[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27581-27583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12695]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21081; 811-0407]
SBM Company; Notice of Application
May 17, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for deregistration under the Investment
Company Act of 1940 (``Act'').
-----------------------------------------------------------------------
APPLICANT: SBM Company.
RELEVANT ACT SECTION: Section 8(f).
SUMMARY OF APPLICATION: Applicant requests an amended order eliminating
prior conditions, thus permitting applicant to sell substantially all
of its assets, including a subsidiary that is a registered investment
company, to another company.
FILING DATE: The application was filed on April 5, 1995.
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 SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 12, 1995,
and should be accompanied by proof of service on applicant, 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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicant, 8400 Normandale Lake Boulevard, Suite 1150,
Minneapolis, Minnesota 55437.
FOR FURTHER INFORMATION CONTACT:
James J. Dwyer, Staff Attorney, at (202) 942-0581, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicant's Representations
1. Applicant, a Minnesota corporation, is a financial holding
company that also acts as investment adviser, transfer agent, and
dividend disbursing agent for certain mutual funds. Applicant's wholly-
owned subsidiaries are State Bond and [[Page 27582]] Mortgage Life
Insurance Company (``SBM Life''), a Minnesota insurance company, and
SBM Financial Services, Inc., a registered broker-dealer. SBM
Certificate Company (the ``Certificate Company''), a registered face-
amount certificate company, is a wholly-owned subsidiary of SBM Life.
2. In 1990, the Certificate Company was formed for the purpose of
acquiring all of the assets and assuming all of the liabilities of
applicant's face-amount certificate business in order to permit
applicant to deregister as an investment company. On January 29, 1991,
the SEC issued an order (the ``Existing Order'') \1\ under section 8(f)
of the Act declaring that applicant had ceased to be an investment
company because, among other things, it primarily was engaged, through
wholly-owned subsidiaries, in businesses that are excepted from the
definition of an investment company under sections 3(c)(3) and 3(c)(6)
of the Act.\2\ The Existing Order was issued subject to the following
conditions: (i) applicant will not issue any additional face-amount
certificates; (ii) applicant will maintain 100% ownership of the
Certificate Company so long as any face-amount certificates that
applicant issued (the ``Certificates'') are outstanding and the
Certificate Company is a registered investment company; (iii) applicant
will require the Certificate Company to maintain reserves for the
Certificates as required by section 28 and comply with all other
applicable provisions of the Act so long as any Certificates are
outstanding and the Certificate Company is a registered investment
company; and (iv) until released from such obligation by the
Certificate holders or such obligations are paid in accordance with
their terms upon maturity or surrender, applicant will remain liable to
the Certificate holders for all amounts due them under the
Certificates.
\1\ State Bond and Mortgage Company, Investment Company Act
Release Nos. 17826 (Oct. 29, 1990) (notice) and 17965 (Jan. 29,
1991) (order).
\2\ Section 8(f) provides that ``[w]henever the [SEC], on its
own motion or upon application, finds that a registered investment
company has ceased to be an investment company, it shall so declare
by order and upon the taking effect of such order the registration
of such company shall cease to be in effect. If necessary for the
protection of investors, an order under this subsection may be made
upon appropriate conditions.'' Sections 3(c)(3) and 3(c)(6) provide
in relevant part that a person is not an investment company if it is
an insurance company or a company that primarily is engaged,
directly or through majority-owned subsidiaries, in the insurance
company business.
---------------------------------------------------------------------------
3. Since the time the Certificate Company assumed applicant's face-
amount certificate business, applicant represents that the Certificate
Company has conducted such business in accordance with applicable
federal law, including maintaining deposits of qualified assets with an
independent custodian and making all payments required by the terms of
the Certificates. During 1994, however, the Certificate Company and SBM
Life experienced significant capital pressures as a result of
increasing interest rates and the fact that a large portion of the
investment portfolios of both companies was invested in mortgage pass-
through securities and collateralized mortgage obligations. The market
value and cash flows of these securities were adversely affected by
rapid increases in interest rates during 1994. The capital position of
these companies also was adversely affected by the adoption of FASB
115, which requires that certain debt securities be reflected at market
value rather than at amortized cost. As a result of the Minnesota
Department of Commerce's annual examination of the Certificate Company,
the Minnesota Department, in a letter dated November 9, 1994,
recommended an increase in the capital of the Certificate Company. In
March 1995, SBM Life invested $1.5 million cash into the Certificate
Company to satisfy concerns of the Minnesota Department. After
extensive efforts to raise up to $15-20 million of additional capital,
it was decided that the sale of control of applicant or of its
operating assets was necessary.
4. Consequently, applicant intends to sell substantially all of its
assets, including the stock of SBM Life and the Certificate Company, to
ARM Financial Group, Inc. (``ARM''), a Delaware corporation.
Approximately 86% of the outstanding voting shares of ARM is owned by
an investment fund sponsored by Morgan Stanley & Co. The balance of ARM
is owned chiefly by ARM's executives, certain employees, managers, and
independent directors. ARM has committed to contribute up to $20
million to the capital of SBM Life and the Certificate Company, up to
$2.5 million of which is expected to be used to strengthen the capital
of the Certificate Company. ARM intends that its subsidiary, ARM
Capital Advisors, will manage the assets transferred from the
Certificate Company. Following the sale, applicant intends to liquidate
and dissolve in accordance with Minnesota law.
Applicant's Legal Analysis
1. Applicant requests that the Existing Order be amended to remove
all of the conditions thereto to permit the sale of assets to ARM. The
requested amendment is necessary to assure that the proposed sale of
applicant's assets does not conflict with the Existing Order. Applicant
believes that the proposed sale will afford additional protection to
Certificate holders and is in the best interests of these investors.
ARM, relative to applicant, has greater and more ready access to
capital by reason of its financial and operating characteristics, as
well as its affiliation with Morgan Stanley.
2. Applicant believes that the Act is not intended to limit the
power of an entity to engage in fundamental corporate acts such as a
sale of assets and dissolution. Applicant asserts that the conditions
to the Existing Order did not contemplate the proposed sale, nor, in
the view of applicant, could the conditions reasonably have been
intended to inhibit such sale. The conditions may afford Certificate
holders additional safeguards while applicant is a going concern, but
have no continuing utility once applicant ceases to conduct business.
3. Applicant notes that the Certificate Company is a registered
investment company that has operated as a stand-alone entity for more
than four years. The Certificates and their holders will continue to be
protected following the proposed sale by all applicable provisions of
the Act, including the maintenance of deposits of qualified assets and
the capital requirements of section 28 of the Act. Applicant contends
that nothing contemplated by its proposal will result in any failure to
comply with the Act.
4. Applicant also represents that substantially all existing
Certificate holders have renewed their Certificates at least once since
the Certificate Company assumed the liabilities of such Certificates
from applicant in 1991. In so doing, these holders received and had an
opportunity to review the then current prospectus relating to the
Certificates prior to the date of renewal. The prospectus primarily
describes the Certificate Company and its business, and disclaims
applicant as a potential source of capital strength to the Certificate
Company. Accordingly, applicant believes that the vast majority of the
Certificate holders have made their decision to renew their
Certificates largely in reliance on the financial strength and other
operating characteristics of the Certificate Company, and not on
applicant's continuing liability with respect to the Certificates.
5. Applicant, moreover, states that Certificate holders may
surrender their Certificates to the Certificate Company for payment at
any time before or after the proposed sale. Applicant states its
proposed dissolution will not affect the obligations created by the
Certificates, [[Page 27583]] which obligations were expressly assumed
by the Certificate Company. For the reasons discussed above, applicant
believes that an amended order is appropriate.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12695 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M
