[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]



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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