[Federal Register Volume 61, Number 199 (Friday, October 11, 1996)]
[Notices]
[Pages 53469-53472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26131]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22263; No. 812-10250]
Security First Life Insurance Company et al.; Exemption
Application
October 4, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').
[[Page 53470]]
ACTION: Notice of application for an exemption pursuant to the
Investment Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Security First Life Insurance Company (``Security First
Life''), Security First Life Separate Account A (``Separate Account
A''), Fidelity Standard Life Insurance Company (``Fidelity Standard
Life''), Fidelity Standard Life Separate Account (``Fidelity Separate
Account'') and Security First Financial, Inc.
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 17(b)
granting an exemption from the provisions of Section 17(a).
SUMMARY OF APPLICATION: Applicants seek exemptive relief to permit the
transfer of assets and liabilities from Fidelity Separate Account to
Separate Account A (the ``Proposed Transaction'') in connection with
the reinsurance by Security First Life of certain group flexible
payment variable annuity contracts issued by Fidelity Separate Account
(the ``Fidelity Life Contracts'').\1\
\1\ The Applicants also requested exemptive relief, pursuant to
Section 6(c) of the 1940 Act, from Sections 26(a)(2)(C) and 27(c)(2)
thereof, to the extent necessary to deduct mortality and expense
risk and distribution risk charges under the Fidelity Life Contracts
to be issued through Separate Account A following the Proposed
Transaction. The passage of H.R. 3005--the National Securities
Markets Improved Act of 1996--obviates the Applicants' need for
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.
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FILING DATE: The application was filed on July 12, 1996.
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 must be received by the
Commission by 5:30 p.m. on October 29, 1996, 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 5th
Street, N.W., Washington, D.C. 20549. Applicants, c/o Richard C.
Pearson, Senior Vice President and General Counsel, Security First Life
Insurance Company, 11365 West Olympic Boulevard, Los Angeles,
California 90064.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Senior Counsel, 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 is available for a fee from the
Public Reference Branch of the Commission.
Applicants' Representations
1. Security First Life, a stock life insurance company organized
pursuant to the laws of the State of Delaware, is licensed to conduct
life and annuity insurance business in the District of Columbia and all
states except New York. Security First Life is a wholly-owned
subsidiary of Security First Group, Inc., which is wholly-owned by
London Insurance Group, a Canadian insurance service corporation that
owns and controls, directly or through subsidiary companies, Security
First Financial, Inc.
2. Fidelity Standard Life, a stock life insurance company organized
pursuant to the laws of the State of Delaware, is licensed to conduct
life and annuity insurance business in 49 states and the District of
Columbia. All of the outstanding shares of Fidelity Standard Life are
owned by Security First Life.
3. Security First Life established Separate Account A pursuant to
the laws of the State of Delaware to fund variable annuity contracts
(the ``Security First Life Contracts,'' together with the Fidelity Life
Contracts, the ``Contracts''). Separate Account A is registered
pursuant to the 1940 Act as a unit investment trust, and various
Security First Life Contracts are registered pursuant to the Securities
Act of 1933 (the ``1933 Act'').
4. Fidelity Standard Life established the Fidelity Separate Account
pursuant to the laws of the State of Delaware to fund variable annuity
contracts. The Fidelity Separate Account is registered pursuant to the
1940 Act as a unit investment trust, and the Fidelity Life Contracts
are registered pursuant to the 1933 Act.
5. The assets of Separate Account A and Fidelity Separate Account
are owned by Security First Life and Fidelity Standard Life,
respectively, but are held separately from all other assets of the
respective insurer for the benefit of owners of, and the persons
entitled to payments under, the Contracts (``Participants'').
6. The Fidelity Separate Account and Separate Account A are both
divided into series, each of which invests in separate series of
underlying open-end management investment companies (``Funds''). The
Funds are registered pursuant to the 1940 Act as diversified open-end
management investment companies, and the shares they have issued are
registered pursuant to the 1933 Act.
7. Security First Financial, Inc. is the principal underwriter for
both the Security First Life Contracts and the Fidelity Life Contracts.
Security First Financial, Inc. is registered as a broker-dealer
pursuant to the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc.
8. The Fidelity Life Contract is substantially identical and in
most material contractual respects to one of the Security First Life
Contracts, except that the Fidelity Life Contract is issued by Fidelity
Separate Account. The Fidelity Life Contract is a group contract
designed primarily for use by individuals in retirement plans which
receive favorable tax treatment under section 403(b) of the Internal
Revenue Code; each Participant is issued a certificate indicating his
or her rights and benefits under the group contract. When used with
respect to the Fidelity Life Contracts, ``Contract'' includes
``Certificates'' and ``Owner'' (defined below) refers to a Participant
in the group contract.
9. The Proposed Transaction is one of a series of transactions
involving Fidelity Standard Life and Security First Life, which will
result in substantially all of the assets and liabilities of Fidelity
Standard Life being transferred to Security First Life, and the
remaining assets (consisting of the minimum capital necessary to
maintain the insurance licenses of Fidelity Standard Life) being
transferred to an unrelated third party through a sale of all of the
voting securities of Fidelity Standard Life.
10. Security First Life and Fidelity Standard Life will enter into
an assumption reinsurance agreement providing for the transfer to
Security First Life of nearly all the assets and liabilities of
Fidelity Standard Life. Security First Life will, pursuant to the
assumption reinsurance agreement, assume legal ownership of the assets
of Fidelity Separate Account and become responsible for the
satisfaction of all liabilities and obligations arising under the
Fidelity Life Contracts outstanding at the time of the transaction.
11. Under the Proposed Transaction, Security First Life will become
the depositor of the separate account that funds the former Fidelity
Life Contract. Those former Fidelity Life Contracts, when offered
through a Security First
[[Page 53471]]
Life separate account, will have the same principal underwriter and
will invest in shares of the same Funds as the series of the Fidelity
Separate Account presently do.
12. To avoid the administrative duplication that would result from
maintaining two separate accounts--namely, Separate Account A and a
newly formed Security First Life separate account funding the former
Fidelity Separate Account contracts--Security First Life plans to merge
Separate Account A and the Fidelity Separate Account. To this end,
Security First Life will transfer the assets of Fidelity Separate
Account into Separate Account A. After that transfer, Separate Account
A will support: (a) the Security First Life Contracts; (b) the former
Fidelity Life Contracts (i.e., those originally issued by the Fidelity
Separate Account); and (c) any Contracts issued by Security First Life
subsequent to the effective date of the Proposed Transaction.
13. The Proposed Transaction will not result in a change in the
value of the subaccount units (either accumulation or annuity units)
involved or in the account values of Participants. The Proposed
Transaction also will not affect the net asset value of any units of
any series; the net asset values for the series of the newly created
subaccount of Separate Account A immediately after the transaction will
be identical to the net values for the series of the Fidelity Separate
Account immediately prior to the transaction.
14. All costs of the Proposed Transaction will be borne by Security
First Life and not by owners of Contracts (``Owners''). No charges will
be imposed on Owners and no deductions from their account values will
be made.
15. The Proposed Transaction and the other transactions related to
the sale of Fidelity Standard Life will be approved in advance by the
respective Boards of Directors of Security First Life and Fidelity
Standard Life. Prior approval of the Proposed Transaction will be
obtained from the Delaware Insurance Department and any other
applicable regulatory authority. Delaware insurance law does not
require approval of the Proposed Transaction by Owners. To the extent
notification to Owners is required pursuant to generally applicable
state insurance laws relating to assumption reinsurance, it will be
provided.
16. Immediately following the Proposed Transaction, the assets and
liabilities that comprise Separate Account A will remain physically and
legally segregated from any other business of Security First Life.
Separate Account A will continue to be a unit investment trust
registered pursuant to the 1940 Act.
17. The Proposed Transaction will not affect the Funds or the
relationship of any of the affected Owners to the Funds. The Funds will
not be parties to the Proposed Transaction, except that when the
transaction is completed the sales agreement between Fidelity Standard
Life and the Funds will be terminated and replaced with the existing
agreements between Security First Life and the Funds. The investment
objectives, policies and restrictions of the Funds will not be changed
by virtue of the Proposed Transaction. There will be no change in the
investment advisers (or sub-advisers) for the Funds, nor any change in
the assets of the Funds or the charges imposed on the Funds or on their
shareholders, in connection with, or by virtue of, the Proposed
Transaction or the other related transactions.
18. The succession of Security First Life to Fidelity Standard Life
as the insurance company issuing the Contracts will not dilute or
otherwise adversely affect the economic interests of the Owners. The
only change discernible to an Owner as a result of the Proposed
Transaction will be change in the identity of the depositor of the
separate account.
19. Following the Proposed Transaction, the fixed guarantee
obligations which are not allocated to Separate Account A (e.g.,
minimum death benefit and fixed account accumulations) will be
supported by the general assets of Security First Life which, based on
financial information as of December 31, 1995, greatly exceed those of
Fidelity Standard Life.
20. Security First Life will accept additional payments under the
currently outstanding Fidelity Life Contracts. Security First Life also
will continue to offer through Separate Account A other variable
annuity contracts that are substantially similar to the Fidelity Life
Contracts.
21. To reflect the transfer of assets supporting the Fidelity Life
Contracts to Separate Account A, Security First Life will file a new
registration statement for the Contracts pursuant to the 1933 Act and
will amend the registration statement for Separate Account A pursuant
to the 1940 Act. Once the new 1933 Act registration statement becomes
effective, Security First Life will distribute copies of the prospectus
contained therein to owners of the currently outstanding Fidelity Life
Contracts.
22. In assumptively reinsuring the Fidelity Life Contracts,
Security First Life will be bound by the terms of the reinsured
Fidelity Life Contracts.
Applicants' Legal Analysis
1. Section 17(a)(1) of the 1940 Act, in relevant part, prohibits
any affiliated person of a registered investment company, or any
affiliated person of such a person, from knowingly selling any
securities or other property to such registered investment company.
Section 17(a)(2) of the 1940 Act generally prohibits such persons from
knowingly purchasing any security or other property from the registered
investment company.
2. Section 2(a)(3) of the 1940 Act defines an ``affiliated person''
of another person to include any person directly or indirectly
controlling, controlled by, or under common control with such other
person. Fidelity Separate Account and Separate Account A may be deemed
to be under the common control of Security First Life, which is
currently the depositor of Separate Account A.
3. Because of this relationship, the transfer of assets from
Fidelity Separate Account to Separate Account A may be deemed to
involve purchase and/or sale transactions between a registered
investment company and an affiliate, in contravention of Section 17(a).
Accordingly, applicants request an exemption from Section 17(a) of the
1940 Act, pursuant to Section 17(b) thereof, to permit the Proposed
Transaction.
4. Section 17(b) of the 1940 Act provides that a person may apply
for an exemption from the provisions of Section 17(a), and that the
Commission shall grant such an application if evidence establishes
that:
(a) 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;
(b) The proposed transaction is consistent with the policy of each
registered investment company concerned, as recited in its registration
statement and reports filed pursuant to the 1940 Act; and
(c) The proposed transaction is consistent with the general
purposes of the 1940 Act.
5. Applicants assert that 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. The purpose of the transfer is to consolidate into a single
separate account two basically identical separate
[[Page 53472]]
accounts that issue substantially identical contracts, have the same
principal underwriter, and invest in the same underlying mutual funds.
The consolidation will allow Security First Life to realize
administrative efficiencies and operational cost savings.
6. The transaction will also allow owners of Fidelity Life
Contracts to participate in a separate account that has greater assets
than Fidelity Separate Account and that Applicants expect to grow,
since sales of Security First Life Contracts will continue. The general
account assets supporting the fixed obligations arising under the
Fidelity Life Contracts will also be significantly greater when they
are the assets of Security First Life.
7. Because the assets underlying the Fidelity Life Contracts and
the Security First Life Contracts will continue to be invested in
shares of one or more of the Funds in the same manner as before the
Proposed Transaction, the assets underlying the Fidelity Life Contracts
and the Security First Life Contracts will continue to be invested
according to the investment policies recited in their respective
registration statements filed pursuant to the 1940 Act.
8. Applicants assert that the Proposed Transaction is consistent
with the general policies and purposes of the 1940 Act. The transfer
does not present any of the issues or abuses that Section 17(a) in
particular, and the 1940 Act in general, were designed to prevent.
Applicants will effect the proposed transfer in a manner that is
appropriate in the public interest and consistent with the protection
of investors.
Conclusion
For the reasons summarized above, Applicants assert that 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, are consistent with the investment
policies of Separate Account A and Fidelity Separate Account as recited
in their registration statements, are consistent with the general
purposes of the 1940 Act, and therefore meet the conditions for
exemptive relief established by Section 17(b).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26131 Filed 10-10-96; 8:45 am]
BILLING CODE 8010-01-M