[Federal Register Volume 66, Number 12 (Thursday, January 18, 2001)]
[Notices]
[Pages 4867-4870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1403]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24824; File No. 812-12350]


Cova Series Trust, et al.

January 11, 2001.
AGENCY: Securities and Exchange Commission (the ``Commission'').

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ACTION: Notice of Application under Section 17(b) of the Investment 
Company Act of 1940 (the ``1940 Act'') for an exemption from Section 
17(a) of the Act.

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    Summary of Application: Applicants request an order to permit 
certain series of Met Investors Series Trust (``MIT'') to acquire all 
of the assets and liabilities of Cova Series Trust (``CST'') and 
Securities First Trust (``SFT''). Because of certain affiliations, 
applicants may not rely on Rule 17a-8 under the Act.
    Applicants: CST, SFT, MIT, Cova Financial Services Life Insurance 
Company (``Cova Financial Services Life''), Cova Financial Life 
Insurance Company (``Cova Financial Life'', together with Cova 
Financial Services Life, ``Cova Life''), Security First Life Insurance 
Company (``Security First Life'') and Firstar Investment Research & 
Management Company, LLC (``FIRMCO'').
    Filing Dates: The application was filed on December 6, 2000.
    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 request should be received by the 
Commission by 5:30 p.m. on February 2, 2001, 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 Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0609. Applicants: Cova Series 
Trust, Cova Financial Services Life Insurance Company and Cova 
Financial Life Insurance Company, One Tower Lane, Suite 3000, Oakbrook 
Terrace, Illinois, 60181; Security First Trust and Security First Life 
Insurance Company, 11365 W. Olympic Boulevard, Los Angeles, California 
90064; Met Investors Series Trust, 610 Newport Centre Drive, Suite 
1350, Newport Beach, California 92660; and Firstar Investment Research 
& Management Company, LLC, 777 E. Wisconsin Avenue, Suite 800, Oakbrook 
Terrace, Illinois 60181; Stacy H. Ostrowski, Esq., Sullivan & Worcester 
LLP, 1025 Connecticut Avenue, NW., Suite 1000, Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT: Joyce M. Pickholz, Senior Counsel, or 
Keith E. Carpenter, Branch Chief, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. CST is a Massachusetts business trust registered under the 1940 
Act as an open-end management investment company and is presently 
comprised of thirteen separate series, all of which are involved in the 
proposed transactions. Shares of each portfolio of CST are sold only to 
certain accounts of Cova Life and its affiliates to fund benefits under 
certain individual flexible premium and modified single premium 
variable life insurance policies and certain individual and group 
variable annuity contracts (``Variable Contracts'') issued by Cova Life 
and its affiliates. As of the date of the application, Cova Life and 
its affiliates are the majority, and in most cases, the only 
shareholders of record of the Cova Portfolios.\1\ CST, along with its 
series, are referred to herein collectively, as the ``Cova 
Portfolios.''
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    \1\ For ease of reference, the term ``shareholder'' is used 
hereinafter to refer to Variable Contract owners that are unit 
holders of any registered separate account that invests in a 
respective SFT Portfolio or Cova Portfolio (as defined herein).
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    2. SFT is a Massachusetts business trust registered under the 1940 
Act as an open-end management investment company and is presently 
comprised of four separate series. Shares of each series of SFT are 
sold only to certain accounts of Security First Life to fund benefits 
under certain Variable Contracts issued by Security First Life and to 
qualified pension and retirement plans. As of the date of this 
application, Security First Life's Separate Account A, its group 
employee 401(k) plan and its General Account are the only shareholders 
of record of the series of SFT. All four series are involved in the 
proposed transactions. SFT, along with its series, are referred to 
herein collectively, as the ``Security First Portfolios'' and 
collectively with the Cova Portfolios as the ``Acquired Portfolios.''
    3. MIT is a newly created Delaware business trust registered under 
the 1940 Act as an open-end management investment company comprised of 
fourteen separate series which were established for purposes of the 
proposed transactions described herein. If shareholders approve the 
proposed transaction, MIT will be the surviving entity after the Cova 
and Security First Portfolios are merged into corresponding investment 
portfolios of MIT. A Registration Statement on Form N-1A was filed with 
the Commission for the newly created MIT and its series on October 23, 
2000 and will become effective on the closing date of the proposed 
transactions. All of MIT's series are involved in the proposed 
transactions for which exemptive relief is being sought. MIT and its 
series are referred to herein collectively as the ``Met Portfolios'' 
and as the ``Acquiring Portfolios.''
    4. Met Investors Advisory Corp. (formerly known as Security First 
Investment Management Corporation) (``Met Advisor'') serves as 
investment adviser to SFT and will be the investment adviser to MIT but 
has delegated responsibility for the day-to-day management of the 
series to various unaffiliated sub-adviser. Met Advisory is a wholly-
owned subsidiary of Security First Group, Inc. (``SFG''). SFG (which on 
or before February 5, 2001, will change its name to Met Investors 
Group, Inc.) is an indirect wholly-owned subsidiary of Metropolitan 
Life Insurance Company, a New York life insurance company 
(``MetLife''). Met Advisory is registered as an investment adviser 
under the Investment Advisers Act of 1940, as amended (the ``Advisers 
Act'').
    5. Cova Investment Advisory Corporation (``Cova Advisory'') serves 
as investment adviser to CST but has delegated responsibility for the 
day-to-day management of the series to certain unaffiliated investment 
sub-advisers.\2\ Cova Advisory is an indirect wholly-owned subsidiary 
of MetLife. Cova Advisory is registered as an investment adviser under 
the Advisers Act.
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    \2\ Shares of certain of the Cova Portfolios are held by their 
respective unaffiliated sub-advisers, including FIRMCO as discussed 
herein.
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    6. Security First Life is a stock life insurance company founded in 
1960 and organized under the laws of the State of Delaware. Security 
First Life is authorized to transact the business of life insurance, 
including annuities, and is currently licensed to do business in 49 
states and the District of Columbia. Security First Life is a wholly-
owned subsidiary of SFG.
    7. Cova Financial Services Life is a stock life insurance company 
founded in 1981 and organized under the laws of

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the State of Missouri. Cova Financial Life, is a stock insurance 
company founded in 1972 and organized under the laws of the State of 
California. Cova Financial Services Life and Cova Financial Life are 
indirect wholly-owned subsidiaries of Met Life. Cova Life and its 
affiliates are authorized to transact the business of life insurance, 
including annuities, and among them are currently licensed to do 
business in 47 states and the District of Columbia.
    8. FIRMCO currently serves as the investment sub-adviser to the 
Balanced, Equity Income and the Growth & Income Equity Portfolios of 
CST and will serve as investment adviser to the Firstar Balanced, 
Firstar Equity Income and the Firstar Growth & Income Equity Portfolios 
(collectively the ``Firstar Portfolios'') of the newly created MIT. 
FIRMCO is a subsidiary of Firstar Corporation. FIRMCO is registered as 
an investment adviser under the Advisers Act. FIRMCO currently owns of 
record 5% or more of each of the Balanced, Equity Income and Growth & 
Income Equity Portfolios of CST.
    9. On November 1, 2000 and November 2, 2000, the Boards of Trustees 
of the Acquired Portfolios, including a majority of the Trustees who 
are not interested persons under Section 2(a)(19) of the 1940 Act (the 
``Disinterested Trustees''), authorized agreements and plans of 
reorganization (with respect to the Fund Reorganizations as defined 
below) (the ``Plans'') pursuant to which certain series of MIT will 
acquire all of the assets and stated liabilities of certain series of 
CST and SFT. Pursuant to the terms of the Plans, the Acquired 
Portfolios have agreed to sell all of their assets (subject to the 
assumption of certain stated liabilities) to certain corresponding 
Acquiring Portfolios in exchange for shares of the Acquiring Portfolios 
(the ``Fund Reorganizations''). The exchange will take place at the 
respective net asset values calculated as of the close of business on 
the business day next preceding the date on which the Fund 
Reorganizations will occur. Shareholders of the Acquired Portfolios 
will exchange their shares for Class A shares of the Acquiring 
Portfolios. As a result of the Fund Reorganizations, each Acquired 
Portfolio shareholder will receive Acquiring Portfolio shares having an 
aggregate net asset value equal to the aggregate net asset value of the 
corresponding Acquired Portfolio's shares held by that shareholder. 
After the distribution of the Acquiring Portfolios' shares and the 
winding up of the Acquired Portfolios' business, the Acquired 
Portfolios will be liquidated.
    10. No sales charge will be imposed in connection with Class A 
shares of the Acquiring Portfolios received by the Acquired Portfolios' 
shareholders. Accordingly, no sales charges will be incurred by 
shareholders of the Acquired Portfolios in connection with their 
acquisition of shares of the Acquiring Portfolios in the Fund 
Reorganizations. Upon consummation of the transactions described above, 
each Acquired Portfolio will distribute its full and fractional shares 
of the Acquiring Portfolio pro rata to its shareholders of record, 
determined as of the exchange date.
    11. Prior to the Fund Reorganizations, the shareholders of the 
Acquired Portfolio and the Acquiring Portfolio will hold shares with 
similar characteristics. Shares of the Acquired Portfolios and Class A 
shares of the Acquiring Portfolios are sold without a front-end sales 
charge or a contingent deferred sales charge and are not subject to any 
Rule 12b-1 fees.
    12. The investment objectives of each of the Acquired Portfolios is 
generally either identical to or similar to that of the corresponding 
Acquiring Portfolios. The investment strategies of each Acquired 
Portfolio and its corresponding acquiring Portfolio generally are also 
either identical or similar.
    13. Each Plan may be terminated by the mutual agreement of the 
Boards of the Portfolios on behalf of the Acquiring Portfolio and the 
Acquired Portfolio, respectively.
    14. The Boards of CST and SFT, on behalf of each of the Acquired 
Portfolios, including in each case a majority of Disinterested Trustee, 
approved the Fund Reorganization as in the best interests of 
shareholders and determined that the interests of existing shareholders 
will not be diluted as a result of the Fund Reorganizations. The Board 
of each Portfolio considered, among other things, (a) the terms and 
conditions of each Fund Reorganization; (b) whether the Fund 
Reorganization would result in the dilution of shareholders' interests; 
(c) the expense ratios, fees and expenses of the Acquiring Portfolios 
before the Fund Reorganization and the estimated expense ratios of the 
Acquiring Portfolios after the Reorganization; (d) comparability of the 
Acquiring and Acquiring Portfolios' investment restrictions; (e) the 
investment experience, expertise and resources of the investment 
advisers; (f) the service and distribution resources available to MIT 
and the anticipated increased array of investment alternatives 
available to shareholders of MIT; (g) the fact that the costs estimated 
to be incurred by the Portfolios as a result of the Fund 
Reorganizations will not be borne by the Portfolios but will be borne 
by MetLife or an affiliate; and (h) the expected federal income tax 
consequences of the Fund Reorganizations.
    15. Each Fund Reorganization is subject to the approval of the 
Acquiring Portfolios shareholders. Special Meetings of the Shareholders 
of the Acquired Portfolios are scheduled to be held on or about January 
26, 2000. Cova Life and its affiliates and Security First Life will 
vote all shares of the Acquired Portfolios in accordance with and in 
proportion to timely voting instructions received from Variable 
Contract owners participating in separate accounts requistered under 
the 1940 Act, the value of which are invested in shared of the Acquired 
Portfolio through such separate accounts at the record date. Shares of 
each Acquired Portfolio for which properly executed voting instructions 
are not received, including shares not attributable to Variable 
Contracts, will be voted in the same proportion as that of shares of 
such Acquired Portfolio for which instructions are received. Proxy 
materials have been mailed to the Variable Contract owners 
participating in registered separate accounts holding shares of the 
Acquired Portfolios. Proxies are not being solicited from 401(k) plan 
participants or any investment sub-advisers who hold shares of a 
Portfolio. The 401(k) plan fiduciary will vote its shares in proportion 
to the vote of Variable Contract owners.
    16. Fund Reorganizations also are subject to the approval of the 
board of trustees of MIT (the ``MIT Board''), on behalf of each of the 
Acquiring Portfolios, including in each case a majority of 
Disinterested Trustees. Prior to consummating the Fund Reorganization, 
the MIT Board will have reviewed the terms of the Fund Reorganizations 
and will have determined that the transactions are in the best 
interests of the Acquiring Portfolios. In approving the Plans, the 
Board will consider the relevant factors including, but not limited to 
those factors considered by the CST and SFT Boards.
    17. MetLife or an affiliate will be responsible for the expenses 
incurred in connection with the Fund Reorganizations.
    18. The Plans are subject to a number of conditions precedent, 
including requirements that (a) the Plans shall have been approved by 
the Boards on behalf of each of the Acquiring Portfolios and the 
Acquired Portfolio

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and approved by the requisite votes of the holders of the outstanding 
shares of each of the Acquired Portfolios in accordance with the 
provisions of each Portfolio's Agreement and Declaration of Trust and 
By-laws; (b) the Acquired Portfolio and the Acquiring Portfolio have 
received opinions of counsel stating, among other things, that (i) each 
Fund Reorganization will constitute a ``fund reorganization'' under 
Section 368 of the Internal Revenue Code of 1986, as amended (the 
``Code''), (ii) the Acquiring Portfolio and the Acquired Portfolio is a 
``party to a fund reorganization'' within the meaning of Section 368 of 
the Code, (iii) no gain or loss will be recognized by the Acquiring 
Portfolio upon the receipt of the assets of the Acquired Portfolio 
solely in exchange for the Acquiring Portfolio shares and the 
assumption by the Acquiring Portfolio of the identified liabilities of 
the Acquired Portfolio and (iv) no gain or loss will be recognized by 
the Acquired Portfolio upon the transfer of the Acquired Portfolio's 
assets to the Acquiring Portfolio in exchange for the Acquiring 
Portfolio shares and the assumption by the Acquiring Portfolio of the 
identified liabilities of the Acquired Portfolio or upon the 
distribution of the Acquiring Portfolio shares to Acquired Portfolio 
shareholders in exchange for their shares of the Acquired Portfolio; 
and (c) the Acquired Portfolio and the Acquiring Portfolio shall have 
received from the Commission an order exempting the Fund 
Reorganizations from the provisions of Section 17(a) of the 1940 Act.

Applicants' Legal Analysis

    1. Section 17(a) of the 1940 Act provides, in pertinent part, that 
it is unlawful for any affiliated person of a registered investment 
company, or any affiliated person of such a person, ``(1) knowingly to 
sell any security or other property to such registered company * * * 
[or] (2) knowingly to purchase from such registered company * * * any 
security or other property * * *'' Section 2(a)(3) of the 1940 Act 
defines the term ``affiliated person'' of another person in include, in 
pertinent part, ``(A) any person directly or indirectly owning, 
controlling, or holding with power to vote, 5 per centum or more of the 
outstanding voting securities of such other person; (B) any person 5 
per centum or more of whose outstanding voting securities are directly 
or indirectly owned, controlled, or held with power to vote, by such 
other person; (C) any person directly or indirectly controlling, 
controlled by, or under common control with, such other person * * *; 
and (E) if such other person in an investment company, any is an 
investment advises thereof * * *''
    2. Applicants assert that Rule 17a-8 under the 1940 Act may not be 
available to exempt the proposed transactions described herein. The 
premise of Rule 17a-8 is that the investment companies involved in 
mergers or consolidations are under common control by virtue of having 
a common investment adviser, directors and/or officers and no other 
affiliation exists. In this case, certain of the Portfolios may be 
deemed to be affiliated persons or affiliated persons of each other 
because of the Insurance Companies and FIRMCO's share ownership of the 
Portfolios.
    3. Section 17(b) of the 1940 Act provides that, notwithstanding 
Section 17(a), any person may file with the Commission an application 
for an order exempting a proposed transaction from one or more 
provisions of that subsection and that the Commission shall grant such 
application and issue such order of exemption if evidence establishes 
that ``(1) the terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned; (2) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned, as recited in its registration statement 
and reports filed under [the 1940 Act], and (3) the proposed 
transaction is consistent with the general purpose of [the 1940 Act]  * 
* *.''
    4. Applicants submit that the terms of the Fund Reorganizations 
satisfy the standards set forth in section 17(b), in that the terms are 
fair and reasonable and do not involve overreaching on the part of any 
person concerned. Applicants note that the Boards of Trustees of CST 
and SFT, including the Disinterested Trustees, found that participation 
in the Fund Reorganization is in the best interests of each Portfolio 
based on the following factors: (a) The interests of shareholders will 
not be diluted; (b) the Portfolio's investment objectives and policies 
generally are substantially similar; (c) certain operational 
efficiencies may be achieved upon the combination of the Portfolios as 
a result of the economies of scale associated with a more diverse 
family of mutual funds; (d) no sales charges will be imposed in 
connection with the Fund Reorganizations; (e) the service and 
distribution resources available to MIT and the anticipated increased 
array of investment alternatives available to shareholders of MIT; (f) 
the transactions will be free from Federal income taxes; (g) the 
conditions and policies of Rule 17a-8 under the 1940 Act will be 
followed; (h) the transfer of securities in exchange for shares will be 
at relative net asset value; and (i) no overreaching by any person 
concerned with the transactions will occur.

Conclusion

    For the reasons and upon the facts set forth above, Applicants 
state that the requested order meets the standards set forth in Section 
17(b) and should, therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-1403 Filed 1-17-01; 8:45 am]
BILLING CODE 8010-01-M