[Federal Register Volume 61, Number 173 (Thursday, September 5, 1996)]
[Notices]
[Pages 46880-46884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22626]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22189; File No. 812-10180]
The Lincoln National Life Insurance Company, et al.
August 29, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'' or
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: The Lincoln National Life Insurance Company (``Lincoln
Life''), Lincoln Life & Annuity Company of New York (``Lincoln Life of
NY''), Lincoln National Variable Annuity Account L (``Account L''),
Lincoln Life & Annuity Company of New York Variable Annuity Account L
(``Account L-NY), and LNC Equity Sales Corporation (``LNC'').
RELEVANT ACT SECTIONS: Order requested pursuant to Section 17(b) of the
1940 Act from Section 17(a) thereof, and pursuant to Section 11 of the
1940 Act.
SUMMARY OF APPLICATION: Applicants request an order approving: (i) the
transfer of assets from the VA-1 Separate Account of UNUM Life
Insurance Company of America (``UNUM VA-1 Separate Account'') to
Account L and Account L-NY, and from the VA-1 Separate Account of First
UNUM Life Insurance Company of America (``First UNUM VA-1 Separate
Account'') to Account L-NY; and (ii) the offer of exchange of interests
in the UNUM VA-1 Separate Account for interests in Account L and
Account L-NY, and the offer of exchange of interests in the First UNUM
VA-1 Separate Account for interests in Account L-NY, through the
assumption reinsurance by Lincoln Life and Lincoln Life of NY of group
variable annuity contracts issued by UNUM Life Insurance Company of
America (``UNUM'') and First UNUM Life Insurance Company of America
(``First UNUM'').
FILING DATE: The application was filed on June 3, 1996, and amended and
restated on August 28, 1996.
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
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 23,
1996, 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 writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Secretary of the SEC.
ADDRESSES: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, John L. Steinkamp, Esq., The Lincoln National Life
Insurance Company, 1300 South Clinton Street, P.O. Box 1110, Fort
Wayne, Indiana 46801.
FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, Staff Attorney,
or Patrice M. Pitts, Special Counsel, 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 may be obtained for a fee from
the Public Reference Branch of the SEC.
Applicants' Representations
1. Lincoln Life, a stock life insurance company organized in
Indiana in 1905, is principally engaged in the sale of life insurance
and annuity policies. Lincoln Life is wholly-owned by Lincoln National
Corporation, a publicly-held insurance and financial services company.
2. Lincoln Life of NY is a stock life insurance company
incorporated under the laws of New York in 1996. Lincoln Life of NY is
principally engaged in the sale of life insurance and annuity policies
in the State of New York, and is a wholly-owned subsidiary of Lincoln
Life.
3. LNC will serve as the principal underwriter and distributor of
group variable annuity contracts issued through Account L (the
``Lincoln Life Contracts'') and group variable annuity contracts issued
through Account L-NY (the ``Lincoln Life of NY Contracts''). LNC is
registered under the Securities Exchange Act of 1934 as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.
LNC is a wholly-owned subsidiary of Lincoln National Corporation.
4. Account L, a separate account established in Indiana on April
29, 1996, pursuant to a resolution of the board of directors of Lincoln
Life, will be the funding medium for Lincoln Life Contracts.
5. Account L-NY, a separate account established in New York on July
24, 1996, pursuant to a resolution of the board of directors of Lincoln
Life of NY, will be the funding medium for Lincoln Life of New
Contracts
6. Lincoln Life and UNUM have entered into an amended and restated
asset transfer and acquisition agree, dated as of January 24, 1996 (the
``UNUM Acquisition Agreement''), which provides for the sale of UNUM's
tax-sheltered annuity business to Lincoln Life and the assumption of
UNUM's obligations under its group variable annuity contracts by
Lincoln Life. The UNUM Acquisition Agreement provides that UNUM's group
variable annuity contracts issued in states other than New York (the
``UNUM Non-NY Contracts'') will be assumed directly by Lincoln Life,
and that UNUM's group variable annuity contracts issued in New York
(the ``UNUM NY Contracts'') will be assumed by Lincoln Life of NY.\1\
The UNUM Acquisition Agreement also provides that, for a limited period
of time after the acquisition is effected and at Lincoln Life's
request, UNUM will issue in certain states group variable annuity
contracts of the type being assumed by Lincoln Life. The acquisition is
to be effected on September 30, 1996, subject to certain state
insurance regulatory approvals (the ``Closing Date'').
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\1\ UNUM formerly issued contracts in New York but no longer
does business in that state.
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7. Lincoln Life, on behalf of Lincoln Life of NY, has entered into
a virtually identical acquisition agreement with First UNUM dated March
20, 1996 (the ``First UNUM Acquisition Agreement''), which provides for
the sale of First UNUM's tax-sheltered annuity business to Lincoln Life
of NY and the assumption of First UNUM's obligations under its group
variable annuity contracts (the ``First UNUM Contracts'') by Lincoln
Life of NY. The First UNUM Acquisition Agreement also provides that for
a limited period of time after the acquisition is effected (also on the
Closing Date), and at the request of Lincoln Life of NY, First UNUM
will issue in New York group variable annuity contracts of the type
being assumed by Lincoln Life of NY.
[[Page 46881]]
8. Assumption of the UNUM NY Contracts, the UNUM Non-NY Contracts,
and the First UNUM Contracts by Lincoln Life and Lincoln Life of NY
will occur sometime after the Closing Date, depending on when
applicable state insurance department approval and other regulatory
approvals are obtained, and subject to giving contractholders and
participants the opportunity to opt-out of the transfer to Lincoln Life
Contracts or Lincoln Life of NY Contracts. Any participants who opt-out
will have either UNUM or First UNUM as the insurer; those participants
who do not opt-out will have either Lincoln Life or Lincoln Life of NY
as the insurer.
9. The UNUM Non-NY Contracts and the UNUM NY Contracts (together,
the ``UNUM Contracts'') represent three types of group variable annuity
contracts sold to retirement programs meeting the requirements of
Section 403(b) of the Internal Revenue Code of 1986, as amended (the
``Code''). The three types of First UNUM Contracts correspond with the
three types of UNUM Contracts, except where differences are required by
New York law.
10. Each type of UNUM Contract and each type of First UNUM Contract
is registered separately under the Securities Act of 1933 (the ``1933
Act''). The three types of UNUM Contracts are funded by the UNUM VA-1
Separate Account; the three types of First UNUM Contracts are funded by
the First UNUM VA-1 Separate Account. Both the UNUM VA-1 Separate
Account and the First UNUM VA-1 Separate Account are registered with
the Commission under the 1940 Act as unit investment trusts. Each of
these separate accounts consists of nine subaccounts; each subaccount
invests exclusively in a matching underlying fund.
11. Lincoln Life will enter into administrative services agreements
with both UNUM and First UNUM under which, as of the Closing Date,
Lincoln Life will be solely responsible for administering the UNUM
Contracts, the First UNUM Contracts, the UNUM VA-1 Separate Account,
and the First UNUM VA-1 Separate Account.
12. Additionally, Lincoln Life will enter into an indemnity
reinsurance agreement (the ``Lincoln Life Indemnity Agreement'') with
UNUM which provides for the indemnity reinsurance by Lincoln Life of
the general account liabilities of UNUM with respect to the UNUM Non-NY
Contracts as of the Closing Date, pending assumption of those contracts
by Lincoln Life. Lincoln Life of NY will enter into similar indemnity
reinsurance agreements with both UNUM and First UNUM with respect to
the UNUM NY Contracts and the First UNUM Contracts (the ``Lincoln Life
of NY Indemnity Agreements,'' together with the Lincoln Life Indemnity
Agreement, the ``Indemnity Reinsurance Agreements'').
13. Furthermore, Lincoln Life will enter into an assumption
reinsurance agreement with UNUM pursuant to which Lincoln Life will
assumptively reinsure all of UNUM's obligations under the UNUM Non-NY
Contracts. Lincoln Life of NY will enter into virtually identical
assumption reinsurance agreements with UNUM and First UNUM pursuant to
which Lincoln Life of NY will assumptively reinsure all of UNUM's and
First UNUM's obligations under the UNUM NY Contracts and the First UNUM
Contracts, respectively. Upon novation, the assets supporting the
variable benefits of the reinsured UNUM Non-NY Contracts will be
transferred from the UNUM VA-1 Separate Account to Account L, which
thereafter will support the relevant UNUM Non-NY Contracts; Lincoln
Life will assume all obligations and liabilities of UNUM under those
contracts. Similarly, all assets supporting the variable benefits of
the reinsured UNUM NY Contracts and First UNUM Contracts will be
transferred from the UNUM VA-1 Separate Account and the First UNUM VA-1
Separate Account, respectively, to Account L-NY, which thereafter will
support the reinsured UNUM NY Contracts and First UNUM Contracts;
Lincoln Life of NY will assume all obligations and liabilities of UNUM
and First UNUM under those contracts. (The transactions implementing
the various assumption reinsurance agreements described above are
referred to herein collectively as the ``Reinsurance Transactions.'')
14. The Reinsurance Transactions are subject to certain state
insurance regulatory approvals and, in certain states, may require the
affirmative consent of contractholders and individual participants.
Each UNUM and First UNUM contractholder (collectively,
``Contractholders'') will be given the right to opt-in or opt-out of
the Reinsurance Transaction; these options will be described in a
notice that will be sent to Contractholders. The notice will be
accompanied by a rejection or acceptance form, a certificate of
assumption, and a definitive prospectus for the applicable Lincoln Life
Contract or Lincoln Life of NY Contract. The notice will: (i) state
that the underlying assumption reinsurance transaction has been
approved by the insurance departments of the domiciliary states of the
insurance companies that are parties to the assumption reinsurance
agreement; (ii) describe the options available to the Contractholder to
either accept the transfer of the Contract from UNUM or First UNUM to
Lincoln Life or Lincoln Life of NY as appropriate, or reject the
proposed transfer by completing and returning the rejection form; and
(iii) state that Lincoln Life will administer the Contract whether or
not the Contractholder accepts the assumption reinsurance. If the
Contractholder accepts the assumption reinsurance, a certificate
notice, a rejection or acceptance form, a certificate of assumption,
and a definitive prospectus for the applicable Lincoln Life Contract or
Lincoln Life of NY Contract will be sent to each participant under the
respective contract, giving those participants a similar opportunity to
accept or reject the assumption reinsurance (i.e., an ``opt-out
right'').
15. Upon the assumption reinsurance of each UNUM Contract and First
UNUM Contract (each now a ``Novated Contract''), Lincoln Life or
Lincoln Life on NY will assume all of UNUM's or First UNUM's
liabilities under the Novated Contract. Any premiums from participants
who do not opt-out of the Reinsurance Transactions will be sent
directly to either Lincoln Life or Lincoln Life of NY for allocation to
Account L or Account L-NY, as appropriate. If Contractholders or
participants reject the assumption reinsurance, premiums will be sent
to the UNUM VA-1 Separate Account or First UNUM VA-1 Separate Account,
as appropriate. Accordingly, whether Contractholders or participants
opt-in or opt-out of the Reinsurance Transactions, Contractholders will
deal directly with Lincoln Life as the administrator for the UNUM
Contracts and the First UNUM Contracts, as well as for the Lincoln Life
Contracts and the Lincoln Life of NY Contracts.
16. The Novated Contracts will be identical to the relevant UNUM
Contracts and First UNUM Contracts, but for the separate account
supporting variable contract benefits and the identity of the depositor
for such separate account. The same underlying funds will be available
under the Novated Contracts as are available under the UNUM Contracts
and the First UNUM Contracts. Lincoln Life will establish accumulation
units in its separate account for the Novated Contracts with the same
values as those in the UNUM VA-1 Separate Account for the UNUM Non-NY
Contracts. Likewise, Lincoln Life of NY will establish accumulation
units in its
[[Page 46882]]
separate account for the Novated Contracts with the same values as
those in the UNUM VA-1 Separate Account for the UNUM NY Contracts.\2\
Since the accumulation unit values will be based on the net asset
values of the same underlying funds, and will reflect identical
deductions for asset-based charges, the accumulation unit values of the
UNUM VA-1 Separate Account for the UNUM Non-NY Contracts and the First
UNUM VA-1 Separate Account for the First UNUM Contracts that are not
assumed by Lincoln Life or Lincoln Life of NY will be identical to the
corresponding values in Account L and Account L-NY for the Novated
Contracts for each valuation period after the Reinsurance Transactions
have been effected.
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\2\ Applicants state that because of differences in accumulation
unit values between the UNUM NY Contracts and the First UNUM
Contracts, the accumulation unit values in Account L-NY will not
correspond to the accumulation unit values in the First UNUM VA-1
Separate Account for the First UNUM Contracts. The number of
accumulation units will be adjusted so that for the First UNUM
Contracts that are reinsured, participant interests under such
contracts will not be diluted as a result of the reinsurance.
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17. The Reinsurance Transactions will be carried out by
transferring supporting underlying fund shares from the UNUM VA-1
Separate Account or First UNUM VA-1 Separate Account L or Account L-NY,
as appropriate, as of the close of business on the day the reinsurance
is effected. Therefore, there will be no interruption of investment of
contract value in the underlying funds. No charge or expense will be
incurred by the UNUM VA-1 Separate Account, the First UNUM VA-1
Separate Account, Account L, Account L-NY, or the underlying funds in
connection with the transfer of shares of the underlying funds.
Accordingly, the contract values under the Novated Contracts will be
the same as they would have been under the corresponding UNUM Contracts
and First UNUM Contracts had the Reinsurance Transactions not been
effected. Finally, Lincoln Life and Lincoln Life of NY will not assess
any charge as a result of the Reinsurance Transactions.
18. If either the Contractholder or participant exercises opt-out
rights, the participant's interest in the UNUM Contract or the First
UNUM Contract will not be reinsured with Lincoln Life or Lincoln Life
of NY, and the assets supporting the variable benefits of such
participant's interest in such contract will remain in either the UNUM
VA-1 Separate Account or First UNUM VA-1 Separate Account, as
appropriate. In that event, UNUM and First UNUM will continue to accept
purchase payments under the terms of their respective contracts.
19. There will be no adverse tax consequences to Contractholders
and participants as a result of the assumption reinsurance of the UNUM
Contracts and the First UNUM Contracts or the exercise of any opt-out
rights in connection with the Reinsurance Transactions.
20. UNUM has agreed to continue to issue its contracts in each
state except New York for up to 18 months after the Closing Date in the
event Lincoln Life has not received policy form approval or other
necessary regulatory approvals to issue the Lincoln Life Contracts to
the residents of a particular state. LNC will be the principal
underwriter for such sales.
21. Lincoln Life and UNUM will enter into a coinsurance and
assumption agreement (the ``UNUM Coinsurance Agreement'') which will
provide for the indemnity reinsurance, on a coinsurance basis, by
Lincoln Life of the general account obligations of UNUM under the UNUM
Contracts issued in states where Lincoln Life has not yet received the
necessary regulatory approvals to issue its Contracts (the ``UNUM
Coinsured Contracts''). Lincoln Life will assume by novation the UNUM
Coinsured Contracts on a state-by-state basis as Lincoln Life receives
the necessary regulatory approvals. Lincoln Life of NY will enter into
a similar arrangement and coinsurance and assumption agreement with
First UNUM (the ``First UNUM Coinsurance Agreement''). (First UNUM
Contracts issued under such an arrangement are referred to herein as
the ``First UNUM Coinsured Contracts.'') LNC will be the principal
underwriter of the First UNUM Coinsured Contracts. The First UNUM
Coinsured Contracts will be assumed by Lincoln Life of NY as the
necessary state approvals are obtained. When the UNUM Coinsured
Contracts and First UNUM Coinsured Contracts and certificates
thereunder are issued, the Contractholder and participants will consent
to the assumption of the contract and certificate by Lincoln Life or
Lincoln Life of NY.
Applicants' Legal Analysis and Conditions
Section 17(b) of the 1940 Act
1. Section 2(a)(3) of the 1940 Act defines ``affiliated person'' of
another person to include any person directly or indirectly
controlling, controlled by, or under common control with such other
person. Section 2(a)(9) of the 1940 Act defines control as the power to
exercise controlling influence over management or policies of a
company. Section 17(a)(1) of the 1940 Act, in pertinent part, prohibits
any affiliated person of or principal underwriter for a registered
investment company, or any affiliated person of such a person, acting
as principal, to knowingly sell to or purchase from such registered
company any security or other property. Section 17(b) of the 1940 Act
provides that a person may apply for an order of exemption from the
provisions of Section 17(a) and that the Commission shall grant such an
application if the evidence establishes that:
(i) the terms of the proposed transaction, including the conditions
to be paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned;
(ii) the proposed transaction is consistent with the policy of each
registered investment company concerned; and (iii) the proposed
transaction is consistent with the general purposes of the 1940 Act.
2. After the Closing Date, LNC will serve as principal underwriter
for the UNUM VA-1 Separate Account and the First UNUM VA-1 Separate
Account. Applicants submit that LNC and Lincoln Life, as wholly-owned
subsidiaries of Lincoln National Corporation, may be deemed to be under
common control for purposes of Section 2(a)(3) of the 1940 Act and,
therefore, affiliates of one another. Similarly, Lincoln Life of NY, as
an indirect wholly-owned subsidiary of Lincoln National Corporation,
may be deemed to be under common control with LNC and, therefore, an
affiliate of LNC. As such, Lincoln Life and Lincoln Life of NY, as
affiliates of LNC, would be deemed for purposes of Section 17(a) to be
affiliated persons of the principal underwriter of the UNUM VA-1
Separate Account and the First UNUM VA-1 Separate Account.
3. Because of these relationships, Applicants submit, the
Reinsurance Transactions may be deemed to involve purchase and/or sale
transactions between a registered investment company and an affiliated
person of its principal underwriter in that the Reinsurance
Transactions will be effected by a transfer of separate account assets
(i.e., shares of the underlying funds) from: (i) the UNUM VA-1 Separate
Account to Account L with regard to the UNUM Non-NY Contracts and the
UNUM Coinsured Contracts; (ii) the UNUM VA-1 Separate Account to
Account L-NY with regard to the UNUM NY Contracts; and (iii) the First
UNUM VA-1 Separate Account to Account L-NY with regard to the First
UNUM Contracts and the First UNUM
[[Page 46883]]
Coinsured Contracts. Accordingly, Applicants suggest that these
transfers may be prohibited by Section 17(a) of the 1940 Act in the
absence of an exemption pursuant to Section 17(b) thereof, and note
that none of the rules granting self-executing exemptions under Section
17(a) appear to be relevant to the Reinsurance Transactions.
4. Applicants state that the 1940 Act does not provide any specific
standards or guidelines for the Commission to apply in determining
whether a transaction being considered under Section 17(b) is
reasonable and fair and does not involve overreaching. Applicants
submit that the Reinsurance Transactions are reasonable and fair
because: (i) the contractual rights of Contractholders and participants
vis-a-vis the separate account supporting the variable benefits of
their contracts will not change as a result of the Reinsurance
Transactions; (ii) the same underlying funds will be available after
the Reinsurance Transactions; (iii) no charges will be imposed in
connection with effecting the Reinsurance Transactions; (iv) the
charges under the contracts will not change after the Reinsurance
Transactions; and (v) the respective operations and objectives of the
Lincoln Life and Lincoln Life of NY separate accounts will be identical
to the operations and objectives of the UNUM and First UNUM separate
accounts.
5. Applicants assert that the Reinsurance Transactions do not
involve overreaching on the part of any person concerned. Applicants
represent that neither Lincoln Life nor Lincoln Life of NY will impose
any charge in connection with the Reinsurance Transactions, and that
participants' interests will not be diluted as a result of the
Reinsurance Transactions. Applicants also note that the Reinsurance
Transactions will have been subjected to regulatory approval in most
states before being implemented.
6. Section 17(b) requires that the proposed transaction be
consistent with the policy of each registered investment company
concerned, as recited in its registration statement and reports filed
under the 1940 Act. Applicants represent that the UNUM VA-1 Separate
Account, the First UNUM VA-1 Separate Account, Account L and Account L-
NY have the same policies insofar as the Novated Contracts are
concerned. In particular, Applicants represent that because the assets
underlying the Novated Contracts will continue to be invested in shares
of the same underlying funds--in the same manner and subject to the
same rules--before and after the Reinsurance Transactions have been
effected, the assets underlying the Novated Contracts will continue to
be invested according to the investment policies recited in the
registration statements for the UNUM Contracts and the First UNUM
Contracts.
7. Applicants assert that the Reinsurance Transactions are
consistent with the general purposes of the 1940 Act, and do not
present any of the issues or abuses that Section 17(a), in particular,
and the 1940 Act, in general, were designed to prevent. The interests
of participants will not be adversely effected by the reinsurance of
their contracts: the terms and provisions of the Novated Contracts will
remain unchanged and participants' interests will be unaffected by the
Reinsurance Transactions. Further, Contractholders and participants
will be provided with the definitive prospectus for the Novated
Contracts, and will thereby be informed about Lincoln Life, Lincoln
Life of NY, and their respective separate accounts.
Section 11 of the 1940 Act
8. Section 11(a) of the 1940 Act provides, in relevant part, that
it shall be unlawful for any registered open-end management investment
company (a ``fund'') or its principal underwriter to make an offer to a
shareholder of that fund or of another fund to exchange his or her
security for a security in the same or another fund on a basis other
than the relative net asset values of the securities to be exchanged,
unless the terms of the offer have first been submitted to and approved
by the Commission or the offer compiles with the Commission's rules.
Section 11(c) makes this prohibition applicable, regardless of the
basis of the exchange, to any type of offer of exchange of the
securities of a registered unit investment trust for the securities of
any other investment company. In other words, prior Commission approval
is required for exchange offers subject to Section 11(c) even if made
on the basis of relative net asset values.
9. Rule 11a-2 under the 1940 Act permits registered insurance
company separate accounts and their principal underwriters to make
certain exchange offers to holders of variable contracts supported by
separate accounts having the same or an affiliated insurance company
depositor or sponsor without prior Commission approval, provided that
certain conditions are met. With respect to variable annuity contracts,
these conditions require that: (i) the exchange be made on the basis of
the relative net asset values of the securities to be exchanged (less
any administrative fee disclosed in the offering account's registration
statement and certain front-end sales loads); and (ii) any deferred
sales loads which may be imposed be calculated and deducted to give
full credit for the sales load paid under the exchanged security.
10. Applicants note that Section 11 does not set forth specific
standards for Commission approval of exchange offers. Applicants
maintain that the public policy underlying Section 11 may be inferred
from Section 1(b)(1) of the 1940 Act, which declares that the national
public interest and the interests of investors are adversely affected
when, among other things, investors exchange securities issued by
investment companies without ``adequate, accurate, and explicit
information, fairly presented, concerning the character of such
securities and the circumstances, policies, and financial
responsibility of such [investment] companies and their management.''
Applicants also maintain that the legislative history of the 1940 Act
indicates that Section 11(a) is designed to provide assurance that
exchange offers are not being proposed ``solely for the purpose of
exacting additional selling charges and profits'' from investors by
inducing them to ``switch'' one security for another.
11. Applicants represent that, as soon as practicable following the
receipt of necessary state insurance department approvals and other
regulatory approvals: UNUM will transfer its liabilities under the UNUM
Non-NY Contracts and the UNUM Coinsured Contracts to Lincoln Life
pursuant to assumption reinsurance agreements and the UNUM Coinsurance
Agreement; UNUM will transfer its liabilities under the UNUM NY
Contracts to Lincoln Life of NY pursuant to an assumption reinsurance
agreement; and First UNUM will transfer its liabilities under the First
UNUM Contracts and the First UNUM Coinsured Contracts to Lincoln Life
of NY pursuant to an assumption reinsurance agreement and the First
UNUM Coinsurance Agreement.
12. Applicants state that for participants who opt-in or are deemed
to have opted-in to the Reinsurance Transactions, assets held in the
UNUM VA-1 Separate Account will be transferred to Account L or Account
L-NY, as appropriate, and assets held in the First UNUM VA-1 Separate
Account will be transferred to Account L-NY. Thus, Applicants submit, a
participant under a UNUM Non-NY Contract or a UNUM Coinsured Contract
who opts-in or is deemed to have opted-in to the Reinsurance
Transactions, in effect, will be exchanging his or her interest in such
[[Page 46884]]
contracts for a Lincoln Life Contract, and a participant under a UNUM
NY Contract who opts-in or is deemed to have opted-in to the
Reinsurance Transactions, in effect, will be exchanging his or her
interest in a UNUM NY Contract for a Lincoln Life of NY Contract.
Likewise, Applicants submit, the participant under a First UNUM
Contract or a First UNUM Coinsured Contract who opt-in or is deemed to
have opted-in to the Reinsurance Transactions, in effect, will be
exchanging his or her interest in a First UNUM Contract or a First UNUM
Coinsured Contract for an interest in a Lincoln Life of NY Contract.
Applicants state that the granting of a right to make an election to
opt-in or opt-out of the Reinsurance Transactions may be considered an
offer to exchange securities of one unit investment trust for another
unit investment trust, for purposes of Section 11 of the 1940 Act.
13. Applicants represent that the terms of the exchange offers
proposed herein do not involve any of the practices Section 11 of the
1940 Act was designed to prevent, and are fair to Contractholders and
participants, because: (i) participants will be fully apprised of their
rights in connection with the exchange offers and will receive
definitive prospectuses for the relevant Lincoln Life Contract or
Lincoln Life of NY Contract; (ii) no charges will be imposed in
connection with effecting the exchanges and, therefore, the exchanges
will be made on the basis of the relative net asset value; (iii)
participants who opt-in to the Reinsurance Transactions will have their
interests assumptively reinsured under a materially similar Lincoln
Life Contract or Lincoln Life of NY Contract with an identical sales
charge structure; (iv) when appropriate, participants under a UNUM
Contract or First UNUM Contract will receive credit for the time
invested in such contract for purposes of determining any applicable
sales charge under the corresponding Lincoln Life Contract or Lincoln
Life of NY Contract; (v) the same underlying funds will be available
upon reinsurance and, thus, there will be no interruption in the
underlying funds serving as an investment media for the contracts; and
(vi) participants who do not wish to accept the assumption reinsurance
by Lincoln Life or Lincoln Life of NY may elect to opt-out of the
Reinsurance Transactions, and their existing contractual rights under
the UNUM Contract or First UNUM Contract will remain unchanged.
Applicants also assert that there will be no adverse tax consequences
to Contractholders and participants as a result of the assumption
reinsurance of their contracts or the exercise of any opt-out rights in
connection with the proposed exchange offers.
14. Applicants submit that if, through common ownership, UNUM were
affiliated with Lincoln Life and UNUM and First UNUM were affiliated
with Lincoln Life of NY, Rule 11a-2 would permit the proposed exchange
offers to be made without the prior approval of the Commission.
Applicants submit that the proposed exchange offers between non-
affiliates--which would be permitted under Rule 11a-2 if the companies
were affiliated--should not be held to a more stringent standard than
Rule 11a-2.
Conclusion
For the reasons set forth above, Applicants represent that the
requested exemptions satisfy the standards of Section 17(b) of the 1940
Act, and that the terms of the proposed exchange offers satisfy the
standards of Section 11 of the 1940 Act. Applicants, therefore, request
that the Commission issue an order granting the requested exemptions
and approving the proposed exchange offers.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22626 Filed 9-4-96; 8:45 am]
BILLING CODE 8010-01-M
