STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
WITH FLEXIBLE CONTRIBUTIONS
ISSUED BY
LPLA SEPARATE ACCOUNT ONE
AND
LONDON PACIFIC LIFE & ANNUITY COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1997, AS AMENDED NOVEMBER
3, 1997, FOR THE INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS WITH
FLEXIBLE CONTRIBUTIONS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION FOR A PROSPECTIVE INVESTOR. FOR
A COPY OF THE PROSPECTUS CALL OR WRITE THE COMPANY AT: P.O. BOX 29564, RALEIGH,
NORTH CAROLINA 27626; (800) 852-3152.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1997, AS AMENDED
NOVEMBER 3, 1997.
TABLE OF CONTENTS
PAGE
Company..................................................................3
Experts..................................................................3
Legal Opinions...................... ...................................3
Distributor........................... ..................................3
Yield Calculation for the Berkeley Money Market Sub-Account........3
Performance Information.................................................4
Annuity Provisions......................................................6
Financial Statements....................................................6
COMPANY
Information regarding London Pacific Life & Annuity Company (the "Company") and
its ownership is contained in the Prospectus.
The Company contributed the initial capital to the Separate Account. As of April
1, 1997, the initial capital contributed by the Company represented
approximately 17.0% of the total assets of the Separate Account. The Company
currently intends to remove these assets from the Separate Account on a pro-rata
basis in proportion to money invested in the Separate Account by Owners.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996, and the financial
statements of the Separate Account for the period from January 31, 1996
(commencement of operations) to December 31, 1996, included in this Statement of
Additional Information have been so included in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being passed
upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTOR
London Pacific Financial and Insurance Services acts as the distributor. London
Pacific Financial and Insurance Services is an affiliate of the Company. The
offering is on a continuous basis.
YIELD CALCULATION FOR THE BERKELEY MONEY MARKET SUB-ACCOUNT
The Berkeley Money Market Sub-Account of the Separate Account will calculate its
current yield based upon the seven days ended on the date of calculation. The
Company does not currently advertise any yield information for the Berkeley
Money Market Sub-Account.
The current yield of the Berkeley Money Market Sub-Account is computed daily by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing Owner account having a balance of one Accumulation
Unit of the Sub-Account at the beginning of the period, subtracting the
Mortality and Expense Risk Charge, the Administrative Charge, the Distribution
Charge and the Contract Maintenance Charge, dividing the difference by the value
of the Owner account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7).
The Berkeley Money Market Sub-Account computes its effective compound yield by
determining the net changes (exclusive of capital change) in the value of a
hypothetical pre-existing Owner account having a balance of one Accumulation
Unit of the Sub-Account at the beginning of the period, subtracting the
Mortality and Expense Risk Charge, the Administrative Charge, the Distribution
Charge and the Contract Maintenance Charge and dividing the difference by the
value of the Owner account at the beginning of the base period to obtain the
base period return, and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield = ((Base Period
Return +1) 365/7)-1. The current and the effective yields reflect the
reinvestment of net income earned daily on the Berkeley Money Market
Sub-Account's assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of the
Berkeley Money Market Sub-Account in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Berkeley Money Market Sub-Account and changes in the
interest rates on such investments, but also on changes in the Berkeley Money
Market Sub-Account's expenses during the period.
Yield information may be useful in reviewing the performance of the Berkeley
Money Market Sub-Account and for providing a basis for comparison with other
investment alternatives. However, the Berkeley Money Market Sub-Account's yield
fluctuates, unlike bank deposits or other investments which typically pay a
fixed yield for a stated period of time.
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. Any such advertisement will include total return figures for the
time periods indicated in the advertisement. Such total return figures will
reflect the deduction of a 1.25% Mortality and Expense Risk Charge, a .15%
Administrative Charge, a .10% Distribution Charge, the investment advisory fee
and expenses for the underlying Portfolio being advertised and any applicable
Contract Maintenance Charge.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Contract Maintenance Charge to arrive at the ending hypothetical value. The
average annual total return is then determined by computing the fixed interest
rate that a $1,000 purchase payment would have to earn annually, compounded
annually, to grow to the hypothetical value at the end of the time periods
described. The formula used in these calculations is:
n
P (1+T) = ERV
<TABLE>
<CAPTION>
<S> <C>
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment
made at the beginning of the time periods used.
</TABLE>
In addition to total return data, the Company may include yield information in
its advertisements. For each Sub-Account (other than the Berkeley Money Market
Sub-Account) for which the Company will advertise yield, it will show a yield
quotation based on a 30 day (or one month) period ended on the date of the most
recent balance sheet of the Separate Account included in the registration
statement, computed by dividing the net investment income per Accumulation Unit
earned during the period by the maximum offering price per Unit on the last day
of the period, according to the following formula:
6
Yield = 2 [( a-b + 1) - 1]
----
cd
<TABLE>
<CAPTION>
<S> <C> <C>
Where:
a = Net investment income earned during the period by the Portfolio
attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The maximum offering price per Accumulation Unit on the
last day of the period.
</TABLE>
The Company may also advertise performance data which may be computed on a
different basis which may not include certain charges. If such charges were
deducted, the performance would be lower.
Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's total return or
yield for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return or yield may be in any
future period.
ANNUITY PROVISIONS
Variable Annuity Payments reflect the investment performance of the Separate
Account in accordance with the allocation of the Adjusted Contract Value to the
Sub-Accounts during the Annuity Period. Annuity Payments also depend upon the
Age of the Annuitant and any Joint Annuitant and the assumed interest factor
utilized. The Annuity Table used will depend upon the Annuity Option chosen. The
dollar amount of Variable Annuity Payments for each applicable Sub-Account after
the first Variable Annuity Payment is determined as follows:
1. The dollar amount of the first Variable Annuity Payment is divided by
the value of an Annuity Unit for each applicable Sub-Account as of the Annuity
Date. This sets the number of Annuity Units for each monthly payment for the
applicable Sub-Account. The number of Annuity Units remains fixed during the
Annuity Period.
2. The fixed number of Annuity Units per payment in each Sub-Account is
multiplied by the Annuity Unit Value for that Sub-Account for the last Valuation
Period of the month preceding the month for which the payment is due. This
result is the dollar amount of the payment for each applicable Sub-Account.
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments reduced by the applicable portion of the
Contract Maintenance Charge.
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account was
arbitrarily set initially at $10.
The Sub-Account Annuity Unit Value at the end of any subsequent Valuation Period
is determined as follows:
1. The Net Investment Factor for the current Valuation Period is multiplied
by the value of the Annuity Unit for the Sub-Account for the immediately
preceding Valuation Period. The Net Investment Factor is equal to the
Accumulation Unit Value for the current Valuation Period divided by the
Accumulation Unit Value for the immediately preceding Valuation Period.
2. The result in (1) is then divided by the Assumed Investment Rate Factor
which equals 1.00 plus the Assumed Investment Rate for the number of days since
the preceding Valuation Date. The Assumed Investment Rate is equal to an
effective annual rate of 4%.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
(See "Annuity Provisions" in the Prospectus.)
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
LPLA SEPARATE ACCOUNT ONE
FINANCIAL STATEMENTS
CONTENTS
Audited Financial Statements
Statement of Assets and Liabilities......... 1
Statement of Operations....................... 2
Statement of Changes in Net Assets......... 3
Notes to Financial Statements................ 4
Report of Independent Accountants............ 8
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Salomon Strong
MFS Total Salomon U.S. Money International Strong
MAS Value Return Quality Bond Market Stock Growth
ASSETS Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------- ------------ -------------- ------------
Investments in the LPT
Variable Insurance Trust,
at value (Note 3) $ 766,457 $ 1,046,614 $ 926,451 $ 417,951 $ 565,195 $ 722,959
------------ ------------ ------------- ------------ -------------- ------------
Total Assets $ 766,457 $ 1,046,614 $ 926,451 $ 417,951 $ 565,195 $ 722,959
------------ ------------ ------------- ------------ -------------- ------------
LIABILITIES
Accrued expenses payable to
London Pacific Life & Annuity
Company (Note 4) 22 32 31 16 15 17
Amounts retained by London Pacific
Life & Annuity Co. in LPLA Separate
Account One
(Note 7) 153,196 139,219 127,999 130,261 133,139 160,583
------------ ------------ ------------- ------------ -------------- ------------
TOTAL LIABILITIES 153,218 139,251 128,030 130,277 133,154 160,600
------------ ------------ ------------- ------------ -------------- ------------
Net Assets Attributable to
Contract Owners $ 613,239 $ 907,363 $ 798,421 $ 287,674 $ 432,041 $ 562,359
============ ============ ============= ============ ============== ============
UNIT VALUE $ 12.12 $ 11.03 $ 10.15 $ 10.36 $ 10.58 $ 12.62
============ ============ ============= ============ ============== ============
Units Outstanding 50,583 82,279 78,700 27,763 40,840 44,555
============ ============ ============= ============ ============== ============
<S> <C> <C>
Berkeley Lexington
Smaller Corporate
Companies Leaders
ASSETS Sub-Account Sub-Account
------------ ------------
Investments in the LPT
Variable Insurance Trust,
at value (Note 3) $ 674,793 $ 489,190
------------ ------------
Total Assets $ 674,793 $ 489,190
------------ ------------
LIABILITIES
Accrued expenses payable to
London Pacific Life & Annuity
Company (Note 4) 17 13
Amounts retained by London Pacific
Life & Annuity Co. in LPLA Separate
Account One
(Note 7) 131,253 144,672
------------ ------------
TOTAL LIABILITIES 131,270 144,685
------------ ------------
Net Assets Attributable to
Contract Owners $ 543,523 $ 344,505
============ ============
UNIT VALUE $ 10.35 $ 11.51
============ ============
Units Outstanding 52,516 29,933
============ ============
</TABLE>
See Notes to Financial Statements
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Strong
MFS Total Salomon U.S. Salomon Money International Strong
MAS Value Return Quality Bond Market Stock Growth
INCOME AND EXPENSES Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------- -------------- -------------- -------------
Income:
Dividends from the LPT Variable
Insurance Series Trust $ 19,181 $ 15,103 $ 37,717 $ 15,124 $ 2,659 $ 38,140
Expenses:
Mortality and other expense
charges (Note 4) 1,620 2,240 5,845 1,903 1,726 1,160
------------ ------------ ------------- -------------- -------------- -------------
Net investment income 17,561 12,863 31,872 13,221 933 36,980
------------ ------------ ------------- -------------- -------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.
Net realized gain on sales of
investments 29 2 102 0 75 551
------------ ------------ ------------- -------------- -------------- -------------
Net unrealized appreciation
(depreciation) on investments
Beginning of period 0 0 0 0 0 0
End of period 40,172 19,948 646 0 2,107 (5,660)
------------ ------------ ------------- -------------- -------------- -------------
Net unrealized appreciation
(depreciation) during period 40,172 19,948 646 0 2,107 (5,660)
------------ ------------ ------------- -------------- -------------- -------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 40,201 19,950 748 0 2,182 (5,109)
------------ ------------ ------------- -------------- -------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Operations $ 57,762 $ 32,813 $ 32,620 $ 13,221 $ 3,115 $ 31,871
============ ============ ============= ============== ============== =============
<S> <C> <C>
Berkeley Lexington
Smaller Corporate
Companies Leaders
INCOME AND EXPENSES Sub-Account Sub-Account
------------- ------------
Income:
Dividends from the LPT Variable
Insurance Series Trust $ 112,982 $ 4,264
Expenses:
Mortality and other expense
charges (Note 4) 1,558 672
------------- ------------
Net investment income 111,424 3,592
------------- ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.
Net realized gain on sales of
investments 85 4
------------- ------------
Net unrealized appreciation
(depreciation) on investments
Beginning of period 0 0
End of period (142,697) 24,589
------------- ------------
Net unrealized appreciation
(depreciation) during period (142,697) 24,589
------------- ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (142,612) 24,593
------------- ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations ($31,188) $ 28,185
============= ============
</TABLE>
See Notes to Financial Statements
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Salomon Strong
MFS Total Salomon U.S. Money International
MAS Value Return Quality Bond Market Stock
INCREASE(DECREASE) IN NET Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------- ------------- -------------- ------------- ---------------
ASSETS FROM OPERATIONS
Net investment income $ 17,561 $ 12,863 $ 31,872 $ 13,221 $ 933
Net realized gain on sales 29 2 102 0 75
Net unrealized appreciation
(depreciation) during the period 40,172 19,948 646 0 2,107
------------- ------------- -------------- ------------- ---------------
Net increase (decrease) in net
Assets resulting from operations 57,762 32,813 32,620 13,221 3,115
------------- ------------- -------------- ------------- ---------------
CONTRACT RELATED TRANSACTIONS:
Transfers in from net premiums 286,034 414,918 95,545 2,841,064 155,627
Transfers out from contract related
transactions (357) (3,655) (3,368) 0 (1,948)
Transfers between Separate Account
investment portfolios 297,996 477,506 676,623 (2,561,350) 283,386
------------- ------------- -------------- ------------- ---------------
Net increase in net assets resulting
from contract related transactions 583,673 888,769 768,800 279,714 437,065
------------- ------------- -------------- ------------- ---------------
INITIAL CONTRIBUTION BY LONDON
PACIFIC LIFE & ANNUITY COMPANY 125,000 125,000 125,000 125,000 125,000
Change in amount retained by London
Pacific Life & Annuity Company in
LPLA Separate Account One (Note 7) (153,196) (139,219) (127,999) (130,261) 133,139)
------------- ------------- -------------- ------------- ---------------
INCREASE IN NET ASSETS 613,239 907,363 798,421 287,674 432,041
NET ASSETS, BEGINNING OF PERIOD 0 0 0 0 0
------------- ------------- -------------- ------------- ---------------
NET ASSETS, END OF PERIOD $ 613,239 $ 907,363 $ 798,421 $ 287,674 $ 432,041
============= ============= ============== ============= ===============
<S> <C> <C> <C>
Berkeley Lexington
Strong Smaller Corporate
Growth Companies Leaders
INCREASE(DECREASE) IN NET Sub-Account Sub-Account Sub-Account
------------- ------------- -------------
ASSETS FROM OPERATIONS
Net investment income $ 36,980 $ 111,424 $ 3,592
Net realized gain on sales 551 85 4
Net unrealized appreciation
(depreciation) during the period (5,660) (142,697) 24,589
------------- ------------- -------------
Net increase (decrease) in net
Assets resulting from operations 31,871 (31,188) 28,185
------------- ------------- -------------
CONTRACT RELATED TRANSACTIONS:
Transfers in from net premiums 227,819 246,768 187,429
Transfers out from contract related
transactions (2,879) (1,896) (53)
Transfers between Separate Account
investment portfolios 341,131 336,092 148,616
------------- ------------- -------------
Net increase in net assets resulting
from contract related transactions 566,071 580,964 335,992
------------- ------------- -------------
INITIAL CONTRIBUTION BY LONDON
PACIFIC LIFE & ANNUITY COMPANY 125,000 125,000 125,000
Change in amount retained by London
Pacific Life & Annuity Company in
LPLA Separate Account One (Note 7) (160,583) (131,253) (144,672)
------------- ------------- -------------
INCREASE IN NET ASSETS 562,359 543,523 344,505
NET ASSETS, BEGINNING OF PERIOD 0 0 0
------------- ------------- -------------
NET ASSETS, END OF PERIOD $ 562,359 $ 543,523 $ 344,505
============= ============= =============
</TABLE>
See Notes to Financial Statements
LPLA SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION
LPLA Separate Account One ("Separate Account") is a separate investment account
of London Pacific Life & Annuity Company ("Company"). The Separate Account was
established on November 23, 1994 under the insurance laws of the State of North
Carolina for the purpose of issuing flexible payment variable annuity contracts.
Under North Carolina's insurance laws, the assets of the Separate Account are
clearly identified and distinguished from the other assets and liabilities of
the Company. The Separate Account cannot be charged with liabilities arising out
of any other business of the Company.
The Separate Account is a unit investment trust registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. Contract
owners may allocate their account values to one or more of the Separate
Account's investment Sub-Accounts. Funds of the investment Sub-Accounts of the
Separate Account are invested exclusively in a corresponding investment
portfolio of the LPT Variable Insurance Series Trust ("Trust") managed by LPIMC
Insurance Marketing Services ("LPIMC"), a registered investment advisor and a
wholly-owned subsidiary of the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles consistently followed
by the Separate Account in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
INVESTMENTS - Security transactions are recorded on the trade date. Investments
held by the Sub-Accounts are stated at the net asset value per share of the
respective investment portfolio of the Trust. Realized gains and losses on sales
of shares of the Trust are determined based on the first-in, first-out method.
Dividends and capital gain distributions are recorded on the ex-dividend date
and are reinvested in additional shares of the respective investment portfolio
of the Trust.
FEDERAL INCOME TAXES - Operations of the Separate Account are included in the
income tax return of the Company, which is taxed as a life insurance company
under the Internal Revenue Code. The Separate Account will not be taxed as a
registered investment company under Sub-Chapter M of the Internal Revenue Code.
Under existing federal income tax law, no taxes are payable on the investment
income or on the capital gains of the Separate Account.
LPLA SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
_______________________________________________________________________________
Portfolio Information
Number of Aggregate Net Asset
Investment Sub-Account Shares Cost Value Per Share
________________________________________________________________________________
<S> <C> <C> <C>
MAS Value 64,647 $ 726,285 $ 11.86
MFS Total Return 96,012 1,026,666 10.90
Salomon U.S. Quality Bond 94,436 925,805 9.81
Salomon Money Market 417,951 417,951 1.00
Strong International Stock 53,401 563,088 10.58
Strong Growth 60,664 728,619 11.92
Berkeley Smaller Companies 78,575 817,490 8.58
Lexington Corporate Leaders 42,749 464,601 11.44
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company assesses a charge of 1.25% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account .15% and .10% per annum based
on the average daily net assets of each Sub-Account for administrative and
distribution expenses, respectively. These charges are deducted from the daily
unit value of each Sub-Account but are paid to the Company on a monthly basis.
A contract maintenance charge of $36 is currently deducted on the policy
anniversary date and upon full surrender of the policy when the accumulated
value is $50,000 or less.
London Pacific Financial and Insurance Services ("LPFIS"), a registered
broker/dealer and wholly-owned subsidiary of the Company, is principal
underwriter and general distributor of the Separate Account. LPFIS does not
receive any compensation for sales of the variable annuity contracts.
LPLA SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - CHANGES IN UNITS OUTSTANDING
Changes in units outstanding for the period January 31, 1996 (commencement of
operations) to December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Investment Sub-Account Units Purchased Units Transferred Units Redeemed Net Increase
___________________________ ________________ __________________ _________________ ______________
<S> <C> <C> <C> <C>
MAS Value 23,988 26,628 (33) 50,583
MFS Total Return 37,908 44,705 (334) 82,279
Salomon U.S. Quality Bond 9,805 69,231 (336) 78,700
Salomon Money Market 277,258 (249,495) 0 27,763
Strong International Stock 14,759 26,267 (186) 40,840
Strong Growth 17,977 26,809 (231) 44,555
Berkeley Smaller Companies 22,713 29,987 (184) 52,516
Lexington Corporate Leaders 16,470 13,468 (5) 29,933
</TABLE>
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code a variable
annuity contract, other than a contract issued in connection with certain types
of employee benefit plans, will not be treated as an annuity contract for
federal income tax purposes for any period for which the investments of the
segregated asset account on which the contract is based are not adequately
diversified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor test
or diversification requirements set forth in regulations issued by the Secretary
of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that it satisfies the current requirements of the
regulations, and it intends that the Separate Account will continue to meet such
requirements.
NOTE 7 - AMOUNT RETAINED BY THE COMPANY
The amount retained by the Company is attributable to the Company's initial
contribution to the Separate Account and the underlying investment results. The
change in this amount arises from that portion, determined ratably, of the
Separate Account's investment results applicable to the net assets owned by the
Company. The funds contributed by the Company, as well as any investment
appreciation or depreciation, are not subject to charges for mortality and
expense risks, administration expenses and distribution expenses.
Amounts retained by the Company in the Separate Account may be transferred by
the Company to its General Account at any time.
LPLA SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust shares by the Separate
Account during the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Investment Sub-Account Purchases Sales
___________________________ ___________ ___________
<S> <C> <C>
MAS Value $ 726,613 $ 357
MFS Total Return 1,026,717 53
Salomon U.S. Quality Bond 980,727 55,024
Salomon Money Market 2,853,937 2,435,986
Strong International Stock 564,621 1,608
Strong Growth 730,723 2,655
Berkeley Smaller Companies 819,174 1,769
Lexington Corporate Leaders 464,650 53
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of London Pacific Life & Annuity
Company and Contract Owners of LPLA Separate Account One
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts (MAS
Value, MFS Total Return, Salomon U.S. Quality Bond, Salomon Money Market, Strong
International Stock, Strong Growth, Berkeley Smaller Companies and Lexington
Corporate Leaders) constituting LPLA Separate Account One at December 31, 1996,
the results of each of their operations and the changes in each of their net
assets for the period indicated, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
London Pacific Life & Annuity Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1996 by
correspondence with the Trust, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 18, 1997
LONDON PACIFIC LIFE
& ANNUITY COMPANY
(A wholly-owned subsidiary
of London Pacific Group
Limited)
STATUTORY BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
Statutory Basis Financial Statements
Years ended December 31, 1996, 1995 and 1994
CONTENTS
Report of Independent Accountants........................................... 1
AUDITED FINANCIAL STATEMENTS
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus... 3
Statutory Statements of Operations.......................................... 4
Statutory Statements of Changes in Capital and Surplus..................... 5
Statutory Statements of Cash Flows......................................... 6-7
Notes to Statutory Financial Statements.................................... 8-19
Report of Independent Accountants
February 3, 1997
To the Board of Directors and Shareholder of
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
We have audited the accompanying statutory statements of admitted assets,
liabilities, capital and surplus of London Pacific Life & Annuity Company (a
wholly-owned subsidiary of London Pacific Group Limited) as of December 31, 1996
and 1995, and the related statutory statements of operations, of changes in
capital and surplus, and of cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the North Carolina
Department of Insurance, which practices differ from generally accepted
accounting principles. Accordingly, the financial statements are not intended to
represent a presentation in accordance with generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.
To the Board of Directors and Shareholder of
London Pacific Life & Annuity Company
Page 2
February 3, 1997
In our opinion, the financial statements referred to above (1) do not present
fairly in conformity with generally accepted accounting principles, the
financial position of London Pacific Life & Annuity Company at December 31, 1996
and 1995, or the results of its operations or its cash flows for each of the
three years in the period ended December 31, 1996 because of the effects of the
variances between the statutory basis of accounting and generally accepted
accounting principles referred to in the third paragraph of this report and (2)
do present fairly, in all material respects, its financial position and the
results of its operations and its cash flows, on the basis of accounting
described in Note 1.
/s/ PRICE WATERHOUSE LLP
_________________________
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
__________________________________________________________________________________________
DECEMBER 31,
_____________
<S> <C> <C>
1996 1995
-------------- ---------------
ASSETS
Investments:
Bonds $1,142,464,351 $1,057,481,158
Preferred stock 1,687,616 9,912,720
Common stock 20,479,485 1,430,013
Short-term investments 88,249,049 69,747,096
Policy loans 6,294,811 4,455,976
-------------- ---------------
Total investments 1,259,175,312 1,143,026,963
-------------- ---------------
Cash 26,008,933 2,664,850
-------------- ---------------
Total cash and investments 1,285,184,245 1,145,691,813
Investment income due and accrued 12,363,810 17,492,346
Electronic data processing equipment, net 358,143 609,886
Amount due from broker-dealers 53,223,692 12,527,500
Receivable from affiliates 138,877 4,608,663
Other assets 1,037,418 1,741,100
Separate account assets 5,609,610 -
-------------- ---------------
Total assets $1,357,915,795 $1,182,671,308
============== ===============
LIABILITIES, CAPITAL AND SURPLUS
Aggregate reserves for life policies and contracts $1,097,795,798 $1,066,977,854
Policy and contract claims 382,429 417,570
Accrued dividends to policyholders 422,330 527,418
Interest maintenance reserve 11,668,491 10,376,170
Federal income taxes payable 3,998,217 2,007,817
Remittances and items not allocated 631,586 219,649
Asset valuation reserve 29,133,762 30,546,857
Payable to affiliates 36,512 3,325
Amounts due to broker-dealers 131,945,347 20,930,752
Accounts payable, accrued expenses and other liabilities 1,574,699 1,053,398
Separate account liabilities 4,489,291 -
-------------- ---------------
Total liabilities 1,282,078,462 1,133,060,810
-------------- ---------------
Capital and surplus:
Capital stock - $10 par value, 1,000,000 shares
authorized; 200,000 shares issued and outstanding 2,000,000 2,000,000
Paid-in and contributed surplus 70,394,120 48,394,120
Unassigned surplus (deficit) 3,443,213 (783,622)
-------------- ---------------
Total capital and surplus 75,837,333 49,610,498
-------------- ---------------
Commitments and contingent liabilities
Total liabilities, capital and surplus $1,357,915,795 $1,182,671,308
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF OPERATIONS
____________________________________________________________________________________________________
YEAR ENDED DECEMBER 31,
________________________
<S> <C> <C> <C>
1996 1995 1994
------------ ------------- -------------
REVENUES
Insurance premiums and annuity
Considerations $137,499,919 $203,233,606 $210,373,366
Net investment income 91,013,416 88,960,512 79,812,665
Amortization of interest maintenance reserve 683,806 (185,844) 945,197
Net gain from operations from separate account 120,319 - -
Other income 287,470 1,255 -
------------ ------------- -------------
Total revenues 229,604,930 292,009,529 291,131,228
------------ ------------- -------------
BENEFITS AND EXPENSES
Policyholder benefits and changes in reserve 196,153,897 256,854,252 256,731,020
Commissions 8,531,145 14,237,877 22,125,145
Net transfer to separate account 4,175,745 - -
Other operating expenses 12,844,370 10,358,955 10,020,230
------------ ------------- -------------
Total benefits and expenses 221,705,157 281,451,084 288,876,395
------------ ------------- -------------
Gain from operations before dividends to
policyholders, federal income taxes and
net realized capital gains (losses) 7,899,773 10,558,445 2,254,833
Dividends to policyholders 915,864 1,007,373 540,513
------------ ------------- -------------
Gains from operations, before federal income taxes
and net realized capital gains (losses) 6,983,909 9,551,072 1,714,320
Federal income tax expense (benefit) (excluding
tax on capital gains) 991,257 2,597,127 (961,168)
------------ ------------- -------------
Gain from operations before net realized capital
gains (losses) 5,992,652 6,953,945 2,675,488
Net realized capital gains (losses), less capital gains
tax of $4,617,743, $1,931,162 and ($2,174,852)
and excluding $1,976,127, $303,286 and
$2,316,416 transferred to the IMR in 1996, 1995
and 1994, respectively. 988,636 3,445,440 (6,538,149)
------------ ------------- -------------
Net income (loss) $ 6,981,288 $ 10,399,385 ($3,862,661)
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
PAID-IN AND
CAPITAL CONTRIBUTED UNASSIGNED
STOCK SURPLUS SURPLUS TOTAL
----------- ------------ -------------- -------------
Balance as of December 31, 1993 2,000,000 33,350,173 10,344,182 45,694,355
Net loss (3,862,661) (3,862,661)
Increase in unrealized capital gains 1,726,451 1,726,451
Increase in non-admitted assets (695,915) (695,915)
Increase in asset valuation reserve (19,129,023) (19,129,023)
Capital contributions 13,588,397 13,588,397
---------- ------------ ------------ -------------
Balance as of December 31, 1994 2,000,000 46,938,570 (11,616,966) 37,321,604
Net income 10,399,385 10,399,385
Increase in unrealized capital gains 9,403 9,403
Decrease in non-admitted assets 1,575,841 1,575,841
Increase in asset valuation reserve (1,151,285) (1,151,285)
Capital contributions 1,455,550 1,455,550
---------- ------------ ----------- -------------
Balance as of December 31, 1995 $ 2,000,000 $ 48,394,120 ($783,622) $ 49,610,498
Net income 6,981,288 6,981,288
Increase in unrealized capital losses (4,163,544) (4,163,544)
Increase in non-admitted assets (4,004) (4,004)
Decrease in asset valuation reserve 1,413,095 1,413,095
Capital contributions 22,000,000 22,000,000
----------- ------------ -------------- -------------
Balance as of December 31, 1996 $ 2,000,000 $ 70,394,120 $ 3,443,213 $ 75,837,333
=========== ============ ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF CASH FLOWS
________________________________________________________________________________________
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
------------- ------------- ------------
CASH PROVIDED BY:
Premiums and annuity considerations
collected $137,499,919 $203,233,606 $210,357,865
Investment income received (excluding
Realized gains/losses and net of investment
expenses) 95,583,016 86,134,922 78,892,896
Other income received 287,305 1,255 226,807
------------- ------------- ------------
Total cash provided by operations 233,370,240 289,369,783 289,477,568
------------- ------------- ------------
CASH USED FOR:
Life and accident and health claims paid 832,760 1,213,526 210,886
Surrender benefits and other fund
withdrawals paid 110,213,086 81,936,665 66,245,808
Other benefits to policyholders paid 54,325,262 51,869,119 42,541,134
------------- ------------- ------------
165,371,108 135,019,310 108,997,828
------------- ------------- ------------
Commissions and other expenses paid 20,570,531 24,913,719 34,449,032
------------- ------------- ------------
Net transfers to separate account 5,441,049 - -
Dividends to policyholders paid 1,020,952 1,048,627 858,087
Federal income taxes (recoverable) paid
(excluding tax on capital gains) (999,143) (2,654,355) 7,673,225
------------- ------------- ------------
Total cash used for operations 191,404,497 158,327,301 151,978,172
------------- ------------- ------------
Net cash provided by operations 41,965,743 131,042,482 137,499,396
------------- ------------- ------------
PROCEEDS FROM INVESTMENTS SOLD, MATURED OR
REPAID:
Bonds 651,187,776 193,271,490 346,800,750
Stocks 105,201,117 11,228,210 120,257,956
Net gain on short-term investments - - 17,915
Other proceeds 15,922 96,780 -
------------- ------------- ------------
756,404,815 204,596,480 467,076,621
Tax on capital gains (4,617,743) (1,931,162) 2,174,832
------------- ------------- ------------
Total investment proceeds 751,787,072 202,665,318 469,251,453
------------- ------------- ------------
</TABLE>
(continued on next page)
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
STATUTORY STATEMENTS OF CASH FLOWS (CONTINUED)
___________________________________________________________________________
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
------------- ------------- --------------
COST OF INVESTMENTS ACQUIRED:
Bonds 735,812,956 268,824,294 602,767,827
Stocks 112,429,288 6,872,362 125,375,796
Miscellaneous other 52,218 575,445 1,562,819
------------- ------------- --------------
Total investments acquired 848,294,462 276,272,101 729,706,442
Net increase in policy loans 1,838,835 1,456,664 961,502
------------- ------------- --------------
Net cash from investments (98,346,225) (75,063,447) (261,416,491)
------------- ------------- --------------
COST FROM FINANCING AND MISCELLANEOUS SOURCES:
Capital and surplus paid in 22,000,000 1,455,550 13,588,397
Other cash provided 116,248,250 20,941,157 10,238,471
Other cash applied (40,021,732) (17,753,828) (190,351)
------------- ------------- --------------
Net cash from financing and
miscellaneous sources 98,226,518 4,642,879 23,636,517
------------- ------------- --------------
Net change in cash and short-term investments 41,846,036 60,621,914 (100,280,578)
------------- ------------- --------------
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 72,411,946 11,790,032 112,070,610
------------- ------------- --------------
End of year 114,257,982 $ 72,411,946 $ 11,790,032
============= ============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Income taxes $ 3,664,978 $ 2,524,651 $ 5,516,862
</TABLE>
The accompanying notes are an integral part of these financial statements.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
London Pacific Life & Annuity Company (the Company) is domiciled in North
Carolina and is a wholly-owned subsidiary of The London Pacific Assurance Group
Limited (the Parent), a holding company domiciled in the state of California,
which is ultimately a wholly-owned subsidiary of London Pacific Group Limited
(formerly Govett & Company Limited). The Company has two wholly-owned
subsidiaries, LPIMC Insurance Marketing Services (the Marketing Company), a
registered investment advisor and London Pacific Financial & Insurance Services
(the Broker Dealer), a registered broker-dealer. The Company is engaged
primarily in the development and marketing of annuity products and universal
life insurance. Although the Company is licensed and sells its universal life
and annuity products in 40 states, its primary markets are California, Florida,
Michigan, Ohio, Texas and Washington.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
amounts reported and disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the North Carolina Department of
Insurance which is a comprehensive basis of accounting other than generally
accepted accounting principles. Significant differences between statutory
accounting principles and generally accepted accounting principles (GAAP) are
described in Note 2.
INVESTMENTS
Investments are recorded in accordance with the requirements of the
National Association of Insurance Commissioners (NAIC). Bonds not backed by
loans are reported at cost or amortized cost; the discount or premium on bonds
is amortized using the interest method. For loan-backed bonds, anticipated
prepayments are considered when determining the amortization of discount or
premium. Prepayment assumptions are obtained from dealer surveys and are based
on the current interest rate and economic development. The retrospective
adjustment method is used to value all such securities except for interest-only
securities, which are valued using the prospective method. Preferred stocks are
carried at NAIC Securities Valuation Office (SVO) values. Common stocks are
reported at market value as determined by the SVO and the related unrealized
capital gain/(loss) is reported in unassigned surplus without any adjustment for
federal income taxes. The Company's subsidiaries are reported at equity in the
underlying statutory basis of their net assets. As of December 31, 1996, the
carrying value of the Company's investment in subsidiaries was $1,025,980.
Short-term investments are carried at cost which approximates market value.
INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap programs for the purpose of
minimizing exposure to fluctuations in interest rates. The notional amount of
the single matched swap in place at December 31, 1996 and 1995 was $9,000,000.
The unexpired term at December 31,1996 was five months. During the term of the
swap, the net swap settlement amount is accrued over time as an adjustment to
other expense or other income.
Gains or losses on termination are deferred and amortized as an interest
adjustment over the remaining life of the underlying financial instrument. There
are no outstanding matched swaps at a loss position at December 31, 1996 and
1995. The Company does not act as an intermediary or broker in interest rate
swaps.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN EXCHANGE FORWARD CONTRACTS
The Company enters into foreign exchange forward contracts to hedge
exposure to currency risk on foreign denominated bonds. The cost of the
contracts is included as part of the carrying value of the underlying
securities. As of December 31, 1996, the notional amount of the contracts was
$60,752,853 and expire in December 1997. The Company uses the deferral method to
account for foreign exchange forward contracts. Under the deferral method,
realized and unrealized gains and losses from these forward contracts are
deferred on the Statutory Statement of Admitted Assets, Liabilities, Capital and
Surplus. Upon disposal of the hedged security, deferred gains and losses are
recognized in net realized capital gains in the Statutory Statement of
Operations. The Company only enters into foreign exchange forward contracts with
brokers deemed to be credit worthy by management.
ELECTRONIC DATA PROCESSING EQUIPMENT
Electronic data processing equipment is recorded at cost, net of
accumulated depreciation of $1,783,263 and $1,511,059 at December 31, 1996 and
1995. Depreciation is provided using the straight-line method over the estimated
useful life of five years. Depreciation expense amounted to $272,204, $346,495
and $361,961 for the years ended December 31, 1996, 1995 and 1994.
REMITTANCES AND ITEMS NOT ALLOCATED
Remittances and items not allocated consist primarily of cash received with
policy applications for policies that have not been issued.
POLICY AND CONTRACT CLAIMS
Policy and contract claims of $294,629 and $244,046 related to death
benefits payable on life and annuity contracts have been accrued at December 31,
1996 and 1995. The remaining policy and contract claims of $87,800 and $173,524
at December 31, 1996 and 1995 relate to estimated incurred but unreported claims
on life contracts.
SEPARATE ACCOUNT
Separate account assets and liabilities reported in the accompanying
Statutory Statement of Admitted Assets, Liabilities, Capital and Surplus
represent funds that are separately administered for variable annuity contracts,
and for which the contractholder, rather than the Company, bears the investment
risk. Separate account assets are reported at market value. The operations of
the separate account are not included in the accompanying financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
2. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
STATUTORY ACCOUNTING PRINCIPLES
Statutory accounting principles vary in some respects from generally
accepted accounting principles. The more significant of these differences are as
follows:
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
2. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
STATUTORY ACCOUNTING PRINCIPLES (CONTINUED)
INVESTMENTS
Market values of certain investments in bonds and stocks are based on
values specified by the NAIC, rather than on values provided by outside broker
confirmations or internally calculated estimates. For GAAP, investments in bonds
would be designated at purchase as held-to-maturity, trading, or
available-for-sale. Held-to-maturity fixed investments would be reported at
amortized cost, and the remaining fixed maturity investments would be reported
at fair value with unrealized holding gains and losses reported in operations
for those designated as trading and as a separate component of shareholders'
equity for those designated as available-for-sale. Realized gains and losses are
reported in income net of income tax rather than on a pretax basis. The Asset
Valuation Reserve is determined by an NAIC prescribed formula and is reported as
a liability rather than as a valuation allowance or an appropriation of surplus.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred
rather than capitalized and amortized over the terms of the related policies.
NON-ADMITTED ASSETS
Certain assets designated as "non-admitted," principally furniture and
equipment, are excluded from the accompanying Statutory Statements of Admitted
Assets, Liabilities, Capital and Surplus and are charged directly to unassigned
surplus.
PREMIUMS
Single premium whole life, annuity and flexible premium variable life
insurance considerations are recognized as earned upon issuance of the contract,
whereas under GAAP, premium income consists of mortality charges, surrender
charges earned, policy fees earned and amounts deducted from policyholder
accounts.
BENEFIT RESERVES
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions rather than estimated expected experience or
actual account balances.
INCOME TAXES
Deferred income taxes are generally not provided for differences between
the financial statement amounts and the tax bases of assets and liabilities.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
3. ANALYSIS OF ASSETS
An analysis of the Company's ledger assets as compared with its net
admitted assets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
___________________
<S> <C> <C> <C> <C>
LEDGER NONLEDGER ASSETS NOT NET
ASSETS ASSETS ADMITTED ADMITTED ASSETS
-------------- ------------ ------------ ----------------
Bonds $1,147,330,467 $ 4,866,116 $ 1,142,464,351
Preferred stock 1,687,616 1,687,616
Common stock 20,194,334 $ 341,598 56,447 20,479,485
Policy loans 6,294,811 6,294,811
Cash 26,008,933 26,008,933
Short-term investment 88,249,049 88,249,049
Investment income due and accrued 12,363,810 12,363,810
Electronic data processing
Equipment, net 358,143 358,143
Furniture and equipment 350,583 350,583
Deposits, prepaid expenses and
Other assets 54,442,692 62,282 104,987 54,399,987
Separate account assets 5,609,610 5,609,610
-------------- ------------ ------------ ----------------
$1,350,526,238 $ 12,767,690 $ 5,378,133 $ 1,357,915,795
============== ============ ============ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
___________________
<S> <C> <C> <C> <C>
LEDGER NONLEDGER ASSETS NOT NET
ASSETS ASSETS ADMITTED ADMITTED ASSETS
-------------- ------------ ----------- ----------------
Bonds $1,057,607,158 $ 126,000 $ 1,057,481,158
Preferred stock 9,972,720 ($60,000) 9,912,720
Common stock 1,641,663 (114,209) 97,441 1,430,013
Policy loans 4,455,976 4,455,976
Cash 2,664,850 2,664,850
Short-term investments 69,747,096 69,747,096
Investment income due and
Accrued 17,492,346 17,492,346
Electronic data processing
Equipment, net 609,886 609,886
Receivable from affiliates 4,608,663 4,608,663
Furniture and equipment 245,531 245,531
Deposits, prepaid expenses and
Other assets 14,390,754 83,881 206,035 14,268,600
-------------- ------------ ----------- ----------------
$1,165,944,297 $17,402,018 $ 675,007 $ 1,182,671,308
============== ============ =========== =================
</TABLE>
4. RELATED PARTIES
The Company had material transactions with its parent and affiliated
companies as follows:
CAPITAL CONTRIBUTIONS
The Company received capital contributions from its parent during the years
ended December 31, 1996, 1995 and 1994 totaling $22,000,000, $1,455,550 and
$13,588,397, respectively, principally in the form of investments and accrued
interest. During 1996, the Company made a $500,000 capital contribution to the
Marketing Company.
4. RELATED PARTIES (CONTINUED)
EXPENSES
The Company receives investment advisory services under the terms of an
investment management agreement with Berkeley Institutional Investment, Inc.
(BIII), an affiliate of London Pacific Group Limited. Fees charged to the
Company under the agreement amounted to $5,578,673, $5,272,984 and $4,401,840
during the years ended December 31, 1996, 1995, and 1994, respectively.
Commissions on insurance business produced for the Company by its agents
are paid by the Marketing Company, the master general agent for the Company.
Effective January 1, 1995, the Company directly paid all agents' commissions via
the Marketing Company. For the years ended December 31, 1996, 1995, and 1994,
the Company paid commissions of $8,261,301, $14,237,877 and $22,125,145,
respectively, to the Marketing Company (and the Marketing Company paid
commissions to agents of approximately $8,261,301, $14,237,877 and $14,719,474,
respectively). The 1994 commission payments to the Marketing Company include an
amount paid to extinguish the Company's contingent commission liability related
to a marketing agreement that was terminated on December 31, 1994.
The Company has payables to affiliates of $36,512 and $3,325 at December
31, 1996 and 1995, respectively, relating to these transactions.
On May 10, 1996, the Company sold corporate bonds issued by Bon-Art/Bauchet
International ($3,908,904) and Nazareth/Century Mills, Inc. ($5,825,782) to BG
Services Limited ("BGSL"), an affiliate. On June 28, 1996, the Company acquired
corporate bonds issued by General Textiles ($5,302,519), Unisa Holdings, Inc.
($8,000,000) L. Kee & Co., Inc. ($1,000,000), Royal Rubber & Manufacturing
Company ($1,000,000) and Ocean Acquisition Corporation ($5,000,000) from BGSL
and sold corporate bonds issued by Gruen Marketing Corporation ($10,860,146),
Hym Acquisition Company ($5,660,382), Milnot Company ($967,741), Gibson's
Discount Center ($2,814,248) and Hornblower Yachts ($1,500,000) to BGSL. On
August 15, 1996, the Company sold a corporate bond issued by Bon-Art/Bauchet
International ($663,209) to BGSL. On September 30 and November 15, 1996, the
Company acquired $500,000 and $250,000, respectively, of corporate bonds issued
by Select Advisors, Inc., an affiliate. On December 31, 1996, the Company
acquired corporate bonds issued by Childers Products Company ($6,000,000) and
common stocks of Imagyn Medical, Inc. ($1,083,494), Cardiac Pathways Corp.
($1,661,146) and Thermo Electron Corp. ($4,255,360) from BGSL and sold corporate
bonds issued by Two Court, Inc. ($6,000,000) and Catalina Furniture Company
($7,000,000) to BGSL.
As of December 31, 1996, the Company had investments in affiliates as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STATEMENT
ISSUER COUPON MATURITY VALUE
- ----------------------------- ------- -------- -----------
Bon-Art/Bauchet International 13.00% 10/02 $ 5,811,260
Nazareth/Century Mills, Inc. 13.43% 12/03 11,983,472
Ocean Acquisition Corporation 12.00% 12/00 4,000,000
Select Advisors, Inc. 5.75% 11/97 750,000
</TABLE>
5. FEDERAL INCOME TAXES
The provision for federal income taxes has been computed in accordance with
provisions of the Internal Revenue Code, as amended. The Company files a
separate federal income tax return and is not included in a consolidated return
with affiliated entities.
The Company's total tax expense differs from an amount computed by applying
the federal income tax of 35 percent to statutory income. The four primary items
required to reconcile taxable income and statutory income are: (1)
capitalization of policy acquisition costs, (2) differences in computing
reserves for statutory and tax purposes, (3) differences in statutory and tax
bases of assets sold, and (4) differences in timing for the deduction of accrued
expenses.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
6. AGGREGATE RESERVES FOR LIFE POLICIES AND CONTRACTS
Aggregate reserves for life policies and contracts have generally been
computed using the Commissioners' Reserve Valuation Method (CRVM) or the
Commissioners' Annuity Reserve Valuation Method (CARVM) prescribed by the North
Carolina Department of Insurance. The aggregate reserves for life policies and
contracts were computed on a policy-by-policy basis.
Statutory reserves for policy benefits due under universal life and
accumulation annuity insurance contracts are computed using the CRVM and the
CARVM, respectively. The CRVM and CARVM reserves established for specific
contracts are the greater of a formula reserve or the cash surrender value of
the contract.
The formula reserves for the universal life policies are computed using the
1980 Commissioners Standard Ordinary (CSO) mortality table and a 4.0% discount
rate. These assumptions are in compliance with the minimum statutory
requirements.
The accumulation annuity insurance contracts include a single premium
deferred annuity product and a flexible premium deferred annuity product. The
formula reserves for the single premium deferred annuity are higher than the
cash surrender value due to the one year interest rate guarantee provision of
these contracts. The Company computed reserves with an interest rate of 5.50%
for 1996 issues, 6.00% for 1995 issues and 6.50%-5.50% for 1994 issues. These
rates are the maximum statutory interest rates for such contracts. For flexible
premium deferred annuities, the cash surrender value is never greater than the
formula reserves, but may be equal to the CARVM reserve due to the calendar
quarter interest guarantee provision of these contracts. The Company uses the
same interest rates to compute reserves as are used for single premium deferred
annuities.
Reserves for policy benefits due under immediate annuity insurance
contracts are based on a present value actuarial computation using a statutory
discount rate and a statutory mortality basis. The reserves are based on the 83a
table and with a discount rate of 6.75% for 1996, 7.25% for 1995 and 6.50% for
1994.
The withdrawal characteristics of annuity actuarial reserves and deposit
liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
______________________ _______________________
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal at book
value less surrender charge of 5% or more $ 445,721,115 42.24% $ 530,130,854 51.79%
Subject to discretionary withdrawal at book
value less surrender charge greater than
0% but less than 5% 440,023,827 41.70% 327,712,985 32.01%
Subject to discretionary withdrawal at book
value with no surrender charge 13,795,748 1.31% 6,736,768 0.66%
Not subject to discretionary withdrawal 155,624,990 14.75% 159,069,009 15.54%
-------------- ------ -------------- ------
$1,055,165,680 100% $1,023,649,616 100%
============== ====== ============== =======
</TABLE>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
7. INVESTMENTS
The Company records its investments in debt securities at cost or amortized
cost. The securities are designated investment grade (NAIC SVO categories "1"
and "2") or non-investment grade (categories "3", "4", "5", and "6"). The NAIC
's highest ratings classification includes issues normally rated investment
grade by independent rating agencies.
The NAIC SVO classified the Company's debt securities as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
_________________ ___________________
<S> <C> <C> <C> <C>
STATEMENT PERCENT STATEMENT PERCENT
NAIC CATEGORY VALUE OF TOTAL VALUE OF TOTAL
- ------------------------- -------------- --------- -------------- ---------
1 - Highest quality $ 642,553,936 57% $ 465,956,793 44%
2 - High quality 309,858,268 27 382,099,503 36
3 - Medium quality 70,923,479 6 90,540,167 9
4 - Low quality 94,156,455 8 85,136,505 8
5 - Lower quality 15,018,522 1 33,748,190 3
6 - Debt securities in or
near default 9,953,691 1 - -
-------------- --------- -------------- ---------
$1,142,464,351 100% $1,057,481,158 100%
============== ========= ============== =========
</TABLE>
The cost or amortized cost and the fair, or comparable value of
investments in debt securities are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COST OR GROSS UNREALIZED
DECEMBER 31, 1996 AMORTIZED COST GAINS LOSSES FAIR VALUE
- ----------------------------- ------------------------ ---------- ------------ --------------
U.S. Government
Obligations $ 8,221,012 $ 91,040 ($138,952) $ 8,173,100
Obligations of states
And political subdivisions 5,276,177 115,665 (35,812) 5,356,030
Corporate securities 635,225,514 1,274,089 (5,347,151) 631,152,452
Other debt securities 110,687,081 173,235 (21,547) 110,838,769
Mortgage-backed securities 383,054,567 - - 383,054,567
------------------------ ---------- ------------ --------------
$ 1,142,464,351 $1,654,029 ($5,543,462) $1,138,574,918
======================== ========== ============ ==============
</TABLE>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
7. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COST OR UNREALIZED
DECEMBER 31, 1995 AMORTIZED COST GROSS GAINS LOSSES FAIR VALUE
- ----------------------------- --------------- ------------ ----------- --------------
U.S. Government
Obligations $ 7,293,486 $ 163,613 ($3,498) $ 7,453,601
Obligations of states
And political subdivisions 2,364,678 55,072 - 2,419,750
Corporate securities 678,240,972 17,874,218 (649,005) 695,466,185
Other debt securities 58,473,851 637,910 (24,207) 59,087,554
Mortgage-backed securities 311,108,171 - - 311,108,171
--------------- ------------ ----------- --------------
$ 1,057,481,158 $ 18,730,813 ($676,710) $1,075,535,261
=============== ============ =========== ==============
</TABLE>
Fair values are based on published quotations of the SVO of the NAIC. Fair
values generally represent quoted market value prices for securities traded in
the public marketplace, or analytically determined values using bid or closing
prices for securities not traded in the public marketplace. However, for certain
investments for which the NAIC does not provide a value, the Company uses the
amortized cost amount as a substitute for fair value in accordance with
prescribed guidance. As of December 31, 1996 and 1995, the fair value of
investments in debt securities includes $863,848,633 and $646,886,351,
respectively, of debt securities that were valued at amortized cost.
The cost or amortized cost and the fair value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or repay obligations with or without call or prepayment penalties.
A summary of the cost or amortized cost and fair value of the Company's
investment in debt securities at December 31, 1996, by contractual maturity, is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
COST OR
AMORTIZED COST FAIR VALUE
--------------- --------------
Maturity:
In 1997 $ 2,446,638 $ 2,452,454
In 1998-2001 124,559,207 124,701,518
In 2002-2006 409,942,705 407,821,158
After 2006 222,461,234 220,545,221
Mortgage-backed securities 383,054,567 383,054,567
--------------- --------------
Total $ 1,142,464,351 $1,138,574,918
=============== ===============
</TABLE>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
7. INVESTMENTS (CONTINUED)
Proceeds from sales of investments in fixed maturities and related gross
gains and losses on those sales are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------ ------------------ ------------------
Proceeds from sales $ 651,187,776 $ 193,271,491 $ 236,920,286
Gross realized gains 13,725,509 $ 2,078,023 $ 4,413,014
Gross realized losses 9,195,257 $ 1,618,499 $ 1,704,392
</TABLE>
At December 31, 1996, debt securities with an admitted asset value of
$10,156,572 were on deposit with state insurance departments to satisfy
regulatory requirements.
Unrealized gains and losses on investments in non-redeemable preferred and
common stocks are reported directly in unassigned surplus and do not affect
operations. The gross unrealized gains and losses on, and the cost and fair
value of, those investments are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ------------ -----------
AT DECEMBER 31, 1996
Preferred stocks $ - $ - $ - $ -
Common stocks 20,832,834 629,246 (982,595) 20,479,485
------------ ------------ ------------ -----------
Total $ 20,832,834 $ 629,246 ($982,595) $20,479,485
============ ============ ============ ===========
AT DECEMBER 31, 1995
Preferred stocks $ 2,807,430 $ - ($60,000) $ 2,747,430
Common stocks 2,280,162 $ - (850,149) 1,430,013
------------ ---------- ------------ -----------
Total $ 5,087,592 $ - ($910,149) $ 4,177,443
============ =========== ============ ===========
</TABLE>
8. INVESTMENT INCOME
An analysis of the Company's net investment income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1995
------------ ------------ ------------
Interest on debt securities $94,149,963 $91,585,614 $76,595,702
Interest on short-term investments 787,618 554,252 397,098
Interest on cash on hand and on deposit 375,723 274,696 344,915
Equity in undistributed earnings of subsidiaries (39,151) (285,874) 5,484,000
Other investment income 1,532,466 2,493,535 2,460,670
------------ ------------ ------------
Gross investment income 96,806,619 94,622,223 85,282,385
Less investment expenses (5,793,203) (5,661,711) (5,469,720)
------------ ------------ ------------
Net investment income $91,013,416 $88,960,512 $79,812,665
=========== ============ ============
</TABLE>
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
9. REINSURANCE
The maximum amount of direct universal life insurance retained on any life
is $250,000. Amounts in excess of $250,000 are ceded on a Yearly Renewable Term
basis of reinsurance. Life insurance ceded to other companies for the years
ended December 31, 1996 and 1995 totaled $47,349,000 and $53,210,000 or 11.7%
and 12.4% of life insurance in force, respectively. A contingent liability
exists with respect to insurance ceded which would become a liability should the
reinsurer be unable to meet the obligations assumed under reinsurance
agreements.
10. SURPLUS
Under the Insurance Code of the State of North Carolina, in a given year
the Company may make dividend distributions without prior approval of the
Insurance Commissioner up to the lesser of its net gain from operations for the
preceding year or 10% of surplus as of December 31 of the preceding year. The
maximum dividend that could be paid during 1997 without the Insurance
Commissioner's approval is $5,992,652.
The NAIC has adopted Risk-Based Capital (RBC) requirements which became
effective December 31, 1993, that attempt to evaluate the adequacy of a life
insurance company's adjusted statutory capital and surplus in relation to
investment, insurance and other business risks. The RBC formula is used by the
states as an early warning tool to identify possible weakly capitalized
companies for the purpose of initiating regulatory action and is not designed to
be a basis for ranking the financial strength of insurance companies. In states
which have adopted the NAIC regulations, the new RBC requirements provide for
four different levels of regulatory attention depending on the ratio of the
company's adjusted capital and surplus to its RBC. As of December 31, 1996, the
adjusted capital and surplus of the Company is substantially in excess of the
minimum level of RBC that would require regulatory response.
11. COMMITMENT AND CONTINGENT LIABILITIES
Rental expense for all leases was $550,944, $722,359 and $847,389 for 1996,
1995 and 1994, respectively. Future minimum rental commitments under
noncancelable operating leases for office space and equipment aggregate
$1,137,364 through 2000. The amounts due by year are $500,225 in 1997, $281,139
in 1998, $267,000 in 1999 and $89,000 in 2000.
The Company has contingent liabilities resulting from anticipated state
guaranty association assessments for life insurers deemed insolvent during the
year. Although the total amount of this exposure is not known, a substantial
portion of the amount assessed will be recovered against future premium taxes
under current laws and regulations. As of December 31, 1996, the Company
estimates its net contingent liability for future state guaranty association
assessments is within range of $500,000 to $2,000,000. The Company has not
committed any surplus funds to reserve for the contingent liability. The Company
recognizes its obligation for guaranty fund assessments when it receives notice
that an amount is payable to a guaranty fund. Expenses incurred for guaranty
fund assessments were $1,674,481, $1,075,244 and $431,456 in 1996, 1995 and
1994, respectively.
The Company has been named as a cross-defendant in a complaint filed by The
American Endeavor Fund Limited where the plaintiff seeks damages in excess of $2
million. The Company believes that the alleged claims are without merit. While
these claims are being contested, the outcome is not predictable with assurance.
The Company believes that any liability resulting from these claims should not
have a material adverse affect on the Company's statutory surplus.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
12. ASSET VALUATION AND INTEREST MAINTENANCE RESERVES
The purpose of the AVR is to decrease the volatility of the incidence of
asset losses and to recognize the long term return expectations for equity
investments. The increase or decrease to this reserve is charged or credited
directly to surplus.
The purpose of the IMR is to minimize the effect of gains and losses
arising from gradual interest rate movements. All realized gains and losses (net
of tax) classified as interest related are accumulated and amortized into net
income over the remaining period to maturity of the security sold. The effect of
recording the IMR at December 31, 1996, 1995 and 1994 was to defer total net
capital gains of $12,352,297, $10,190,326 and $10,832,237, respectively, and to
recognize $683,806, ($185,844) and $945,197, respectively, of IMR amortization
into income.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair values of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosure about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
using available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to develop
these estimates. Accordingly, these estimates are not necessarily indicative of
the amounts which could be realized in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts. For financial instruments not
separately disclosed below, the carrying value is a reasonable estimate of fair
value.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
__________________________________________________________________________________________________
<S> <C> <C> <C> <C>
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------------- -------------- -------------- --------------
Assets:
Debt securities $1,142,464,351 $1,145,112,378 $1,057,481,158 $1,090,099,356
Redeemable preferred stock 1,687,616 1,616,150 7,165,290 7,936,298
Liabilities:
Insurance and annuity
reserves-investment-type
contracts $1,097,795,798 $1,116,979,648 $1,066,977,854 $1,094,695,606
</TABLE>
POLICY RESERVES
In accordance with SFAS No. 107, estimated fair values have been calculated
on policy reserves only for those products determined to be investment-type. The
estimated fair value of deferred annuity and universal life contracts equals
account value after deduction of surrender charges. The estimated fair value of
immediate annuity contracts is based on the present value of expected benefits
using a discount rate equal to the 5-year Treasury rate.
14. CONCENTRATIONS OF CREDIT RISK
At December 31, 1996, the Company held unrated or less-than-investment
grade corporate bonds of $190,052,147. Those holdings amounted to 16.6% of the
Company's investments in bonds and less than 14.1% of the Company's total
admitted assets. The holdings of less-than-investment grade bonds are widely
diversified and management believes are of satisfactory quality based on the
Company's investment policies and credit standards.
LONDON PACIFIC LIFE & ANNUITY COMPANY
(A wholly-owned subsidiary of London Pacific Group Limited)
NOTES TO STATUTORY FINANCIAL STATEMENTS
_____________________________________________________________
15. RECONCILIATION OF NET TRANSFERS TO OR (FROM) SEPARATE ACCOUNT
Transfers are reported in the Summary of Operations of the Separate
Account Statement:
<TABLE>
<CAPTION>
<S> <C>
Transfers to separate account $4,455,205
Transfers from separate account 296,184
----------
Net transfers to or (from) separate account 4,159,021
Reconciling Adjustments: M & E Fees 16,724
----------
Transfers as reported in the Statutory Summary of Operations
of the Company $4,175,745
==========
</TABLE>
