[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
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1....................................................... 7
2....................................................... 7
3....................................................... 6
4....................................................... 5
5....................................................... 4
6....................................................... 3
7....................................................... 2
8 and after............................................. 0
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[[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