[Federal Register Volume 64, Number 170 (Thursday, September 2, 1999)]
[Notices]
[Pages 48222-48224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22939]
[[Page 48222]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23982; File No. 812-11664]
London Pacific Life & Annuity Company, et al., Notice of
Application
August 27, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under Section 26(b) of the
Investment Company Act of 1940 (``1940 Act'') approving the proposed
substitution of securities.
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SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section
26(b) of the 1940 Act approving the substitution of shares of the
Federated Fund for U.S. Government Securities II (``U.S. Government
Securities Portfolio'') of Federated Insurance Series (``Fund'') for
shares of the Berkeley U.S. Quality Bond Portfolio (``U.S. Quality Bond
Portfolio'') of LPT Variable Insurance Series Trust (``Trust'').
APPLICANTS: London Pacific Life & Annuity Company (``London Pacific'')
and LPLA Separate Account One (``Separate Account One'') (collectively,
``Applicants'').
FILING DATE: The application was filed on June 15, 1999.
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 should be received by the
Commission by 5:30 p.m. on September 21, 1999, 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 requester'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, NW, Washington, DC 20549-6500. Applicants, c/o Lynn K. Stone,
Esquire, Blazzard, Grodd & Hasenauer, P.C., P.O. Box 5108, Westport,
Connecticut, 06881. Copies to George C. Nicholson, London Pacific Life
& Annuity Company, 3109 Poplarwood Court, Raleigh, North Carolina
27604.
FOR FURTHER INFORMATION CONTACT: Ann Vlcek, Senior Counsel, or Susan
Olson, 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
Public Reference Branch of the Commission, 450 Fifth Street, NW,
Washington DC 20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. London Pacific was organized in 1927 in North Carolina as a
stock life insurance company. London Pacific was acquired from Liberty
Life in 1989 and was formerly named Southern Life Insurance Company.
London Pacific is authorized to sell life insurance and annuities in
forty states and the District of Columbia. London Pacific's ultimate
parent is London Pacific Group Limited, an international fund
management firm chartered in Jersey, Channel Islands. London Pacific is
the depositor for Separate Account One.
2. Separate Account One is a separate account of London Pacific
Life which was authorized by the London Pacific Board of Directors on
November 21, 1994 and established in accordance with North Carolina
law. Separate Account One is registered under the 1940 Act as a unit
investment trust (File No. 811-8890) for the purpose of funding the
Contracts which invest in the Trust and Fund, among other investment
options. Security interests under the Contracts have been registered
under the Securities Act of 1933 (``1933 Act'') (File Nos. 33-87150 and
333-1779).
3. Separate Account One is currently divided into sub-accounts,
each of which reflects the investment performance of a corresponding
portfolio of the Trust, the Fund or other underlying mutual funds.
4. The U.S. Quality Bond Portfolio's primary investment objective
is to seek to obtain a high level of current income. The Portfolio
invests at least 65% of its total assets in higher quality bonds or
securities that represent an interest in pools of higher quality debt
obligations such as mortgages. Shares of the U.S. Quality Bond
Portfolio are purchased, without sales charge, by the Berkeley U.S.
Quality Bond Sub-Account (the ``U.S. Quality Bond Sub-Account'') of
Separate Account One at the net asset value per share next determined
following receipt of a purchase payment by the U.S. Quality Bond Sub-
Account. Any dividend or capital gain distributions received from the
U.S. Quality Bond Portfolio are reinvested in additional shares of the
U.S. Quality Bond Portfolio and retained as assets of the U.S. Quality
Bond Sub-Account. The U.S. Quality Bond Portfolio's shares are redeemed
without any charge or fee to Separate Account One to the extent
necessary for London Pacific to make annuity or other payments under
the Contracts.
5. LPIMC Insurance Marketing Services (``LPIMC''), a registered
investment adviser and wholly-owned subsidiary of London Pacific, as
investment adviser to the Trust, provides overall management of the
investment strategies and policies of the U.S. Quality Bond Portfolio.
The subadviser of the Portfolio is Berkeley Capital Management.
Effective January 25, 1999, shares of the U.S. Quality Bond Portfolio
are no longer available for sale.
6. LPIMC receives the following amounts as an annual investment
advisory fee with respect to the U.S. Quality Bond Portfolio, accrued
daily and payable monthly based on a percentage of the Portfolio's
average daily net assets:
.55% of first $50 million of average daily net assets;
.525% of next $100 million of average daily net assets;
.50% of next $150 million of average daily net assets;
.45% of next $200 million of average daily net assets; and
.425% over and above $500 million of average daily net assets.
7. On June 4, 1999, the U.S. Quality Bond Portfolio had
approximately $263,329 in net assets. The total expenses of the U.S.
Quality Bond Portfolio for the year ended December 31, 1998 were 3.60%
of its average net assets without regard to any expense reimbursement
by London Pacific.
8. Prior to May 1, 1999, London Pacific reimbursed the U.S. Quality
Bond Portfolio for certain expenses. Effective May 1, 1999, this
arrangement was terminated. For the year ending December 31, 1999,
total annual portfolio expenses are estimated to be 3.30%.
9. The investment objective of the U.S. Government Securities
Portfolio is to seek current income. The U.S. Government Securities
Portfolio pursues its objective by investing primarily in U.S.
government securities, including mortgage backed securities issued by
U.S. government agencies.
10. Federated Investment Management Company, a registered
investment adviser, is the investment adviser of the U.S. Government
Securities Portfolio. Federated Investment Management Company receives
an annual investment advisory
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fee of .60% of the Portfolio's average daily net assets.
11. On June 4, 1999, the U.S. Government Securities Portfolio had
approximately $119,525,394 in net assets. For the period ended December
31, 1998, the U.S. Government Securities Portfolio's total expenses
were .93% of its average net assets without regard to a waiver of fees
or reimbursement of expenses undertaken by Federated Investment
Management Company for the year ended December 31, 1998. This fee
waiver and expense reimbursement arrangement is voluntary and may be
terminated at any time without notice.
12. The total returns of the U.S. Quality Bond Portfolio and the
U.S. Government Securities Portfolio are as follows:
U.S. Quality Bond Portfolio
Total Return for the period 1.31.96 (commencement of operations) to
12/31/96: 2.27%.
Total Return for the year ended 12/31/97: 9.45%.
Total Return for the year ended 12/31/98: 7.87%.
U.S. Government Securities Portfolio
Total Return for the period 3/29/94 (commencement of operations) to
12/31/94: 2.62%.
Total Return for the year ended 12/31/95: 8.77%.
Total Return for the year ended 12/31/96: 4.20%.
Total Return for the year ended 12/31/97: 8.58%.
Total Return for the year ended 12/31/98: 7.66%.
13. Applicants propose that London Pacific on its own behalf and on
behalf of Separate Account One effect a substitution of shares of the
U.S. Government Securities Portfolio for all shares of the U.S. Quality
Bond Portfolio attributable to the Contracts (``Substitution''). For
those owners of Contracts (``Contract Owners'') who continue to have
any of their Contract values invested in shares of the U.S. Quality
Bond Portfolio on the effective date of the Substitution, the Company
proposes to substitute shares of the U.S. Government Securities
Portfolio for shares of the U.S. Quality Bond Portfolio on the
following basis. As of the effective date of the Substitution, the
shares of the U.S. Quality Bond Portfolio representing Contract values
would be redeemed by London Pacific. On the same day, London Pacific
would use the proceeds to purchase the appropriate number of shares of
the U.S. Government Securities Portfolio. The Substitution will be a
cash transaction (i.e., no securities will be exchanged in the
transaction). The Substitution will take place at relative net asset
values of the Portfolios, with no change in the amount of any Contract
Owner's Contract values or in the dollar value of his or her investment
in Separate Account One.
14. On June 8, 1999, London Pacific supplemented the prospectuses
for Separate Account One to relect the proposed Substitution
(``Supplement''). The Supplement also informed Contract Owners that
prior to the date of the Substitution, an owner may transfer his or her
Contract value in the Berkeley U.S. Quality Bond Sub-Account to any
sub-account without any limitation or charge being imposed.
15. Applicants state that Contract Owners will not incur any fees
or charges as a result of the proposed Substitution nor will their
rights under the Contracts be altered in any way. London Pacific will
pay all expenses and transaction costs of the Substitution, including
legal and accounting expenses, any applicable brokerage commissions,
and other fees and expenses. In addition, the Substitution will not
impose any tax liability on Contract Owners. The Substitution will not
cause the Contract fees and charges currently being paid by existing
Contract Owners to be greater after the Substitution than before the
Substitution. London Pacific will schedule the Substitution to occur as
soon as practicable following the issuance of the order so as to
maximize the benefits to be realized from the Substitution. Applicants
state that, within five (5) days after the completion of the
Substitution pursuant to the order of the Commission approving the
Substitution, London Pacific will send to the Contract Owners written
notice of the Substitution (the ``Notice'') stating that shares of the
U.S. Quality Bond Portfolio have been eliminated and that the shares of
the U.S. Government Securities Portfolio have been substituted.
16. Applicants state that Contract Owners will be advised in the
Notice that for a period of thirty (30) days from the mailing of the
Notice, they may transfer all assets, as substituted, to any other
available investment option, without limitation and without charge. The
period from the date of the Supplement to thirty (30) days from the
mailing of the Notice is referred to as the ``Free Transfer Period.''
Applicants state that, following the Substitution, Contract Owners will
be afforded the same contract rights, including surrender and other
transfer rights with regard to amounts invested under the Contracts, as
they currently have. Currently there are no applicable surrender fees
or redemption charges under the Contracts. Applicable contingent
deferred sales charges, however, will be imposed.
17. Applicants state that the Contracts reserve to London Pacific
the right to replace the shares of the U.S. Quality Bond Portfolio held
by Separate Account One with shares of another portfolio, such as the
U.S. Government Securities Portfolio, if (a) shares of the U.S. Quality
Bond Portfolio should no longer be available for investment by Separate
Account One, or (b) in the judgment of London Pacific's Board of
Directors, further investment in the U.S. Quality Bond Portfolio should
become inappropriate in view of the purpose of the Contracts, provided
any such substitution is approved by the Commission and is in
compliance with all applicable rules and regulations. London Pacific
believes that further investment in shares of the U.S. Quality Bond
Portfolio is no longer appropriate in view of the purposes of the
Contracts.
Applicants' Legal Analysis and Conditions
1. Applicants request an order of the Commission pursuant to
Section 26(b) of the 1940 Act in connection with the proposed
substitution of shares of the U.S. Government Securities Portfolio of
the Fund for shares of the U.S. Quality Bond Portfolio of the Trust
which are currently held by Separate Account One.
2. Section 26(b) of the 1940 Act makes it unlawful for any
depositor or trustee of a registered unit investment trust holding the
security of a single issuer to substitute another security for such
security unless the Commission shall have approved such substitution.
Section 26(b) provides that the Commission shall issue an order
approving substitutions of securities if the evidence establishes that
it is consistent with the protection of investors and the purposes
fairly intended by the policy and provisions of the 1940 Act.
3. Applicants state that the purposes, terms and conditions of the
Substitution are consistent with the principles and purposes of section
26(b) and do not entail any of the abuses that section 26(b) is
designed to prevent. Applicants assert that the Substitution is an
appropriate solution to the limited Contract Owner interest or
investment in the U.S. Quality Bond Portfolio, described below, which
is currently, and in the future may be expected to be, of insufficient
size to promote
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consistent investment performance or to reduce operating expenses.
4. Applicants state that London Pacific, on the basis of the
following facts and circumstances summarized herein, has determined
that it is in the best interests of Contract Owners to substitute
shares of the U.S. government Securities Portfolio for shares of the
U.S. Quality Bond Portfolio.
5. Applicants state that the U.S. Quality Bond Portfolio and the
U.S. Government Securities Portfolio each have investment objectives
and programs which are substantially the same. The U.S. quality Bond
Portfolio will invest at least 65% of its total assets in higher
quality bonds or securities that represent an interest in pools of
higher quality debt obligations, such as mortgages. The U.S. Government
Securities Portfolio invests primarily in U.S. Government securities,
including mortgage backed securities issued by U.S. government
agencies.
6. Applicants state that the total expense ratio of 3.6% for the
U.S. quality Bond Portfolio for the year ended December 31, 1998,
without regard to waiver or reimbursement of expenses by London
Pacific, is relatively high for this type of Portfolio. A large portion
of the U.S. Quality Bond Portfolio's expenses is fixed. Consequently,
because the size of the U.S. Quality Bond Portfolio is relatively
small, these fixed expenses represent and may continue to represent a
relatively large percentage of the U.S. Quality Bond Portfolio's
average daily net assets. Applicants assert that Contract Owners will
not be exposed to higher expenses following the Substitution and
should, in fact, benefit from the U.S. Government Securities
Portfolio's lower total expense ratio which, for the year ended
December 31, 1998, was .93% of its average daily net assets, without
regard to waiver or reimbursement of expenses.
7. Applicants state that the U.S. Government Securities Portfolio
accumulated approximately $119,525,394 in net assets as of June 4,
1999. The U.S. Quality Bond Portfolio accumulated approximately
$263,329 in net assets as of June 4, 1999. Effective January 25, 1999,
shares of the U.S. Quality Bond Portfolio are no longer available for
investment. Therefore, Applicants state that the prospects for
continued growth of the U.S. Government Securities Portfolio indicate
that greater economies of scale would be expected for that fund than
for the U.S. Quality Bond Portfolio.
8. Applicants state that, due to the relatively small asset size of
the U.S. Quality Bond Portfolio, there are a limited number of
attractive investments available for investment by the U.S. Quality
Bond Portfolio. Thus, the ability to maintain optimal management of the
Portfolio is reduced. The larger size of the U.S. Government Securities
Portfolio lends itself to greater flexibility in purchasing attractive
investments, and consequently the U.S. Government Securities Portfolio
can more readily react to changes in market conditions. Applicants
state that Contract Owners would benefit through the more effective
management of a larger portfolio such as the U.S. Government Securities
Portfolio.
9. Applicants state the Substitution will not result in the type of
costly forced redemption that section 26(b) was intended to guard
against and is consistent with the protection of investors and the
purposes fairly intended by the 1940 Act for the following reasons:
(a) The Substitution is of the U.S. Government Securities Portfolio
shares whose objectives, policies, and restrictions are substantially
similar to the objectives, policies, and restrictions of the U.S.
Quality Bond Portfolio so as to continue fulfilling the Contract
Owners' objectives and risk expectations;
(b) While the advisory fees for the U.S. Government Securities
Portfolio are somewhat higher than those of the U.S. Quality Bond
Portfolio, the total expenses (as of December 31, 1998) of the U.S.
Government Securities Portfolio, without regard to any waiver or
reimbursement, were .93%, while the total expenses for the U.S. Quality
Bond Portfolio were 3.60%.
(c) If during the Free Transfer Period a Contract Owner requests,
assets will be reallocated for investment in a Contract Owner-selected
sub-account. The Free Transfer period is sufficient time for Contract
Owners to reconsider the Substitution;
(d) The Substitution will in all cases, be effected at the net
asset value of the respective shares in conformity with section 22(c)
of the 1940 Act and rule 22c-1 thereunder, without the imposition of
any transfer or similar charge;
(e) London Pacific has undertaken to assume the expenses and
transaction costs, including among others, legal and accounting fees
and any brokerage commissions, relating to the Substitution;
(f) The Substitution in no way will alter the insurance benefits to
Contract Owners or the contractual obligations of London Pacific;
(g) The Substitution in no way will alter the tax benefits to
Contract Owners; and
(h) Contract Owners may chose simply to withdraw amounts credited
to them following the Substitution under the conditions that currently
exist, subject to any applicable contingent deferred sales charge.
Conclusion
Applicants submit, for all of the reasons stated herein, that the
requested order approving the proposed substitution under section 26(b)
of the 1940 Act is consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22939 Filed 9-1-99; 8:45 am]
BILLING CODE 8010-01-M
