[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

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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