95-23090. London Pacific Life & Annuity Company, et al.; Notice of Application  

  • [Federal Register Volume 60, Number 180 (Monday, September 18, 1995)]
    [Notices]
    [Pages 48183-48185]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-23090]
    
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Rel. No. IC-21347; 812-9560]
    
    
    London Pacific Life & Annuity Company, et al.; Notice of 
    Application
    
    September 12, 1995.
    AGENCY: Securities and Exchange Commission (``SEC'').
    
    ACTION: Notice of Application for Exemption under the Investment 
    Company Act of 1940 (the ``Act'').
    
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    APPLICANTS: London Pacific Life & Annuity Company (the ``Company''), 
    London Pacific Financial and Insurance Services (the ``Distributor''), 
    and LPLA Separate Account One (the ``Separate Account''); on behalf of 
    themselves and other separate accounts that the Company or the 
    Distributor may establish to support individual variable deferred 
    annuity contracts issued by the Company (``Future Accounts'' and, 
    together with the Separate Account, the ``Accounts'').
    
    RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
    that would exempt applicants from sections 26(a)(2)(C) and 27(c)(2) of 
    the Act.
    
    SUMMARY OF APPLICATION: Applicants request an order to permit them to 
    deduct a mortality and expense risk charge and a distribution charge 
    from the assets of the Accounts, in connection with individual variable 
    deferred annuity contracts.
    
    FILING DATES: The application was filed on March 30, 1995, and amended 
    on August 23, 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 
    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 October 10, 
    1995, 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 may request 
    notification of a hearing by writing to the SEC's Secretary.
    
    ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549. 
    Applicants: 3109 Poplarwood Court, Raleigh, North Carolina 27604.
    
    FOR FURTHER INFORMATION CONTACT:
    Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or C. David 
    Messman, 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 at the 
    SEC's Public Reference Branch.
    
    Applicants' Representations
    
        1. The Company is a stock life insurance company organized in North 
    Carolina and is authorized to sell life insurance and annuities in 
    forty states and the District of Columbia.
        2. The Separate Account is a segregated asset account established 
    by the Company to fund certain individual variable deferred annuity 
    contracts to be issued by the Company (the ``Contracts''). In the 
    future, the Company may issue other variable annuity contracts that are 
    materially similar to the Contracts (``Future Contracts'').
        3. The Separate Account is registered as a unit investment trust 
    under the Act. The Separate Account is divided into subaccounts. Each 
    subaccount will invest in the shares of a portfolio of LPT Variable 
    Insurance Series Trust (the ``Trust''). The Trust is registered as an 
    open-end management investment company under the Act. In the future, 
    the Company may create additional subaccounts.
        4. The Distributor will serve as the distributor of the Contracts. 
    The Distributor is registered under the Securities Exchange Act of 1934 
    as a broker-dealer and is a member of the National Association of 
    Security Dealers, Inc.
        5. The Contracts would be available for individuals in retirement 
    plans that may or may not qualify for federal income tax advantages. 
    The Contracts require a minimum initial contribution of $10,000, except 
    for Individual Retirement Annuities, which require a $1,000 minimum 
    initial contribution. The minimum subsequent contribution is $1,000, or 
    $100 if the owner elects the periodic investment plan option. Contract 
    owners may allocate contributions to one or more subaccounts of the 
    Separate Account and to the fixed account.
        6. The Contracts provide for different guaranteed death benefits, 
    depending on the age of the Contract owner and the maturity date. If 
    the Contract owner or the oldest joint owner dies before age 75 and 
    during the accumulation period, the death benefit is equal to the 
    greater of the following: (a) the ``Adjusted Contribution,'' which is 
    the initial contribution increased for subsequent contributions and 
    reduced for subsequent partial withdrawals in the same proportion that 
    the Contract value was reduced on the date of the withdrawal; (b) the 
    Contract value determined as of the end of the valuation period during 
    which the Company receives both due proof of death and an election of 
    the payment method; or (c) the Contract value on the most recent seven 
    year Contract anniversary or the Adjusted Contributions as of the most 
    recent seven year Contract anniversary, whichever is greater. This 
    amount is increased for subsequent contributions and reduced for 
    subsequent partial withdrawals in the same proportion that the Contract 
    value was reduced on the date of the withdrawal. If the owner or oldest 
    joint owner dies on or after age 75, but before age 85 and during the 
    accumulation period, the death benefit will follow the same formula as 
    above and will be subject to any applicable Contingent Deferred Sales 
    Charge (``CDSC'') determined at the time the death benefit is paid. If 
    the Contract owner or oldest joint owner dies on or after age 85 and 
    during the accumulation period, the death benefit will be the Contract 
    value determined as of the end of the valuation period during which the 
    Company receives due proof of death and an election for the payment 
    method, less any applicable CDSC determined at the time the death 
    benefit is paid.
        7. The Contract owner may transfer all or part of the owner's 
    interest in a subaccount or the fixed account. If more than the number 
    of free transfers have been made in a Contract year, the Company will 
    deduct a Transfer Fee for each subsequent transfer.
        8. If all or a portion of an owner's unliquidated (not previously 
    surrendered or withdrawn) contribution is withdrawn within the first 
    seven Contract years, applicants will assess a CDSC. The amount of the 
    CDSC is as follows:
    
    ------------------------------------------------------------------------
                                                                 Charge as  
                                                               percentage of
            Contract year in which withdrawal occurs              amount    
                                                                 withdrawn  
    ------------------------------------------------------------------------
    1.......................................................              7 
    2.......................................................              7 
    3.......................................................              6 
    4.......................................................              5 
    5.......................................................              4 
    6.......................................................              3 
    7.......................................................              2 
    8 and after.............................................              0 
    ------------------------------------------------------------------------
    
    
    [[Page 48184]]
    
    
    The Company may issue other Contracts in the future which will not 
    impose a CDSC. Once each Contract year, Contract owners may withdraw up 
    to 10% of their unliquidated contributions without incurring a CDSC.
        9. The Company will deduct an annual contract maintenance charge of 
    $36 each Contract year. No contract maintenance charge is payable if 
    the Contract value in the Separate Account and the fixed account is 
    greater than or equal to $50,000 on the Contract anniversary. The 
    Company also will deduct an administration charge from the assets of 
    the Separate Account at an annual rate of .15%
        10. Applicants represent that the annual contract maintenance 
    charge and the asset-based administration charge will not increase 
    during the life of the Contracts. In addition, applicants represent 
    that the charges represent reimbursement for the expenses expected to 
    be incurred over the life of the Contracts, and applicants do not 
    intend to profit from the charges. Applicants will rely on rule 26a-1 
    under the Act to deduct these charges.\1\
    
        \1\ Rule 26a-1, allows for payment of a fee for bookkeeping and 
    other administrative expenses provided that the fee is no greater 
    than than the cost of the services provided, without profit.
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        11. The Company proposes to deduct a distribution charge at an 
    annual rate of .10% of the average daily net asset value of each 
    subaccount. This charge and the CDSC would compensate the Company for 
    the costs associated with the distribution of the Contracts. The 
    Company does not intend to profit from this charge, and the Company 
    would not increase this charge. The Company would monitor the 
    performance of the Separate Account to ensure that with respect to any 
    Contract owner the cumulative sum of the distribution charge and the 
    CDSC would not exceed 9% of the total contributions paid.
        12. The Company proposes to deduct a daily mortality and expense 
    risk charge of 1.25%. Of that amount, approximately .25% is for 
    mortality risk and 1.00% is for expense risk. The Company assumes the 
    mortality risk that annuitants may live for a longer period than 
    estimated when the guarantees in the Contract were established, thus 
    requiring the Company to pay out more in annuity income than it had 
    planned. The Company also assumes a mortality risk in that it may be 
    obligated to pay a death benefit, in excess of the Contract value. The 
    expense risk assumed by the Company is that the other fees may be 
    insufficient to cover the actual cost of administering the Contracts.
        13. If the mortality and expense risk charge is insufficient to 
    cover the actual cost of the risks, the Company will bear the 
    shortfall. Conversely, if the charge is more than sufficient, the 
    excess will be profit to the Company and will be available for any 
    proper corporate purpose, including payment of distribution expenses.
        14. If the premium taxes are applicable to a Contract, they may be 
    deducted when incurred. Currently, the Company pays premium taxes when 
    incurred, and deducts the tax upon withdrawal, payment of a death 
    benefit, or purchase of an annuity under the Contract.
    
    Applicants' Legal Analysis
    
        1. Applicants request an exemption pursuant to section 6(c) from 
    sections 26(a)(2)(C) and 27(c)(2) to the extent necessary to permit the 
    deduction from the Separate Account and Future Accounts of the 
    distribution charge and the mortality and expense risk charge. Sections 
    26(a)(2)(C) and 27(c)(2), in relevant part, prohibit a registered unit 
    investment trust, its depositor or principal underwriter, from selling 
    periodic payment plan certificates unless the proceeds of all payments, 
    other than sales loads, are deposited with a qualified bank and held 
    under arrangements which prohibit any payment to the depositor or 
    principal underwriter except a reasonable fee, as the Commission may 
    prescribe, for performing bookkeeping and other administrative duties 
    normally performed by the bank itself.
        2. Section 6(c) authorizes the Commission to exempt any person from 
    any provision of the Act or any rule or regulation thereunder, if and 
    to the extent that such exemption is necessary or appropriate in the 
    public interest and consistent with the protection of investors and the 
    purposes fairly intended by the policy and provisions of the Act.
        3. Applicants also request relief with respect to Future Contracts. 
    Applicants present that the terms of the relief requested with respect 
    to any Future Contracts are consistent with the standards of section 
    6(c). Applicants represent that additional requests for exemptive 
    relief would present no issues under the Act not already addressed in 
    this application, and that investors would not receive any benefit or 
    additional protections thereby.
        4. Applicants represent that the requested relief is appropriate in 
    the public interest, because it would promote competitiveness in the 
    variable annuity contract market by eliminating the need for applicants 
    to file redundant exemptive applications, thereby reducing their 
    administrative expenses and maximizing the efficient use of resources. 
    The delay and expense involved in repeatedly seeking exemptive relief 
    would reduce applicants' ability effectively to take advantage of 
    business opportunities as they arise.
        5. Applicants represent that the distribution charge is an 
    appropriate method to help defray the Company's costs associated with 
    the sale of the Contracts. Applicants will describe the purpose of the 
    distribution charge in the prospectus and applicants will state in the 
    perspectus that the staff of the SEC deems the distributions charge to 
    constitute a deferred sales charge.
        6. Applicants represent that the 1.25% mortality and expense risk 
    charge is within the range of industry practice for comparable variable 
    annuity contracts. This representation is based on an analysis of the 
    mortality risks, the expense risks, estimated costs, and industry 
    practice. The Company will maintain and make available to the SEC upon 
    request a memorandum setting forth in detail the products analyzed and 
    the methodology and results of applicants' analysis.
        7. Prior to relying on any exemptive relief granted herein with 
    respect to Future Contracts, applicants will determine that the 
    mortality and expense risk charges will be within the range of industry 
    practice for comparable contracts, and/or reasonable in relation to the 
    risks assumed by the Company. The Company will maintain and make 
    available to the SEC upon request a memorandum setting forth the basis 
    of such conclusion.
        8. The Company acknowledges that distribution expenses may in part 
    be financed by profits derived from the mortality and expense risk 
    charges. The Company has concluded that there is a reasonable 
    likelihood that the proposed distribution financing arrangement will 
    benefit the Separate Account and the Contract owners. The Company will 
    maintain and make available to the SEC upon request a memorandum 
    setting forth the basis of such conclusion.
        9. Prior to relying on any exemptive relief granted herein with 
    respect to Future Contracts or Future Accounts, applicants will 
    determine that there is a reasonable likelihood that the distribution 
    financing arrangement will benefit the Accounts and their investors. 
    The Company will maintain and make available to the SEC upon request a 
    memorandum setting forth the basis of such conclusion.
        10. The Separate Account and Future Accounts will invest in a 
    management 
    
    [[Page 48185]]
    investment company that has adopted a plan pursuant to rule 12b-1 under 
    the Act only if that Company has undertaken to have such plan 
    formulated and approved by its board of directors, a majority of whom 
    are not ``interested persons'' of the company within the meaning of 
    section 2(a)(19) of the Act.
    
        For the Commission, by the Division of Investment Management, 
    pursuant to delegated authority.
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 95-23090 Filed 9-15-95; 8:45 am]
    BILLING CODE 8010-01-M
    
    

Document Information

Published:
09/18/1995
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of Application for Exemption under the Investment Company Act of 1940 (the ``Act'').
Document Number:
95-23090
Dates:
The application was filed on March 30, 1995, and amended on August 23, 1995.
Pages:
48183-48185 (3 pages)
Docket Numbers:
Rel. No. IC-21347, 812-9560
PDF File:
95-23090.pdf