shares of the Trust are continuously distributed and underwritten by
7. The Contracts can be issued as individual or group contracts. Contract owners and participants in group contracts (each a "Contract Owner") may allocate some or all of their Contract value to one or more sub-accounts available as investment options under the Contract. Additionally, the Contract Owner may, if provided for under the Contract, allocate some or all of their Contract value to a fixed account and/or guaranteed term option, both of which are supported by the assets of Lincoln Life's general account.
8. Each Contract's prospectus contains provisions reserving the
9. The Section 26 Applicants request an order from the Commission pursuant to Section 26(c) of the 1940 Act approving the proposed Substitutions of shares of the following series of the Trust, the Replacement Funds, for shares of the corresponding third party, unaffiliated underlying mutual funds, the Existing Funds, as shown in the following table:
Existing funds Replacement funds AllianceBernstein Variable Products Lincoln Variable Products Trust--LVIP Series Fund--AllianceBernstein VPS SSgA S&P 500Index Fund : Growth and Income Portfolio: Class A Standard Class Class B Service Class Lincoln Variable Insurance Products Trust--LVIP Mondrian International Value Fund : Class B Standard Class Class B Service Class Lincoln Variable Products Trust--LVIP BlackRock Inflation Protected Bond Fund: Class I Standard Class Class II Service ClassDreyfus Stock Index Fund , Lincoln Variable Products Trust--LVIP Inc.--Dreyfus Stock Index Fund : SSgA S&P 500Index Fund : Initial Class Standard Class Lincoln Variable Products Trust--LVIPSSgA Small-Cap Index Fund : Initial Class Standard Class DWS Investments VIT Funds--DWS Equity Lincoln Variable Products Trust--LVIP 500 Index VIP Portfolio: SSgA S&P 500Index Fund : Class A Standard Class Class B Service Class DWS Investments VIT Funds--DWS Small Lincoln Variable Products Trust--LVIP Cap Index VIP Portfolio:SSgA Small-Cap Index Fund : Class A Standard Class Class B Service Class Fidelity Variable Insurance Products Lincoln Variable Products Trust--LVIP Trust--Fidelity VIP Equity-Income SSgA S&P 500Index Fund : Portfolio: Initial Class Standard Class Service Class 2 Service Class Fidelity Variable Insurance Products Lincoln Variable Products Trust--LVIP Trust--Fidelity VIP OverseasSSgA International Index Fund : Portfolio: Initial Class Service Class Service Class 2 Service ClassFranklin Templeton Variable Insurance Lincoln Variable Products Trust--LVIP Products Trust--FTVIPT FranklinSSgA Small-Cap Index Fund :Small-Mid Cap Growth Securities Fund : Class 1 Standard Class Class 2 Service Class MFS Variable Insurance Trust--MFS VIT Lincoln Variable Products Trust--LVIP Total Return Series: SSgA Moderate Structured Allocation Fund: Service Class Service Class Neuberger Berman Advisers Management Lincoln Variable Products Trust--LVIP Trust--Neuberger Berman AMT Mid-Cap SSgA S&P 500Index Fund : Growth Portfolio: I Class Standard Class I Class Service Class
The class into which a Contract Owner will be transferred is set forth in the relevant Contract, which lists the class of the
10. The following tables compare the fees and expenses of the
Existing fund Replacement fund AllianceBernstein Lincoln Variable Products Variable Products Series Trust--LVIP SSgA S&P 500 Fund--AllianceBernstein Index Fund. VPS Growth and Income Portfolio Management Fees 0.55% Class A 0.19% Standard Class 0.55% Class B 0.19% Service Class 12b-1 Fees 0.00% Class A 0.00% Standard Class 0.25% Class B 0.25% Service Class Other Expenses 0.05% Class A 0.06% Standard Class 0.05% Class B 0.06% Service Class Total Gross Expenses 0.60% Class A 0.25% Standard Class 0.85% Class B 0.50% Service Class Waivers/Reimbursements 0.00% Class A 0.00% Standard Class 0.00% Class B 0.00% Service Class Total Net Expenses 0.60% Class A 0.25% Standard Class 0.85% Class B 0.50% Service Class AllianceBernstein Lincoln Variable Products Variable Products Series Trust--LVIP Mondrian Fund--AllianceBernstein International Value Fund. VPS International Value Portfolio Management Fees 0.75% Class B 0.75% Standard Class 0.75% Class B 0.75% Service Class 12b-1 Fees 0.25% Class B 0.00% Standard Class 0.25% Class B 0.25% Service Class Other Expenses 0.06% Class B 0.08% Standard Class 0.06% Class B 0.08% Service Class Total Gross Expenses 1.06% Class B 0.83% Standard Class 1.06% Class B 1.08% Service Class Waivers/Reimbursements 0.00% Class B 0.00% Standard Class 0.00% Class B 0.00% Service Class Total Net Expenses 1.06% Class B 0.83% Standard Class 1.06% Class B 1.08% Service Class American Century Lincoln Variable Products Investments Variable Trust--LVIP BlackRock Products--American Inflation Protected Bond Century VP Inflation Fund. Protection Fund Management Fees 0.47% Class I 0.44% Standard Class 0.47% Class 0.44% Service Class 12b-1 Fees 0.00% Class I 0.00% Standard Class 0.25% Class II 0.25% Service Class Other Expenses 0.01% Class I 0.07% Standard Class 0.01% Class II 0.07% Service Class Total Gross Expenses 0.48% Class I 0.54% Standard Class 0.73% Class II 0.79% Service Class Waivers/Reimbursements 0.00% Class I 0.00% Standard Class 0.00% Class II 0.00% Service Class Total Net Expenses 0.48% Class I 0.54% Standard Class 0.73% Class II 0.79% Service Class Dreyfus Stock Index Fund, Lincoln Variable Products Inc.--Dreyfus Stock Index Trust--LVIP SSgA S&P 500 Fund Index Fund. Management Fees 0.25% Initial Class 0.19% Standard Class 12b-1 Fees 0.00% Initial Class 0.00% Standard Class Other Expenses 0.03% Initial Class 0.06% Standard Class Total Gross Expenses 0.28% Initial Class 0.25% Standard Class Waivers/Reimbursements 0.00% Initial Class 0.00% Standard Class Total Net Expenses 0.28% Initial Class 0.25% Standard Class Dreyfus Variable Lincoln Variable Products Investment Fund--Dreyfus Trust--LVIP SSgA VIF Opportunistic Small Small-Cap Index Fund. Cap Portfolio Management Fees 0.75% Initial Class 0.32% Standard Class 12b-1 Fees 0.00% Initial Class 0.00% Standard Class Other Expenses 0.13% Initial Class 0.09% Standard Class Total Gross Expenses 0.88% Initial Class 0.41% Standard Class Waivers/Reimbursements 0.00% Initial Class 0.00% Standard Class Total Net Expenses 0.88% Initial Class 0.41% Standard Class DWS Investments VIT Lincoln Variable Products Funds--DWS Equity 500 Trust--LVIP SSgA S&P 500 Index VIP Portfolio Index Fund. Management Fees 0.20% Class A 0.19% Standard Class 0.20% Class B 0.19% Service Class 12b-1 Fees 0.00% Class A 0.00% Standard Class 0.25% Class B 0.25% Service Class Other Expenses 0.15% Class A 0.06% Standard Class 0.15% Class B 0.06% Service Class Total Gross Expenses 0.35% Class A 0.25% Standard Class 0.60% Class B 0.50% Service Class Waivers/Reimbursements 0.00% Class A 0.00% Standard Class 0.00% Class B 0.00% Service Class Total Net Expenses 0.35% Class A 0.25% Standard Class 0.60% Class B 0.50% Service Class DWS Investments VIT Lincoln Variable Products Funds--DWS Small Cap Trust--LVIP SSgA Index VIP Portfolio Small-Cap Index Fund. Management Fees 0.35% Class A 0.32% Standard Class 0.35% Class B 0.32% Service Class 12b-1 Fees 0.00% Class A 0.00% Standard Class 0.25% Class B 0.25% Service Class Other Expenses 0.20% Class A 0.09% Standard Class 0.20% Class B 0.09% Service Class Total Gross Expenses 0.55% Class A 0.41% Standard Class 0.80% Class B 0.66% Service Class Waivers/Reimbursements -0.06% Class A 0.00% Standard Class -0.06% Class B 0.00% Service Class Total Net Expenses 0.49% Class A 0.41% Standard Class 0.74% Class B 0.66% Service Class Fidelity(R) Variable Lincoln Variable Products Insurance Products Trust--LVIP SSgA S&P 500 Trust--Fidelity(R) VIP Index Fund. Equity-Income Portfolio Management Fees 0.46% Initial Class 0.19% Standard Class 0.46% Service Class 2 0.19% Service Class 12b-1 Fees 0.00% Initial Class 0.00% Standard Class 0.25% Service Class 2 0.25% Service Class Other Expenses 0.10% Initial Class 0.06% Standard Class 0.10% Service Class 2 0.06% Service Class Total Gross Expenses 0.56% Initial Class 0.25% Standard Class 0.81% Service Class 2 0.50% Service Class Waivers/Reimbursements 0.00% Initial Class 0.00% Standard Class 0.00% Service Class 2 0.00% Service Class Total Net Expenses 0.56% Initial Class 0.25% Standard Class 0.81% Service Class 2 0.50% Service Class Fidelity(R) Variable Lincoln Variable Products Insurance Products Trust--LVIP SSgA Trust--Fidelity(R) VIP International Index Fund. Overseas Portfolio Management Fees 0.71% Initial Class 0.40% Service Class 0.71% Service Class 2 0.40% Service Class 12b-1 Fees 0.00% Initial Class 0.25% Service Class 0.25% Service Class 2 0.25% Service Class Other Expenses 0.14% Initial Class 0.14% Standard Class 0.14% Service Class 2 0.14% Service Class Total Gross Expenses 0.85% Initial Class 0.79% Service Class 1.10% Service Class 2 0.79% Service Class Waivers/Reimbursements 0.00% Initial Class -0.04% Service Class 0.00% Service Class 2 -0.04% Service Class Total Net Expenses 0.85% Initial Class 0.75% Service Class 1.10% Service Class 2 0.75% Service Class Franklin Templeton Lincoln Variable Products Variable Insurance Trust--LVIP SSgA Products Trust--FTVIPT Small-Cap Index Fund. Franklin Small-Mid Cap Growth Securities Fund Management Fees 0.51% Class 1 0.32% Standard Class 0.51% Class 2 0.32% Service Class 12b-1 Fees 0.00% Class 1 0.00% Standard Class 0.25% Class 2 0.25% Service Class Other Expenses 0.29% Class 1 0.09% Standard Class 0.29% Class 2 0.09% Service Class Acquired Fund Fees and 0.00% Class 1 0.00% Standard Class Expenses 0.00% Class 2 0.00% Service Class Total Gross Expenses 0.80% Class 1 0.41% Standard Class 1.05% Class 2 0.66% Service Class Waivers/Reimbursements 0.00% Class 1 0.00% Standard Class 0.00% Class 2 0.00% Service Class Total Net Expenses 0.80% Class 1 0.41% Standard Class 1.05% Class 2 0.66% Service Class MFS Variable Insurance Lincoln Variable Products Trust--MFS VIT Total Trust--LVIP SSgA Moderate Return Series Structured Allocation Fund. Management Fees 0.75% Service Class 0.25% Service Class 12b-1 Fees 0.25% Service Class 0.25% Service Class Other Expenses 0.05% Service Class 0.04% Service Class Acquired Fund Fees and 0.00% Service Class 0.37% Service Class Expenses Total Gross Expenses 1.05% Service Class 0.91% Service Class Waivers/Reimbursements -0.03% Service Class -0.10% Service Class Total Net Expenses 1.02% Service Class 0.81% Service Class Neuberger Berman Advisers Lincoln Variable Products Management Trust--LVIP SSgA S&P 500 Trust--Neuberger Berman Index Fund AMT Mid-Cap Growth Portfolio Management Fees 0.84% Class I 0.19% Standard Class 0.84% Class I 0.19% Service Class 12b-1 Fees 0.00% Class I 0.00% Standard Class 0.00% Class I 0.25% Service Class Other Expenses 0.15% Class I 0.06% Standard Class 0.15% Class I 0.06% Service Class Total Gross Expenses 0.99% Class I 0.25% Standard Class 0.99% Class I 0.50% Service Class Waivers/Reimbursements 0.00% Class I 0.00% Standard Class 0.00% Class I 0.00% Service Class Total Net Expenses 0.99% Class I 0.25% Standard Class 0.99% Class I 0.50% Service Class
11. The Section 26 Applicants propose the Substitutions as part of a continued and overall business plan by each
12. The Section 26 Applicants believe that eliminating investment option redundancy via the proposed Substitutions would result in a more consolidated and less confusing menu of investment options for investors. Since the proposed Substitutions involve consolidating duplicative investment options, the diversity of investment options available under the Contracts will not be adversely impacted. Furthermore, this consolidation of investment options would result in greater efficiency in administration of the Contracts because there will be fewer investment options to support, resulting in the availability of resources to apply elsewhere to the Contracts. Finally reducing overlapping investment options gives the Contracts the capacity to add other types of investment options.
13. The Section 26 Applicants submit that the Substitutions will, after implementation, simplify the prospectuses and related materials with respect to the Contracts and the investment options available through the Separate Accounts. By reducing the number of underlying mutual funds and mutual fund companies offered in the Contracts, the offering
14. Also, the proposed Substitutions involve substituting a
15. Contract Owners with Contract value allocated to the sub-accounts of the Existing Funds will experience the same or lower fund net annual operating expenses after the Substitutions as prior to the Substitutions, except for the following:
Existing funds Replacement funds AllianceBernstein Variable Products Lincoln Variable Products Trust--LVIP Series Fund--AllianceBernstein VPSMondrian International Value Fund : International Value Portfolio: Class B Service Class American Century Investment Variable Lincoln Variable Products Trust--LVIP Products--American Century VP BlackRock Inflation Protected BondInflation Protection Fund : Fund: Class I Standard Class Class II Service Class
16.
17. The Substitutions are designed to provide Contract Owners with the ability to continue their investment in similar investment options without interruption and at no additional cost to them. In this regard, the Insurance Companies have agreed to bear all expenses incurred in connection with the Substitutions and related filings and notices, including legal, accounting, brokerage, and other fees and expenses. Also, the Contract value of each Contract Owner impacted by the Substitutions will not change as a result of the Substitutions.
18. Prospectus supplements ("Pre-Substitution Notices") were sent to Contract Owners on
19. In addition to the Pre-Substitution Notice distributed to Contract Owners, within five business days after the Substitution Date, Contract Owners will be sent a written confirmation of the Substitutions in accordance with Rule 10b-10 under the Securities Exchange Act of 1934. The confirmation statement will restate the information set forth in the Pre-Substitution Notice.
20. As of the Substitution Date, a portion of the securities of the Existing Funds will be redeemed in kind and those securities received will be used to purchase shares of the Replacement Funds. The redemption of each
21. Contract Owners will not incur any fees or charges as a result of the proposed Substitutions, nor will their rights or insurance benefits or the Insurance Companies' obligations under the Contracts be altered in any way. All expenses incurred in connection with the proposed Substitutions, including any brokerage, legal, accounting, and other fees and expenses, will be paid by the Insurance Companies. In addition, the Substitutions will not result in adverse tax consequences to Contract Owners and will not alter any tax benefits associated with the Contracts. The proposed Substitutions will not cause the Contract fees and charges currently being paid by Contract Owners to be greater after the proposed Substitution than before the proposed Substitution. Redemptions and repurchases that occur in connection with effecting the Substitution will not count as a transfer for purposes of transfer limitations and fees that would otherwise be applicable under the terms of the Contracts. Consequently, no fees will be charged on transfers made to effectuate the Substitutions.
22. The Section 26 Applicants represent that, after the Substitution Date, the Replacement Funds will not change a Subadviser, add a new Subadviser, or otherwise rely on the Manager of Managers Order without first obtaining shareholder approval of the change in Subadviser, the new Subadviser, or the Fund's ability to add or to replace a Subadviser in reliance on the Manager of Managers Order. Additionally, the Section 26 Applicants represent that a prospectus for the relevant
Legal Analysis and Conditions
Section 26(c) Relief
1. The Section 26 Applicants request that the Commission issue an order pursuant to Section 26(c) of the 1940 Act approving the proposed substitutions. Section 26(c) of the 1940 Act makes it unlawful for the depositor of a registered unit investment trust that invests in the securities of a single issuer to substitute another security for such security without Commission approval.
2. The Section 26 Applicants have reserved the right under the Contracts to substitute shares of another underlying mutual fund for one of the current underlying mutual funds offered as an investment option under the Contracts. The Contract prospectuses disclose this right.
3.
4. In each Substitution, except the
5. Section 26 Applicants agree that for a period of two years following the Substitution date and for those Contracts with assets allocated to the
6. In addition, the Section 26 Applicants agree that, except with respect to the
7. The Section 26 Applicants submit that the proposed Substitutions are not of the type that Section 26 was designed to prevent: Overreaching on the part of the depositor by permanently impacting the investment allocations of the entire trust. In the current situation, the Contracts provide Contract Owners with investment discretion to allocate and reallocate their Contract value among the available underlying mutual funds. This flexibility provides Contract Owners with the ability to reallocate their assets at any time--either before the Substitution Date, or after the Substitution Date--if they do not wish to invest in the
Section 17(b) Relief
1. The Section 17 Applicants request that the Commission issue an order pursuant to Section 17(b) of the 1940 Act exempting them from the provisions of Section 17(a) of the 1940 Act to the extent necessary to permit them to carry out the In-Kind Transactions.
2. Section 17(a)(1) of the 1940 Act, in relevant part, generally prohibits any affiliated person of a registered investment company (or any affiliated person of such a person), acting as principal, from knowingly selling any security or other property to that company. Section 17(a)(2) of the 1940 Act generally prohibits the same persons, acting as principals, from knowingly purchasing any security or other property from the registered investment company.
3. Shares held by an insurance company separate account are legally owned by the insurance company. Thus, the Insurance Companies collectively own substantially all of the shares of the Trust. Accordingly, the Trust and its respective Trust Funds are arguably under the control of the Insurance Companies, as per Section 2(a)(9) of the 1940 Act (notwithstanding the fact that the Contract Owners are the beneficial owners of those Separate Account shares). If the Trust is under the common control of the Insurance Companies, then each
4. The Section 17 Applicants submit that the In-Kind Transactions, as described in the application, meet the conditions set forth in Section 17(b) of the 1940 Act.
5. Contract Owners' Contract values will not be adversely impacted or diluted because the In-Kind Transactions will be effected at the respective net asset values of the Existing Funds and the Replacement Funds, as described in each fund's registration statement and as required by Rule 22c-1 under the 1940 Act. The In-Kind Transactions will not change the dollar value of any Contract, the accumulation unit value or annuity unit value of any Contract, or the death benefit payable under any Contract. After the In-Kind Transactions, the value of a Separate Account's investment in a
6. Additionally, the Section 17 Applicants will cause the In-Kind Transactions to be implemented in compliance with the conditions set forth in Rule 17a-7 under the 1940 Act, except that the consideration paid for the securities being purchased or sold will not be in cash.
7. The proposed In-Kind Transactions will be effected based upon the independent current market price of the portfolio securities as specified in Rule 17a-7(b). Because, per the terms of Rule 17a-7(a), Rule 17a-7 is available only with respect to securities for which market quotations are readily available, the proposed In-Kind Transactions will include only securities for which market quotations are readily available on the Substitution Date. Further, the proposed In-Kind Transactions will be consistent with the policy of each registered investment company and separate series thereof participating in the In-Kind Transactions, as recited in the relevant registered investment company's registration statement and reports in accordance with Rule 17a-7(c). No brokerage commission, fee (except for any customary transfer fees), or other remuneration will be paid in connection with the proposed In-Kind Transactions as specified in Rule 17a-7(d). The Trust's
Although the proposed In-Kind Transactions will not comply with the cash consideration requirement of Rule 17a-7(a), the terms of the proposed In-Kind Transactions will offer to each of the relevant Existing Funds and each of the relevant Replacement Funds the same degree of protection from overreaching that Rule 17a-7 generally provides in connection with the purchase and sale of securities under that Rule in the ordinary course of business. Specifically, the Insurance Companies and their affiliates cannot effect the proposed In-Kind Transactions at a price that is disadvantageous to any
8. For those Existing Funds that will redeem their shares in-kind as part of the In-Kind Transactions, such transactions will be consistent with the investment policies of the
9. The Section 17 Applicants submit that, for all the reasons stated above: (1) The terms of the proposed In-Kind Transactions, including the consideration to be paid and received, are reasonable and fair to each of the relevant Replacement Funds, each of the relevant Existing Funds, and Contract Owners, and that the proposed In-Kind Transactions do not involve overreaching on the part of any person concerned; (2) the proposed In-Kind Transactions are, or will be, consistent with the policies of the relevant Replacement Funds and the relevant Existing Funds as stated in the relevant investment company's registration statement and reports filed under the 1940 Act; and (3) the proposed In-Kind Transactions are, or will be, consistent with the general purposes of the 1940 Act. The Section 17 Applicants maintain that the proposed In-Kind Transactions, as described herein, are consistent with the general purposes of the 1940 Act set forth in Section 1 of the 1940 Act. In particular, the proposed In-Kind Transactions do not present any conditions or abuses that the 1940 Act was designed to prevent.
Conclusion
For the reasons set forth in the application, the Applicants submit that the proposed Substitutions and related transactions meet the standards of Section 26(c) of the 1940 Act and are consistent with the standards of Section 17(b) of the 1940 Act and that the requested orders should be granted.
For the Commission, by the
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-09633 Filed 4-23-13;
BILLING CODE 8011-01-P
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