File Nos.333-1779
811-8890
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [X]
(Check appropriate box or boxes.)
LPLA Separate Account One
___________________________
(Exact Name of Registrant)
London Pacific Life & Annuity Company
_____________________________________
(Name of Depositor)
3109 Poplarwood Court, Raleigh, North Carolina 27604
___________________________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (919) 790-2243
Name and Address of Agent for Service
George Nicholson
London Pacific Life & Annuity Company
3109 Poplarwood Court
Raleigh, North Carolina 27604
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1998 pursuant to paragraph (b)of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Registered:
Individual Variable Annuity Contracts
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- -------------------------
<S> <C> <C>
PART A
Item 1. Cover Page Cover Page
Item 2. Definitions Definitions
Item 3. Synopsis Highlights
Item 4. Condensed Financial Information Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies The Company; The Separate
Account; LPT Variable
Insurance Series Trust
Item 6. Deductions and Expenses Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts The Contracts
Item 8. Annuity Period Annuity Provisions
Item 9. Death Benefit Proceeds Payable on
Death
Item 10. Purchases and Contract Value Contributions and
Contract Value
Item 11. Redemptions Withdrawals
Item 12. Taxes Federal Tax Status
Item 13. Legal Proceedings Legal Proceedings
Item 14. Table of Contents of the Statement
of Additional Information Table of Contents of the
Statement of Additional
Information
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History The Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being
Offered. Not Applicable
Item 20. Underwriters Distributor
Item 21. Calculation of Performance Data Performance Information
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered in Part C to this Registration Statement.
PART A
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
WITH FLEXIBLE CONTRIBUTIONS
ISSUED BY
LPLA SEPARATE ACCOUNT ONE
AND
LONDON PACIFIC LIFE & ANNUITY COMPANY
The Individual Fixed and Variable Deferred Annuity Contracts with Flexible
Contributions (the "Contracts") described in this Prospectus provide for
accumulation of Contract Values on a fixed and variable basis and payment of
annuity payments on a fixed and variable basis. The Contracts are designed for
use by individuals in retirement plans on a Qualified or Non-Qualified basis.
(See "Definitions.")
Contributions for the Contracts will be allocated to a segregated investment
account of London Pacific Life & Annuity Company (the "Company") which account
has been designated LPLA Separate Account One (the "Separate Account") or to the
Company's Fixed Account. Under certain circumstances, however, Contributions may
initially be allocated to the Berkeley Money Market Sub-Account of the Separate
Account. (See "Highlights.") The Separate Account invests in shares of LPT
Variable Insurance Series Trust, Morgan Stanley Universal Funds, Inc. and BT
Insurance Funds Trust. (See "Eligible Funds.") LPT Variable Insurance Series
Trust is a series fund with eight Portfolios currently available: Harris
Associates Value Portfolio; MFS Total Return Portfolio; Berkeley U.S. Quality
Bond Portfolio; Strong International Stock Portfolio; Berkeley Money Market
Portfolio; Robertson Stephens Diversified Growth Portfolio; Lexington Corporate
Leaders Portfolio; and Strong Growth Portfolio. Prior to November 3, 1997, the
Berkeley Money Market Portfolio and the Berkeley U.S. Quality Bond Portfolio
were known as the Salomon Money Market Portfolio and the Salomon U.S. Quality
Bond Portfolio, respectively. SHARES OF THE STRONG INTERNATIONAL STOCK PORTFOLIO
ARE NO LONGER AVAILABLE FOR INVESTMENT. Morgan Stanley Universal Funds, Inc. is
a series fund with eighteen portfolios, the following three of which are
available in connection with the Contracts: Morgan Stanley U.F. High Yield
Portfolio, Morgan Stanley U.F. International Magnum Portfolio and Morgan Stanley
U.F. Emerging Markets Equity Portfolio. BT Insurance Funds Trust is a series
fund with six series, the following of which is available in connection with the
Contracts: BT Equity 500 Index Fund.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED, THE
VALUE MAY BE HIGHER OR LOWER THAN THE CONTRIBUTIONS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information ("SAI") which is available
at no charge. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding registrants that file electronically. The Table
of Contents of the SAI can be found on Page of this Prospectus. For the SAI,
call (800) 852-3152 or write to the Company's Annuity Service Center at the
address listed on the back page of this Prospectus.
INQUIRIES:
Any inquiries can be made by telephone or in writing to the Annuity Service
Center listed on the back page of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus and the Statement of Additional Information are dated May 1,
1998.
This Prospectus should be kept for future reference.
<TABLE>
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TABLE OF CONTENTS
<S> <C>
PAGE
----
DEFINITIONS .....................................................................................
HIGHLIGHTS ......................................................................................
FEE TABLE........................................................................................
CONDENSED FINANCIAL INFORMATION..................................................................
THE COMPANY......................................................................................
THE SEPARATE ACCOUNT.............................................................................
ELIGIBLE FUNDS...................................................................................
LPT Variable Inssurance Series Trust .......................................................
Morgan Stanley Universal Funds, Inc.........................................................
BT Insurance Funds Trust....................................................................
Voting Rights...............................................................................
Substitution of Securities..................................................................
CHARGES AND DEDUCTIONS...........................................................................
Deduction for Mortality and Expense Risk Charge.............................................
Deduction for Administrative Charge ........................................................
Deduction for Distribution Charge...........................................................
Deduction for Contract Maintenance Charge...................................................
Deduction for Transfer Fee..................................................................
Deduction for Premium and Other Taxes.......................................................
Deduction for Expenses of the Trust.........................................................
THE CONTRACTS....................................................................................
Owner.......................................................................................
Joint Owners ...............................................................................
Annuitant...................................................................................
Assignment .................................................................................
CONTRIBUTIONS AND CONTRACT VALUE.................................................................
Contributions ..............................................................................
Allocation of Contributions.................................................................
Dollar Cost Averaging Program ..............................................................
Rebalancing Program.........................................................................
Contract Value..............................................................................
Accumulation Units..........................................................................
Accumulation Unit Value.....................................................................
TRANSFERS........................................................................................
Transfers During the Accumulation Period....................................................
Transfers During the Annuity Period.........................................................
WITHDRAWALS......................................................................................
Systematic Withdrawal Option................................................................
Suspension or Deferral of Payments..........................................................
PROCEEDS PAYABLE ON DEATH........................................................................
Death of Owner During the Accumulation Period...............................................
Death Benefit Amount During the Accumulation Period ..................................
Death Benefit Options During the Accumulation Period ..................................
Death of Owner During the Annuity Period....................................................
Death of Annuitant..........................................................................
Payment of Death Benefit....................................................................
Beneficiary.................................................................................
Change of Beneficiary.......................................................................
ANNUITY PROVISIONS...............................................................................
General.....................................................................................
Annuity Date................................................................................
Selection or Change of an Annuity Option....................................................
Frequency and Amount of Annuity Payments ...................................................
Annuity ....................................................................................
Fixed Annuity ..............................................................................
Variable Annuity ...........................................................................
Annuity Options.............................................................................
OPTION A. LIFE ANNUITY......................................................................
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 120 MONTHS....................................
OPTION C. JOINT AND SURVIVOR ANNUITY........................................................
OPTION D. PERIOD CERTAIN...................................................................
DISTRIBUTOR......................................................................................
PERFORMANCE INFORMATION..........................................................................
Berkeley Money Market Sub-Account...........................................................
Other Sub-Accounts..........................................................................
FEDERAL TAX STATUS ..............................................................................
General.....................................................................................
Diversification.............................................................................
Contracts Owned by Other than Natural Persons...............................................
Multiple Contracts..........................................................................
Tax Treatment of Assignments................................................................
Income Tax Withholding......................................................................
Tax Treatment of Withdrawals - Non-Qualified Contracts......................................
Qualified Plans.............................................................................
Tax Treatment of Withdrawals - Qualified Contracts..........................................
FINANCIAL STATEMENTS............................................................................
LEGAL PROCEEDINGS................................................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.....................................
APPENDIX ........................................................................................
</TABLE>
DEFINITIONS
ACCUMULATION PERIOD: The period prior to the Annuity Date during which
Contributions may be made.
ACCUMULATION UNIT: A unit of measure used to determine the value of the Owner's
interest in a Sub-Account of the Separate Account during the Accumulation
Period.
ADJUSTED CONTRACT VALUE: The Contract Value less any applicable Premium Tax and
Contract Maintenance Charge, if any. This amount is applied to the applicable
Annuity Tables to determine Annuity Payments.
AGE: The age of any Owner or Annuitant on his/her last birthday.
ANNUITANT: The natural person on whose life Annuity Payments are based. On or
after the Annuity Date, the Annuitant shall also include any Joint Annuitant.
ANNUITY DATE: The date on which Annuity Payments begin.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Owner or any named payee
after the Annuity Date under the Annuity Option selected.
ANNUITY PERIOD: The period of time beginning with the Annuity Date during which
Annuity Payments are made.
ANNUITY SERVICE CENTER: The office indicated on the back page of this Prospectus
to which notices, requests and Contributions must be sent. All sums payable to
the Company under the Contract are payable only at the Annuity Service Center.
ANNUITY UNIT: A unit of measure used to calculate Variable Annuity Payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who will receive the death benefit
payable under the Contract.
COMPANY: London Pacific Life & Annuity Company.
CONTRACT ANNIVERSARY: An anniversary of the Issue Date.
CONTRACT VALUE: The dollar value as of any Valuation Period of all amounts
accumulated in the Contract.
CONTRACT WITHDRAWAL VALUE: The Contract Value less any applicable Premium Tax,
less any applicable Contract Maintenance Charge.
CONTRACT YEAR: The first Contract Year is the annual period which begins on the
Issue Date. Subsequent Contract Years begin on each anniversary of the Issue
Date.
CONTRIBUTION: A payment made by or on behalf of an Owner with respect to the
Contract.
EFFECTIVE DATE: The date the Company declares a Guaranteed Interest Rate for a
specified Guarantee Period.
ELIGIBLE FUND: An investment entity into which assets of the Separate Account
will be invested.
FIXED ACCOUNT: An investment option within the General Account where the Company
guarantees the rate(s) of interest for a specified Guarantee Period.
FIXED ANNUITY: A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company.
GENERAL ACCOUNT: The Company's general investment account which contains all the
assets of the Company with the exception of the Separate Account and other
segregated asset accounts.
GUARANTEE PERIOD: A one year period, commencing on the Issue Date, for which the
Guaranteed Interest Rate is credited. Upon each Contract Anniversary, a new one
year Guarantee Period commences.
GUARANTEED INTEREST RATE: The interest rate credited to the Contract Value by
the Company for any given Guarantee Period.
ISSUE DATE: The date on which the Contract became effective.
NON-QUALIFIED CONTRACTS: Contracts issued under non-qualified plans which do not
receive favorable tax treatment under Section 408 of the Internal Revenue Code
of 1986, as amended (the "Code").
OWNER: The person or entity entitled to the ownership rights stated in the
Contract.
PORTFOLIO: A segment of an Eligible Fund which constitutes a separate and
distinct class of shares.
PREMIUM TAX: Any premium taxes paid to any governmental entity assessed against
Contributions or Contract Value.
QUALIFIED CONTRACTS: Contracts issued under qualified plans which receive
favorable tax treatment under Section 408 of the Code.
SEPARATE ACCOUNT: The Company's separate account designated as LPLA Separate
Account One.
SUB-ACCOUNT: Separate Account assets are divided into Sub-Accounts. Assets of
each Sub-Account will be invested in shares of an Eligible Fund or a Portfolio
of an Eligible Fund.
VALUATION DATE: Each day on which the Company and the New York Stock Exchange
("NYSE") are open for business.
VALUATION PERIOD: The period of time beginning at the close of business of the
NYSE on each Valuation Date and ending at the close of business for the next
succeeding Valuation Date.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Separate
Account.
WRITTEN REQUEST: A request in writing, in a form satisfactory to the Company,
which is received by the Annuity Service Center.
HIGHLIGHTS
Contributions for the Contracts will be allocated to a segregated investment
account of London Pacific Life & Annuity Company (the "Company") which account
has been designated LPLA Separate Account One (the "Separate Account") or to the
Company's Fixed Account. Under certain circumstances, however, Contributions may
initially be allocated to the Berkeley Money Market Sub-Account of the Separate
Account (see below). The Separate Account invests in shares of LPT Variable
Insurance Series Trust, Morgan Stanley Universal Funds, Inc. and BT Insurance
Funds Trust. Owners bear the investment risk for all amounts allocated to
the Separate Account.
The Contract may be returned to the Company for any reason within ten (10)
calendar days, or for a longer period in states where required, (thirty (30)
calendar days if purchased by individuals in California who are 60 years of age
or older on the Issue Date, or twenty (20) calendar days of the date of receipt
with respect to the circumstances described in (c) below) after its receipt by
the Owner ("Right to Examine Contract"). It may be returned to the Company at
its Annuity Service Center (or the agent through whom it was purchased in the
State of Washington). When the Contract is received by the Company at its
Annuity Service Center, it will be voided as if it had never been in force. Upon
its return, the Company will refund the Contract Value next computed after
receipt of the Contract by the Company at its Annuity Service Center except in
the following circumstances: (a) where the Contract is purchased pursuant to an
Individual Retirement Annuity; (b) in those states which require the Company to
refund Contributions, less withdrawals; or (c) in the case of Contracts which
are deemed by certain states to be replacing an existing annuity or insurance
contract and which require the Company to refund Contributions, less
withdrawals. With respect to the circumstances described in (a), (b) and (c)
above, the Company will refund the greater of Contributions, less any
withdrawals, or the Contract Value (in Idaho, the Company will refund
Contributions, less withdrawals), and will allocate initial Contributions to the
Berkeley Money Market Sub-Account (except for any Contribution to be allocated
to the Fixed Account as elected by the Owner) for fifteen (15) days after the
Company allocates the Owner's first Contribution (this period may be longer
in certain states). Upon the expiration of such period, the Sub-Account value
of the Berkeley Money Market Sub-Account will be allocated to the Separate
Account in accordance with the election made by the Owner at the time the
Contract is issued.
Each Valuation Period, the Company deducts a Mortality and Expense Risk Charge
from the Separate Account which is equal, on an annual basis, to 1.25% of the
average daily net asset value of each Sub-Account of the Separate Account. This
charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality and
Expense Risk Charge.")
Each Valuation Period, the Company deducts a Distribution Charge from the
Separate Account which is equal, on an annual basis, to .10% of the average
daily net asset value of each Sub-Account of the Separate Account. This charge
compensates the Company for the costs associated with the distribution of the
Contracts. (See "Charges and Deductions - Deduction for Distribution Charge.")
Each Valuation Period, the Company deducts an Administrative Charge from the
Separate Account which is equal, on an annual basis, to .15% of the average
daily net asset value of each Sub-Account of the Separate Account. This charge
compensates the Company for costs associated with the administration of the
Contracts and the Separate Account. (See "Charges and Deductions - Deduction for
Administrative Charge.")
On each Contract Anniversary, the Company deducts a Contract Maintenance Charge
of $36 ($30 in North Dakota) from the Contract Value. However, during the
Accumulation Period, if the Contract Value on the Contract Anniversary is at
least $50,000, then no Contract Maintenance Charge is deducted. If a total
withdrawal is made on other than a Contract Anniversary and the Contract
Value for the Valuation Period during which the total withdrawal is made is
less than $50,000, the full Contract Maintenance Charge will be deducted at the
time of the total withdrawal. During the Annuity Period, the Contract
Maintenance Charge will be deducted pro-rata from Annuity Payments regardless of
Contract size and will result in a reduction of each Annuity Payment. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Under certain circumstances, a Transfer Fee may be assessed when an Owner
transfers Contract Values between Sub-Accounts or to or from the Fixed Account.
(See "Charges and Deductions - Deduction for Transfer Fee.")
The Company will not deduct Premium Taxes from an Owner's Contributions before
allocating the Contributions to the Fixed Account and/or Sub-Accounts of the
Separate Account unless required to pay such taxes under applicable state law.
The Company's current practice is to pay the Premium Tax due and deduct the tax
upon full or partial withdrawals, payment of a death benefit or purchase of an
annuity under the Contract. The Company reserves the right to discontinue the
deferral of this tax. (See "Charges and Deductions - Deduction for Premium and
Other Taxes.")
There is a ten percent (10%) federal income tax penalty that may be applied to
the income portion of any distribution from the Contracts. However, the penalty
is not imposed under certain circumstances. See "Federal Tax Status - Tax
Treatment of Withdrawals - Non-Qualified Contracts" and "Tax Treatment of
Withdrawals - Qualified Contracts." For a further discussion of the taxation of
the Contracts, see "Federal Tax Status."
See "Federal Tax Status - Diversification" for a discussion of owner control
of the underlying investments in a variable annuity contract.
Because of certain exemptive and exclusionary provisions, interests in the Fixed
Account are not registered under the Securities Act of 1933 and the Fixed
Account is not registered as an investment company under the Investment Company
Act of 1940, as amended. Accordingly, neither the Fixed Account nor any
interests therein are subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in the Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
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LPLA SEPARATE ACCOUNT ONE
FEE TABLE
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge None
Transfer Fee No charge for first 12 transfers in
(see Note 2 on Page 6) a Contract Year; thereafter the
fee is the lesser of $20 or 2% of
the amount transferred.
Contract Maintenance Charge $36 per Contract per Contract Year.
(see Note 3 on Page 6)
SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge.................. 1.25%
(as a percentage of average account value) Administrative Charge.............................. .15%
Distribution Charge................................ .10%
-----
Total Separate Account Annual Expenses............. 1.50%
</TABLE>
<TABLE>
<CAPTION>
LPT VARIABLE INSURANCE SERIES TRUST'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<S> <C> <C> <C>
Other Expenses
Management (after expense Total Annual
Fees reimbursement)* Expenses*
---------- ---------------- ------------
Harris Associates Value Portfolio (1) 1.00% .29% 1.29%
MFS Total Return Portfolio .75% .54% 1.29%
Berkeley U.S. Quality Bond Portfolio .55% .44% .99%
Strong International Stock Portfolio .75% .74% 1.49%
Berkeley Money Market Portfolio .45% .44% .89%
Robertson Stephens Diversified Growth Portfolio (2) .95% .44% 1.39%
Lexington Corporate Leaders Portfolio .65% .64% 1.29%
Strong Growth Portfolio .75% .54% 1.29%
<FN>
(1) Prior to May 1, 1997, the Management Fee was .875% of the average daily net
assets of the Portfolio.
(2) Prior to May 1, 1997, the Management Fee was 1.00% of the average daily net
assets of the Portfolio.
* The Company has voluntarily agreed through December 31, 1998 to reimburse
each Portfolio for certain expenses (excluding brokerage commissions) in
excess of approximately the amounts set forth above under "Total Annual
Expenses" for each Portfolio. Absent this expense reimbursement
arrangement, for the year ending December 31, 1997, the "Total Annual
Expenses" were: 4.22% for the Harris Associates Value Portfolio; 3.88%
for the MFS Total Return Portfolio; 5.09% for the Berkeley U.S. Quality
Bond Portfolio; 4.30% for the Berkeley Money Market Portfolio; 6.81% for
the Strong International Stock Portfolio; 4.44% for the Strong Growth
Portfolio; 4.53% for the Robertson Stephens Diversified Growth Portfolio;
and 4.08% for the Lexington Corporate Leaders Portfolio. The examples
following are calculated based upon such expense reimbursement arrangements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY UNIVERSAL FUNDS, INC.'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<S> <C> <C> <C>
Other Expenses
Management (after expense Total Annual Portfolio
Fees reimbursement)* Expenses*
---------- ---------------- ------------
Morgan Stanley U.F. High Yield .00% .80% .80%
Morgan Stanley U.F. International Magnum .00% 1.15% 1.15%
Morgan Stanley U.F. Emerging Markets Equity .00% 1.75% 1.75%
<FN>
*The advisers have voluntarily waived receipt of their management fees and agreed
to reimburse the Portfolio, if necessary, if such fees would cause the total annual
operating expenses of the Portfolio to exceed the percentages set forth above
under "Total Annual Portfolio Expenses." Absent this expense reimbursement, for
the year ending December 31, 1997, "Management Fees", "Other Expenses" and "Total
Annual Portfolio Expenses" would have been: 0.50%, 1.18% and 1.68% for the Morgan
Stanley U.F. High Yield Portfolio; 0.80%, 1.98% and 2.78% for the Morgan Stanley
U.F. International Magnum Portfolio; and 1.25%, 2.87% and 4.12% for the Morgan
Stanley U.F. Emerging Markets Equity Portfolio.
</FN>
</TABLE>
<TABLE>
<CAPTION>
BT INSURANCE FUNDS TRUST'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<S> <C> <C> <C> <C>
Management Administrative Total Annual
Fees Fee Other Expenses Portfolio Expenses
---------- ---------------- --------------- -------------------
BT Equity 500 Index (1) .20% .02% .08% .30%
<FN>
(1) Without expense waivers and reimbursements, the "Total Annual Portfolio
Expenses" for the BT Equity 500 Index Fund would have been 2.78%.
</FN>
</TABLE>
EXAMPLES (SEE NOTE 6 BELOW)
An Owner would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets regardless of whether the Contract is surrendered at the
end of each period or if the Contract is annuitized.
<TABLE>
<CAPTION>
LPT VARIABLE INSURANCE SERIES TRUST
TIME PERIODS
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- ------- --------
Harris Associates Value Portfolio $ 30.04 $ 94.47 $165.22 $374.10
MFS Total Return Portfolio $ 30.04 $ 94.47 $165.22 $374.10
Berkeley U.S. Quality Bond Portfolio $ 26.96 $ 84.78 $148.23 $335.42
Strong International Stock Portfolio $ 32.09 $ 100.94 $176.55 $399.88
Berkeley Money Market Portfolio $ 25.94 $ 81.55 $142.56 $322.53
Robertson Stephens Diversified Growth Portfolio $ 31.06 $ 97.70 $170.88 $386.99
Lexington Corporate Leaders Portfolio $ 30.04 $ 94.47 $165.22 $374.10
Strong Growth Portfolio $ 30.04 $ 94.47 $165.22 $374.10
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley U.F. High Yield Portfolio $ 25.02 $ 78.64 $137.47 $310.92
Morgan Stanley U.F. International Magnum Portfolio $ 28.60 $ 89.95 $157.29 $356.05
Morgan Stanley U.F. Emerging Markets Equity Portfolio $ 34.75 $ 109.34 $191.27 $433.40
BT INSURANCE FUNDS TRUST
BT Equity 500 Index Fund $ 19.89 $ 62.48 $109.15 $246.46
<FN>
NOTES TO FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to assist Owners in understanding the
various costs and expenses that an Owner will incur directly or indirectly.
For additional information, see "Charges and Deductions" in this Prospectus
and the Prospectuses for the Eligible Funds.
2. Transfers made at the end of the Right to Examine Contract period and any
transfers made pursuant to an approved Dollar Cost Averaging Program or
Rebalancing Program will not be counted in determining the application of
the Transfer Fee.
3. During the Accumulation Period, if the Contract Value on the Contract
Anniversary is at least $50,000, then no Contract Maintenance Charge is
deducted. If a total withdrawal is made on other than a Contract
Anniversary and the Contract Value for the Valuation Period during which
the total withdrawal is made is less than $50,000, the full Contract
Maintenance Charge will be deducted at the time of the total withdrawal.
During the Annuity Period, the full charge will be deducted regardless of
Contract size. In the State of North Dakota, the Contract Maintenance
Charge is $30.
4. Premium Taxes are not reflected. Premium Taxes may apply. (See "Charges and
Deductions - Deduction for Premium and Other Taxes.")
5. The Examples assume an estimated $25,000 Contract Value so that the
Contract Maintenance Charge per $1,000 of net asset value in the Separate
Account is $1.44. Such charge would be higher for smaller Contract Values
and lower for higher Contract Values.
6. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OR PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
</FN>
</TABLE>
CONDENSED FINANCIAL INFORMATION
The financial statements of the Company and the Separate Account may be found in
the Statement of Additional Information. The table below gives per unit
information about the financial history of each Sub-Account for the periods
indicated. This information should be read in conjunction with the financial
statements and related notes of the Separate Account included in the Statement
of Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED PERIOD FROM COMMENCEMENT OF
SUB-ACCOUNT 12-31-97 OPERATIONS TO 12-31-96
----------- ----------- ---------------------------
Harris Associates Value
Unit value at beginning of period $12.12 $10.00
Unit value at end of period $15.08 $12.12
No. of units outstanding at end of period 225,262 50,583
MFS Total Return
Unit value at beginning of period $11.03 $10.00
Unit value at end of period $13.20 $11.03
No. of units outstanding at end of period 443,010 82,279
Berkeley U.S. Quality Bond*
Unit value at beginning of period $10.15 $10.00
Unit value at end of period $10.99 $10.15
No. of units outstanding at end of period 87,032 78,700
Berkeley Money Market**
Unit value at beginning of period $10.36 $10.00
Unit value at end of period $10.76 $10.36
No. of units outstanding at end of period 127,652 27,763
Strong International Stock
Unit value at beginning of period $10.58 $10.00
Unit value at end of period $ 9.28 $10.58
No. of units outstanding at end of period 122,491 40,840
Strong Growth
Unit value at beginning of period $12.62 $10.00
Unit value at end of period $15.72 $12.62
No. of units outstanding at end of period 169,389 44,555
Robertson Stephens Diversified Growth
Unit value at beginning of period $10.35 $10.00
Unit value at end of period $12.21 $10.35
No. of units outstanding at end of period 236,983 52,516
Lexington Corporate Leaders
Unit value at beginning of period $11.51 $10.00
Unit value at end of period $14.25 $11.51
No. of units outstanding at end of period 233,629 29,933
<FN>
* Prior to November 3, 1997, the Berkeley U.S. Quality Bond Sub-Account was
known as Salomon U.S. Quality Bond Sub-Account.
** Prior to November 3, 1997, the Berkeley Money Market Sub-Account was known
as the Salomon Money Market Sub-Account.
</FN>
</TABLE>
THE COMPANY
London Pacific Life & Annuity Company (the "Company") was organized in 1927 in
North Carolina as a stock life insurance company. The Company was acquired from
Liberty Life in 1989 and was formerly named Southern Life Insurance Company.
The Company is authorized to sell life insurance and annuities in forty states
and the District of Columbia. The Company's ultimate parent is London Pacific
Group Limited, an international fund management firm chartered in Jersey,
Channel Islands.
THE SEPARATE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to North Carolina insurance law on November
21, 1994. This segregated asset account has been designated LPLA Separate
Account One (the "Separate Account"). The Company has caused the Separate
Account to be registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940.
The assets of the Separate Account are the property of the Company. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Separate Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general obligations.
The Separate Account meets the definition of a "separate account" under federal
securities laws.
The Separate Account is divided into Sub-Accounts. Each Sub-Account invests in
one Portfolio of an Eligible Fund. There is no assurance that the investment
objectives of any of the Portfolios will be met. Owners bear the complete
investment risk for Contributions allocated to a Sub-Account. Contract
Values will fluctuate in accordance with the investment performance of the
Sub-Accounts to which Contributions are allocated, and in accordance with the
imposition of the fees and charges assessed under the Contracts.
ELIGIBLE FUNDS
Purchasers should read the prospectuses for the funds carefully before
investing. Copies of these prospectuses are attached to this prospectus.
Additional prospectuses and the Statements of Additional Information can be
obtained by calling or writing the Company.
Shares of the Portfolios may be offered in connection with certain variable
annuity contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated with the Company. Certain
Portfolios may be sold directly to qualified plans. The funds do not
believe that offering their shares in this manner will be disadvantageous to
Owners.
LPT VARIABLE INSURANCE SERIES TRUST
LPT Variable Insurance Series Trust (the "Trust") has been established to act as
one of the funding vehicles for the Contracts offered. LPIMC Insurance Marketing
Services (the "Adviser"), a subsidiary of the Company and a registered
investment adviser under the Investment Advisers Act of 1940, serves as
investment adviser to the Trust. The Adviser has entered into sub-advisory
agreements with professional managers for investment of the assets of each
Portfolio. The Sub-Adviser for each Portfolio is listed under each Portfolio.
The Portfolios pay monthly investment management fees to the Adviser, and the
Adviser pays the Sub-Advisers for their services to the Portfolios. See
"Management of the Trust" in the Prospectuses for each Portfolio which accompany
this Prospectus for additional information concerning the Adviser and the
Sub-Advisers, including a description of advisory and sub-advisory fees.
SHARES OF THE STRONG INTERNATIONAL STOCK PORTFOLIO ARE NO LONGER AVAILABLE
FOR INVESTMENT.
The following Portfolios are available under the Contract:
Harris Associates Value Portfolio.
The Sub-Adviser for this Portfolio is Harris Associates L.P.
MFS Total Return Portfolio.
The Sub-Adviser for this Portfolio is Massachusetts Financial Services
Company.
Berkeley U.S. Quality Bond Portfolio (formerly Salomon U.S. Quality Bond
Portfolio).
The Sub-Adviser for this Portfolio is Berkeley Capital Management.
Prior to November 3, 1997, the Portfolio had a different Sub-Adviser.
Strong International Stock Portfolio.
The Sub-Adviser for this Portfolio is Strong Capital Management, Inc.
Berkeley Money Market Portfolio (formerly Salomon Money Market Portfolio).
The Sub-Adviser for this Portfolio is Berkeley Capital Management. Prior to
November 3, 1997, the Portfolio had a different Sub-Adviser.
Robertson Stephens Diversified Growth Portfolio.
The Sub-Adviser for this Portfolio is Robertson, Stephens & Company
Investment Management, L.P.
Lexington Corporate Leaders Portfolio
The Sub-Adviser for this Portfolio is Lexington Management Corporation.
Strong Growth Portfolio
The Sub-Adviser for this Portfolio is Strong Capital Management, Inc.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. is a mutual fund with eighteen
portfolios, three of which are available under the Contracts. Miller
Anderson & Sherrerd, LLP is the investment adviser to the Morgan Stanley
U.F. High Yield Portfolio. Morgan Stanley Asset Management Inc. is the
investment adviser for the Morgan Stanley U.F. International Magnum and
Morgan Stanley U.F. Emerging Markets Equity Portfolios. The following
Portfolios are available under the Contract:
Morgan Stanley U.F. High Yield Portfolio
Morgan Stanley U.F. International Magnum Portfolio
Morgan Stanley U.F. Emerging Markets Equity Portfolio
BT INSURANCE FUNDS TRUST
BT Insurance Funds Trust is a series fund with six series, one of which is
available under the Contracts. Bankers Trust Company is the investment
manager of the Fund. The following Portfolio is available under the Contract:
BT Equity 500 Index Fund
VOTING RIGHTS. In accordance with its view of present applicable law, the
Company will vote the shares of the Trust held in the Separate Account at
special meetings of the shareholders in accordance with instructions received
from persons having the voting interest in the Separate Account. The Company
will vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. The Trust does not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to a
shareholder meeting of the Trust. Voting instructions will be solicited by
written communication at least ten (10) days prior to the meeting.
SUBSTITUTION OF SECURITIES. If the shares of an Eligible Fund (or any Portfolio
within an Eligible Fund or any other Eligible Fund or Portfolio), are no longer
available for investment by the Separate Account or, if in the judgment of the
Company's Board of Directors, further investment in the shares should become
inappropriate in view of the purpose of the Contracts, the Company may limit
further purchase of such shares or may substitute shares of another Eligible
Fund or Portfolio for shares already purchased under the Contracts. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under the requirements it may impose.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from the Contract Value and the Separate
Account. These charges and deductions are:
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE. Each Valuation Period, the
Company deducts a Mortality and Expense Risk Charge from the Separate Account
which is equal, on an annual basis, to 1.25% of the average daily net asset
value of each Sub-Account of the Separate Account. The mortality risks assumed
by the Company arise from its contractual obligation to make Annuity Payments
after the Annuity Date (determined in accordance with the Annuity Option chosen
by the Owner) regardless of how long all Annuitants live. This assures that
neither an Annuitant's own longevity, nor an improvement in life expectancy
greater than that anticipated in the mortality tables, will have any adverse
effect on the Annuity Payments the Annuitant will receive under the Contract.
Further, the Company bears a mortality risk in that it guarantees the annuity
purchase rates for the Annuity Options under the Contract whether for a Fixed
Annuity or a Variable Annuity. Also, the Company bears a mortality risk with
respect to the death benefit. The expense risk assumed by the Company is that
all actual expenses involved in administering the Contracts, including Contract
maintenance costs, administrative costs, mailing costs, data processing costs,
legal fees, accounting fees, filing fees and the costs of other services may
exceed the amount recovered from the Contract Maintenance Charge and the
Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount deducted
proves more than sufficient, the excess will be a profit to the Company. The
Company expects a profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
DEDUCTION FOR ADMINISTRATIVE CHARGE. Each Valuation Period, the Company deducts
an Administrative Charge from the Separate Account which is equal, on an annual
basis, to .15% of the average daily net asset value of each Sub-Account of the
Separate Account. This charge, together with the Contract Maintenance Charge
(see below), is to reimburse the Company for the expenses it incurs in the
establishment and maintenance of the Contracts and the Separate Account. These
expenses include, but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Owner records,
maintenance of Separate Account records, administrative personnel costs, mailing
costs, data processing costs, legal fees, accounting fees, filing fees, the
costs of other services necessary for Owner servicing and all accounting,
valuation, regulatory and reporting requirements. Since this charge is an
asset-based charge, the amount of the charge attributable to a particular
Contract may have no relationship to the administrative costs actually incurred
by that Contract. The Company does not intend to profit from this charge. This
charge will be reduced to the extent that the amount of this charge is in excess
of that necessary to reimburse the Company for its administrative expenses.
Should this charge prove to be insufficient, the Company will not increase this
charge and will incur the loss.
DEDUCTION FOR DISTRIBUTION CHARGE. Each Valuation Period, the Company deducts a
Distribution Charge from the Separate Account which is equal, on an annual
basis, to .10% of the average daily net asset value of each Sub-Account of the
Separate Account. This charge compensates the Company for the costs associated
with the distribution of the Contracts. The Company does not intend to profit
from this charge. This charge will be reduced to the extent that the amount of
this charge is in excess of that necessary to reimburse the Company for its
costs of distribution. Should this charge prove to be insufficient, the Company
will not increase this charge and will incur the loss. The staff of the
Securities and Exchange Commission deems the Distribution Charge to constitute a
deferred sales charge.
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE. On each Contract Anniversary, the
Company deducts a Contract Maintenance Charge from the Contract Value by
subtracting values from the Fixed Account and/or by cancelling Accumulation
Units from each applicable Sub-Account to reimburse it for expenses relating to
maintenance of the Contracts. The Contract Maintenance Charge is $36.00 ($30 in
the State of North Dakota) each Contract Year. However, during the Accumulation
Period, if the Contract Value on the Contract Anniversary is at least $50,000,
then no Contract Maintenance Charge is deducted. If a total withdrawal is made
on other than a Contract Anniversary and the Contract Value for the Valuation
Period during which the total withdrawal is made is less than $50,000, the full
Contract Maintenance Charge will be deducted at the time of the total
withdrawal. During the Annuity Period, the Contract Maintenance Charge will be
deducted from Annuity Payments regardless of Contract size and will result in a
reduction of each Annuity Payment. The Contract Maintenance Charge will be
deducted pro-rata from the Fixed Account and the Sub-Accounts. (In South
Carolina, Texas and Washington during the Accumulation Period and in the event
of a total withdrawal, the Company deducts the Contract Maintenance Charge only
by canceling Accumulation Units from each applicable Sub-Account.) The Company
has set this charge at a level so that, when considered in conjunction with the
Administrative Charge (see above), it will not make a profit from the charges
assessed for administration.
DEDUCTION FOR TRANSFER FEE. An Owner may transfer all or part of the Owner's
interest in a Sub-Account or the Fixed Account (subject to Fixed Account
provisions) without the imposition of any fee or charge if there have been no
more than 12 transfers made in a Contract Year. If more than twelve transfers
have been made in a Contract Year, the Company will deduct a Transfer Fee which
is equal to the lesser of $20 or 2% of the amount transferred. The Transfer Fee
will be deducted from the Contract Value in the Fixed Account or the Sub-Account
from which the transfer is made. However, if the Owner's entire Contract Value
in the Fixed Account or a Sub-Account is being transferred, the Transfer Fee
will be deducted from the amount which is transferred. If the Contract Value is
being transferred from more than one Sub-Account or a Sub-Account and the Fixed
Account, any Transfer Fee will be allocated to the Fixed Account and to those
Sub-Accounts on a pro-rata basis in proportion to the amount transferred from
each. A transfer made at the end of the Right to Examine Contract period from
the Salomon Money Market Sub-Account will not count in determining the
application of the Transfer Fee. If the Owner is participating in an approved
Dollar Cost Averaging Program or Rebalancing Program, such transfers currently
are not counted toward the number of transfers for the year and are not taken
into account in determining any Transfer Fee.
DEDUCTION FOR PREMIUM AND OTHER TAXES. Any taxes, including any Premium Taxes,
paid to any governmental entity relating to the Contract may be deducted from
the Contributions or Contract Value when incurred. The Company will, in its sole
discretion, determine when taxes have resulted from: the investment experience
of the Separate Account; receipt by the Company of the Contributions; or
commencement of Annuity Payments. The Company may, at its sole discretion, pay
taxes when due and deduct that amount from the Contract Value at a later date.
Payment at an earlier date does not waive any right the Company may have to
deduct amounts at a later date. The Company's current practice is to pay any
Premium Taxes when incurred and deduct the tax upon full or partial withdrawals,
payment of a death benefit or purchase of an annuity under the Contract. The
Company reserves the right to discontinue the deferral of Premium Taxes. Premium
Taxes generally range from 0% to 4%.
While the Company is not currently maintaining a provision for federal income
taxes with respect to the Separate Account, the Company has reserved the right
to establish a provision for income taxes if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of the
Separate Account. The Company will deduct for any income taxes incurred by it as
a result of the operation of the Separate Account whether or not there was a
provision for taxes and whether or not it was sufficient.
The Company will deduct any withholding taxes required by applicable law. See
"Tax Status - Income Tax Withholding."
DEDUCTION FOR EXPENSES OF THE TRUST. There are other deductions from and
expenses (including management fees paid to the Adviser and other expenses) paid
out of the assets of the Trust which are described in the Prospectuses for the
Portfolios of the Trust.
THE CONTRACTS
OWNER. The Owner has all interest and rights to amounts held in his or her
Contract. The Owner is the person designated as such on the Issue Date, unless
changed. The Owner may change owners of the Contract at any time prior to the
Annuity Date by Written Request. A change of Owner will automatically revoke any
prior designation of Owner. The change will become effective as of the date the
Written Request is signed. A new designation of Owner will not apply to any
payment made or action taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the taxable
year. However, for purposes of Code Section 72(u), an annuity contract held by a
trust or other entity as agent for a natural person is considered held by a
natural person and treated as an annuity contract for tax purposes. Tax advice
should be sought prior to purchasing a Contract which is to be owned by a trust
or other non-natural person.
JOINT OWNERS. The Contract can be owned by Joint Owners. If Joint Owners are
named, any Joint Owner must be the spouse of the other Owner. Upon the death of
either Owner, the surviving Joint Owner will be the Primary Beneficiary. Any
other Beneficiary designation will be treated as a Contingent Beneficiary unless
otherwise indicated in a Written Request. Unless otherwise specified in the
application for the Contract, if there are Joint Owners both signatures will be
required for all Owner transactions except telephone transfers. If the telephone
transfer option is elected and there are Joint Owners, either Joint Owner can
give telephone instructions.
ANNUITANT. The Annuitant is the person on whose life Annuity Payments are based.
The Annuitant is the person designated by the Owner at the Issue Date, unless
changed prior to the Annuity Date. The Annuitant may not be changed in a
Contract which is owned by a non-natural person. Any change of Annuitant is
subject to the Company's underwriting rules then in effect.
ASSIGNMENT. A Written Request specifying the terms of an assignment of the
Contract must be provided to the Annuity Service Center. Until the Written
Request is received, the Company will not be required to take notice of or be
responsible for any transfer of interest in the Contract by assignment,
agreement, or otherwise.
The Company will not be responsible for the validity or tax consequences of any
assignment. Any assignment made after the death benefit has become payable will
be valid only with the Company's consent.
If the Contract is assigned, the Owner's rights may only be exercised with the
consent of the assignee of record.
If the Contract is issued pursuant to a retirement plan which receives favorable
tax treatment under the provisions of Section 408 of the Code, it may not be
assigned, pledged or otherwise transferred except as may be allowed under
applicable law.
CONTRIBUTIONS AND CONTRACT VALUE
CONTRIBUTIONS. The initial Contribution is due on the Issue Date. The minimum
initial Contribution is $5,000 (except for Individual Retirement Annuities, the
minimum initial Contribution is $1,000). The minimum subsequent Contribution is
$1,000, or if the periodic investment plan option is elected $100. The maximum
total Contributions the Company will accept without Company approval are
$1,000,000, except for issue Ages greater than 75 years old for which the
maximum total Contributions are $500,000. The Company reserves the right to
reject any Contribution or Contract.
ALLOCATION OF CONTRIBUTIONS. Contributions are allocated to the Fixed Account
and/or to one or more Sub-Accounts of the Separate Account in accordance with
the selections made by the Owner. The allocation of the initial Contribution is
made in accordance with the selection made by the Owner at the Issue Date.
Unless otherwise changed by the Owner, subsequent Contributions are allocated in
the same manner as the initial Contribution. Allocation of the Contribution is
subject to the terms and conditions imposed by the Company. There are currently
no limitations on the number of Sub-Accounts that can be selected by an Owner.
Allocations must be in whole percentages with a minimum allocation of 10% of
each Contribution or transfer, unless the Contribution is being made pursuant to
an approved Dollar Cost Averaging Program. Under certain circumstances, the
Company will allocate initial Contributions to the Berkeley Money Market
Sub-Account until the expiration of the Right to Examine Contract period (see
"Highlights").
For initial Contributions, if the forms required to issue a Contract are in good
order, the Company will apply the Contribution to the Separate Account and
credit the Contract with Accumulation Units and/or to the Fixed Account and
credit the Contract with dollars within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). If the forms required to issue a
Contract are not in good order, the Company will attempt to get them in good
order or the Company will return the forms and the Contribution within five
business days. The Company will not retain the Contribution for more than five
business days while processing incomplete forms unless it has been so authorized
by the purchaser. For subsequent Contributions, the Company will apply
Contributions to the Separate Account and credit the Contract with Accumulation
Units and/or to the Fixed Account and credit the Contract with dollars as of the
end of the Valuation Period during which the Contribution was received in good
order.
DOLLAR COST AVERAGING PROGRAM. Dollar Cost Averaging is a program which, if
elected, permits an Owner to systematically transfer amounts on a monthly,
quarterly, semi-annual or annual basis from the Berkeley Money Market
Sub-Account, the Berkeley U.S. Quality Bond Sub-Account or the Fixed Account to
one or more Sub-Accounts. Dollar Cost Averaging may be elected if the Owner's
Contract Value is at least $20,000 as of the Valuation Date Dollar Cost
Averaging is elected. By allocating amounts on a regularly scheduled basis as
opposed to allocating the total amount at one particular time, an Owner may be
less susceptible to the impact of market fluctuations. Transfers to the Fixed
Account are not permitted. The Company reserves the right, at any time and
without prior notice to any party, to terminate, suspend or modify its
Dollar Cost Averaging Program.
If selected, Dollar Cost Averaging must be for at least 12 months. There is no
current charge for Dollar Cost Averaging. However, the Company reserves the
right to charge for Dollar Cost Averaging in the future. The standard date of
the month for transfers is the date the Owner's request for enrollment in the
program is received and processed by the Company and subsequent monthly,
quarterly, semi-annual or annual anniversaries of that date. The Owner may
specify a different future date. Transfers made pursuant to the Dollar Cost
Averaging Program are not taken into account in determining any Transfer Fee.
REBALANCING PROGRAM. Certain Owners may utilize an asset allocation model known
as the Asset Equalizer to help them establish their initial investment
allocations in the Contracts. These Owners may rebalance their investments
monthly to maintain the allocation in the Asset Equalizer model. Rebalancing
provides for periodic pre-authorized automatic transfers among the Sub-Accounts.
Any amounts in the Fixed Account will not be transferred pursuant to this
program. If the Owner is participating in the Rebalancing Program, such
transfers currently are not counted toward the number of transfers for the year
and are not taken into account in determining any Transfer Fee.
CONTRACT VALUE. The Contract Value for any Valuation Period is the sum of the
Contract Value in each of the Sub-Accounts of the Separate Account and the
Contract Value in the Fixed Account.
The Contract Value in a Sub-Account of the Separate Account is determined by
multiplying the number of Accumulation Units allocated to the Sub-Account by the
Accumulation Unit value.
ACCUMULATION UNITS. Accumulation Units will be used to account for all amounts
allocated to or withdrawn from the Sub-Accounts of the Separate Account as a
result of Contributions, withdrawals, transfers, or fees and charges. The
Company will determine the number of Accumulation Units of a Sub-Account
purchased or cancelled. This will be done by dividing the amount allocated to
(or the amount withdrawn from) the Sub-Account by the dollar value of one
Accumulation Unit of the Sub-Account as of the end of the Valuation Period
during which the request for the transaction is received at the Annuity Service
Center.
ACCUMULATION UNIT VALUE. The Accumulation Unit value for each Sub-Account was
arbitrarily set initially at $10. The Accumulation Unit value for each
Sub-Account for any later Valuation Period is determined by subtracting (2) from
(1) and dividing the result by (3) where:
1. is the result of:
a. the assets of the Sub-Account attributable to Accumulation Units;
plus or minus
b. the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation of
the Sub-Account.
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge, for the Administrative Charge and for the Distribution Charge.
3. is the number of Accumulation Units outstanding at the end of the
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
TRANSFERS
TRANSFERS DURING THE ACCUMULATION PERIOD. Subject to any limitation imposed by
the Company on the number of transfers (currently, unlimited) that can be made
during the Accumulation Period, the Owner may transfer all or part of the
Contract Value in a Sub-Account or the Fixed Account without the imposition of
any fee or charge if there have been no more than the number of free transfers
(currently, twelve) made. All transfers are subject to the following:
1. If more than the number of free transfers have been made in a Contract
Year, the Company will deduct a Transfer Fee for each subsequent
transfer permitted.
2. The minimum amount which can be transferred is $500 (from (i) one or
multiple Sub-Accounts, or (ii) the Fixed Account) or the Owner's
entire interest in the Sub-Account or the Fixed Account, if less. The
minimum amount which must remain in a Sub-Account after a transfer is
$500 per Sub-Account, or $0 if the entire amount in the Sub-Account is
transferred. Transfers made pursuant to an approved Dollar Cost
Averaging Program and Rebalancing Program will not be subject to this
limitation. The minimum amount which must remain in the Fixed Account
after a transfer is $500, or $0 if the entire amount in any Guarantee
Period is transferred. Transfers made from any Guarantee Period
pursuant to an approved Dollar Cost Averaging Program will not be
subject to these limits.
3. The Company reserves the right, at any time and without prior notice
to any party, to terminate, suspend or modify the transfer privilege
described above.
Neither the Separate Account nor the Trust is designed for professional market
timing organizations or other entities using programmed and frequent transfers.
A pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to a Portfolio. The Company reserves the right to restrict the
transfer privilege or reject any specific Contribution allocation request for
any person whose transactions seem to follow a timing pattern.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, the Owner may
make transfers, by Written Request, as follows:
1. The Owner may make transfers of Contract Values between Sub-Accounts,
subject to any limitations imposed by the Company on the number of
transfers that can be made during the Annuity Period (currently,
unlimited). If more than the number of free transfers have been made
in a Contract Year, the Company will deduct a Transfer Fee for each
subsequent transfer permitted. The Transfer Fee will be deducted from
the amount which is transferred.
2. The Owner may once each Contract Year make a transfer from one or
more Sub-Accounts to the Fixed Account. The Owner may not make a
transfer from the Fixed Account to the Separate Account.
3. Transfers between Sub-Accounts will be made by converting the number
of Annuity Units being transferred to the number of Annuity Units of
the Sub-Account to which the transfer is made, so that the next
Annuity Payment if it were made at that time would be the same amount
that it would have been without the transfer. Thereafter, Annuity
Payments will reflect changes in the value of the new Annuity Units.
4. The minimum amount which can be transferred is $500 (from one or
multiple Sub-Accounts) or the Owner's entire interest in the
Sub-Account, if less. The minimum amount which must remain in a
Sub-Account after a transfer is $500 per Sub-Account, or $0 if the
entire amount in the Sub-Account is transferred.
5. The Company reserves the right, at any time and without prior notice
to any party, to terminate, suspend or modify the transfer privilege
described above.
Owners can elect to make transfers by telephone. To do so Owners must complete a
Written Request. The Company will use reasonable procedures to confirm that
instructions communicated by telephone are genuine. If it does not, the Company
may be liable for any losses due to unauthorized or fraudulent instructions. The
Company may tape record all telephone instructions. The Company will not be
liable for any loss, liability, cost or expense incurred by the Owner for acting
in accordance with such telephone instructions believed to be genuine. The
telephone transfer privilege may be discontinued at any time by the Company. If
there are Joint Owners, unless the Company is informed to the contrary,
telephone instructions will be accepted from either of the Joint Owners.
WITHDRAWALS
During the Accumulation Period, the Owner may, upon a Written Request, make a
total or partial withdrawal of the Contract Withdrawal Value. (In the State of
Washington, the Owner may make a withdrawal on the Annuity Date.)
Unless the Owner instructs the Company otherwise, a partial withdrawal will be
made from the Separate Account. A partial withdrawal will result in the
cancellation of Accumulation Units from each applicable Sub-Account in the ratio
that the Owner's interest in the Sub-Account bears to the total Contract Value
allocated to the Separate Account. The Owner must specify by Written Request in
advance which Sub-Account Accumulation Units are to be cancelled if other than
the above method is desired.
A partial withdrawal from the Fixed Account is made for a Contract with multiple
Contributions during the Guarantee Period by a withdrawal from the Contribution
with the most recent Effective Date.
The Company will pay the amount of any withdrawal from the Separate Account
within seven (7) days of receipt of a request in good order unless the
Suspension or Deferral of Payments provision is in effect.
Each partial withdrawal must be for at least $500 (this requirement may be
waived to meet minimum distribution requirements for Qualified Contracts). The
minimum Contract Value which must remain in the Contract after a partial
withdrawal is $2,000. (This requirement may be waived to meet minimum
distribution requirements for Qualified Contracts). The minimum Contract Value
which must remain in a Sub-Account or the Fixed Account after a partial
withdrawal is $500.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO ANY WITHDRAWAL FROM THE CONTRACT.
See "Federal Tax Status - Tax Treatment of Withdrawals - Qualified Contracts"
and "Tax Treatment of Withdrawals - Non-Qualified Contracts."
SYSTEMATIC WITHDRAWAL OPTION. The Company offers a Systematic Withdrawal Option
which enables an Owner to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. The Systematic Withdrawal Option is available
if the Owner's Contract Value is at least $20,000 as of the Valuation Date this
option is requested. The Owner or the Company may terminate systematic
withdrawals upon 30 days' prior written notice. There is currently no
transaction charge for systematic withdrawals. However, the Company reserves the
right to exercise the transaction charge for systematic withdrawals in the
future. The total permitted systematic withdrawal in a Contract Year is limited
to not more than 10% of the unliquidated Contributions as of the immediately
preceding Contract Anniversary or, if during the first Contract Year, as of the
Issue Date. The Systematic Withdrawal Option can be exercised at any time,
including during the first Contract Year.
Systematic withdrawals are available for Qualified and Non-Qualified Contracts.
Certain tax penalties and restrictions may apply to systematic withdrawals from
the Contracts. (See "Federal Tax Status - Tax Treatment of Withdrawals -
Qualified Contracts" and "Tax Treatment of Withdrawals - Non-Qualified
Contracts.") Owners entering into such a program instruct the Company to
withdraw an amount specified as a percentage of the Contribution, or a
percentage of Contract Value, or in dollars on a monthly, quarterly or semi-
annual basis. The minimum withdrawal amount is $100 per payment. The standard
date of the month for withdrawals is the date the Owner's request for
enrollment in the program is received and processed by the Company, and
subsequent monthly (or the payment schedule selected) anniversaries of that
date. The Owner may specify a different future date.
SUSPENSION OR DEFERRAL OF PAYMENTS. The Company reserves the right to suspend or
postpone payments from the Separate Account for a withdrawal or transfer for any
period when:
1. The New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. Trading on the New York Stock Exchange is restricted;
3. An emergency exists as a result of which disposal of securities held
in the Separate Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate
Account's net assets; or
4. During any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Owners; provided that
applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2)
and (3) exist.
The Company further reserves the right to postpone payment for a withdrawal or
transfer from the Fixed Account for a period of up to six months.
PROCEEDS PAYABLE ON DEATH
DEATH OF OWNER DURING THE ACCUMULATION PERIOD. Upon the death of the Owner or
any Joint Owner prior to the Annuity Date, the death benefit will be paid to the
Beneficiary(ies) designated by the Owner. Upon the death of a Joint Owner, the
surviving Joint Owner, if any, will be treated as the primary Beneficiary. Any
other Beneficiary designation on record at the time of death will be treated as
a contingent Beneficiary.
A Beneficiary may request that the death benefit be paid under one of the Death
Benefit Options described below. If the Beneficiary is the spouse of the Owner
he or she may elect to continue the Contract at the then current Contract Value
in his or her own name and exercise all the Owner's rights under the Contract.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD. Prior to the Owner, or the
oldest Joint Owner, attaining Age 80, the death benefit during the Accumulation
Period will be the greater of:
1. The Adjusted Contributions; or
2. The Contract Value determined as of the end of the Valuation Period
during which the Company receives at its Annuity Service Center both
due proof of death and an election of the payment method; or
3. The Contract Value on the most recent seventh year Contract
Anniversary or the Adjusted Contributions as of the most recent
seventh year Contract Anniversary, whichever is greater. This amount
is increased for subsequent Contributions and reduced for subsequent
partial withdrawals in the same proportion that the Contract Value was
reduced on the date of the withdrawal.
After the Owner, or the oldest Joint Owner, attains Age 80, the death benefit
during the Accumulation Period will be the Contract Value determined as of the
end of the Valuation Period during which the Company receives both due proof of
death an election for the payment method.
Adjusted Contributions are equal to the initial Contribution increased for
subsequent Contributions and reduced for subsequent partial withdrawals in the
same proportion that the Contract Value was reduced on the date of the
withdrawal.
In certain states, the death benefit during the Accumulation Period will be the
Contract Value determined as of the end of the Valuation Period during which the
Company receives both due proof of death and an election for the payment method.
Owners should refer to their Contract for the applicable death benefit
provision.
See the "Appendix" for examples of how the death benefit is calculated.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD. A non-spousal Beneficiary
must elect the death benefit to be paid under one of the following options in
the event of the death of the Owner during the Accumulation Period:
Option 1 - lump sum payment of the death benefit; or
Option 2 - payment of the entire death benefit within 5 years of the
date of the death of the Owner; or
Option 3 - payment of the death benefit under an Annuity Option over
the lifetime of the Beneficiary or over a period not extending
beyond the life expectancy of the Beneficiary with
distribution beginning within one year of the date of death of
the Owner or any Joint Owner.
Any portion of the death benefit not applied under Option 3 within one year of
the date of the Owner's death, must be distributed within five years of the date
of death.
A spousal Beneficiary may elect to continue the Contract in his or her own name
at the then current Contract Value, elect a lump sum payment of the death
benefit or apply the death benefit to an Annuity Option.
If a lump sum payment is requested, the amount will be paid within seven (7)
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments provision is in effect.
Payment to the Beneficiary, other than in a lump sum, may only be elected during
the sixty-day period beginning with the date of receipt of proof of death.
DEATH OF OWNER DURING THE ANNUITY PERIOD. If the Owner or a Joint Owner, who is
not the Annuitant, dies during the Annuity Period, any remaining payments under
the Annuity Option elected will continue at least as rapidly as under the method
of distribution in effect at such Owner's death. Upon the death of the Owner
during the Annuity Period, the Beneficiary becomes the Owner.
DEATH OF ANNUITANT. Upon the death of the Annuitant, who is not the Owner,
during the Accumulation Period, the Owner may designate a new Annuitant, subject
to the Company's underwriting rules then in effect. If no designation is made
within 30 days of the death of the Annuitant, the Owner will become the
Annuitant. If the Owner is a non-natural person, the death of the Annuitant will
be treated as the death of the Owner and a new Annuitant may not be designated.
Upon the death of the Annuitant during the Annuity Period, the death benefit, if
any, will be as specified in the Annuity Option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
PAYMENT OF DEATH BENEFIT. The Company will require due proof of death before any
death benefit is paid. Due proof of death will be:
1. a certified death certificate;
2. a certified decree of a court of competent jurisdiction as to the
finding of death; or
3. any other proof satisfactory to the Company.
All death benefits will be paid in accordance with applicable law or regulations
governing death benefit payments.
BENEFICIARY. The Beneficiary designation in effect on the Issue Date will remain
in effect until changed. The Beneficiary is entitled to receive the benefits to
be paid at the death of the Owner. Unless the Owner provides otherwise, the
death benefit will be paid in equal shares to the survivor(s) as follows:
1. to the Primary Beneficiary(ies) who survive the Owner's and/or the
Annuitant's death, as applicable; or if there are none
2. to the Contingent Beneficiary(ies) who survive the Owner's and/or the
Annuitant's death, as applicable; or if there are none
3. to the estate of the Owner.
CHANGE OF BENEFICIARY. Subject to the rights of any irrevocable
Beneficiary(ies), the Owner may change the Primary Beneficiary(ies) or
Contingent Beneficiary(ies). Any change must be made by Written Request. The
change will take effect as of the date the Written Request is signed. The
Company will not be liable for any payment made or action taken before it
records the change.
ANNUITY PROVISIONS
GENERAL. On the Annuity Date, the Adjusted Contract Value will be applied under
the Annuity Option selected by the Owner. Annuity Payments may be made on a
fixed or variable basis or both.
ANNUITY DATE. The Annuity Date is selected by the Owner on the Issue Date. The
Annuity Date must be the first day of a calendar month and must be at least one
month after the Issue Date. The Annuity Date may not be later than when the
Annuitant reaches Age 85 or 10 years after the Issue Date for issue ages after
Age 75.
Prior to the Annuity Date, the Owner, subject to the above, may change the
Annuity Date by Written Request. Any change must be requested at least seven (7)
days prior to the new Annuity Date.
SELECTION OR CHANGE OF AN ANNUITY OPTION. An Annuity Option is selected by the
Owner at the time the Contract is issued. Prior to the Annuity Date, the Owner
can change the Annuity Option selected by Written Request. Any change must be
requested at least seven (7) days prior to the Annuity Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS. Annuity Payments are paid in monthly
installments. The Adjusted Contract Value is applied to the Annuity Table for
the Annuity Option selected. If the Adjusted Contract Value to be applied under
an Annuity Option is less than $2,000, the Company reserves the right to make a
lump sum payment in lieu of Annuity Payments. If the Annuity Payment would be or
become less than $200 where only a Fixed Annuity or a Variable Annuity is
selected, or if the Annuity Payment would be or become less than $100 on each
basis when a combination of a Fixed and Variable Annuity is selected, the
Company will reduce the frequency of payments to an interval which will result
in each payment being at least $200, or $100 on each basis if a combination of a
Fixed and Variable Annuity is selected.
ANNUITY. If the Owner selects a Fixed Annuity, the Adjusted Contract Value is
allocated to the Fixed Account and the Annuity is paid as a Fixed Annuity. If
the Owner selects a Variable Annuity, the Adjusted Contract Value will be
allocated to the Sub-Account(s) of the Separate Account in accordance with the
selection made by the Owner, and the Annuity will be paid as a Variable Annuity.
The Owner can also select a combination of a Fixed and Variable Annuity and the
Adjusted Contract Value will be allocated accordingly. Unless the Owner
specifies otherwise, the payee of the Annuity Payments shall be the Owner.
The Adjusted Contract Value will be applied to the applicable Annuity Table
contained in the Contract based upon the Annuity Option selected by the Owner.
FIXED ANNUITY. The Owner may elect to have the Adjusted Contract Value applied
to provide a Fixed Annuity. The dollar amount of each Fixed Annuity Payment will
be determined in accordance with Annuity Tables contained in the Contract which
are based on the minimum guaranteed interest rate of 3% per year. The dollar
amount of each Fixed Annuity Payment will be reduced by the applicable portion
of the Contract Maintenance Charge. After the initial Fixed Annuity Payment, the
payments will not change regardless of investment, mortality or expense
experience.
VARIABLE ANNUITY. 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. Variable Annuity
payments are not guaranteed as to dollar amount.
ANNUITY OPTIONS. The following Annuity Options or any other Annuity Option
acceptable to the Company may be selected:
OPTION A. LIFE ANNUITY: Monthly Annuity Payments during the life of the
Annuitant.
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 120 MONTHS: Monthly Annuity
Payments during the lifetime of the Annuitant and in any event for one
hundred twenty (120) months. If the Beneficiary does not desire payments
to continue for the remainder of the period certain, he or she may elect
to have the present value of the guaranteed annuity payments remaining
commuted and paid in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Monthly Annuity Payments
payable during the joint lifetime of the Annuitant and a Joint Annuitant
and then during the lifetime of the survivor at 66 2/3%.
OPTION D. PERIOD CERTAIN: Monthly payments will be made for a specified
period. The specified period must be at least ten (10) years and cannot be
more than thirty (30) years. If the Owner does not desire payments to
continue for the remainder of the selected period, he or she may elect to
have the present value of the remaining payments to be made from the
Separate Account commuted and paid in a lump sum or as an Annuity Option
purchased at the date of such election.
Annuity Options A, B, C and D are available on a Fixed Annuity basis, a Variable
Annuity basis or a combination of both. Election of a Fixed Annuity or a
Variable Annuity must be made no later than fifteen (15) days prior to the
Annuity Date. If no election is made as between a Fixed Annuity and a Variable
Annuity, the Variable Annuity will be the default option.
DISTRIBUTOR
London Pacific Financial and Insurance Services is the distributor of the
Contracts. London Pacific Financial and Insurance Services is registered as a
broker-dealer with the Securities and Exchange Commission and is a member of the
National Association of Securities Dealers, Inc. London Pacific Financial and
Insurance Services is an affiliate of the Company.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid an ongoing quarterly commission currently equal to
.275% of the Contract Value (pro-rated for the first Contract quarter based upon
the length of time the Contract has been in force) for promotional or
distribution expenses associated with the marketing of the Contracts.
PERFORMANCE INFORMATION
BERKELEY MONEY MARKET SUB-ACCOUNT. From time to time, the Berkeley Money Market
Sub-Account of the Separate Account may advertise its "current yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "current yield" of the Berkeley
Money Market Sub-Account refers to the income generated by Contract Values in
the Berkeley Money Market Sub-Account over a seven-day period ending on the date
of calculation (which period will be stated in the advertisement). This income
is "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the Contract Value in the Berkeley Money Market
Sub-Account. The "effective yield" is calculated similarly. However, when
annualized, the income earned by Contract Value is assumed to be reinvested.
This results in the "effective yield" being slightly higher than the "current
yield" because of the compounding effect of the assumed reinvestment. The yield
figure will reflect the deduction of all recurring charges and deductions
against the Sub-Account's income, including the deduction of the Mortality and
Expense Risk Charge, the Administrative Charge, the Distribution Charge and a
pro-rata portion of the Contract Maintenance Charge. The Company does not impose
a sales load upon redemptions in connection with the Contracts.
OTHER SUB-ACCOUNTS. From time to time, the Company may advertise performance
data for the various other Sub-Accounts under the Contract. Such data will show
the percentage change in the value of an Accumulation Unit based on the
performance of a Portfolio over a period of time, usually a calendar year,
determined by dividing the increase (decrease) in value for that Unit by the
Accumulation Unit value at the beginning of the period. This percentage figure
will reflect the deduction of any asset-based charges and any applicable
Contract Maintenance Charges under the Contracts. The Company may also advertise
performance information computed on a different basis which may not include
certain charges. If such charges were deducted, the performance would be lower.
Any advertisement will also include total return figures calculated as described
in the Statement of Additional Information. The total return figures reflect the
fees and expenses of the Portfolio and all recurring charges and deductions
against the Sub-Account's income, including the deduction of the Mortality and
Expense Risk Charge, the Administrative Charge, the Distribution Charge and a
pro-rata portion of the Contract Maintenance Charge for the applicable periods
shown.
The Company may make available yield information with respect to some of the
Sub-Accounts. Such yield information will be calculated as described in the
Statement of Additional Information. The yield information will reflect the
deduction of all recurring charges and deductions against the Sub-Account's
income, including the deduction of the Mortality and Expense Risk Charge, the
Administrative Charge, the Distribution Charge and a pro-rata portion of the
Contract Maintenance Charge. The Company does not impose a sales load upon
redemptions in connection with the Contracts.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's current yield or
total return for any prior period should not be considered a representation of
what an investment may earn or what an Owner's yield or total return may be in
any future period.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the Sub-Accounts
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the underlying
Portfolio being compared. The Standard & Poor's 500 Composite Stock Price Index
is an unmanaged, unweighted average of 500 stocks, the majority of which are
listed on the New York Stock Exchange. The Dow Jones Industrial Average is an
unmanaged, weighted average of thirty blue chip industrial corporations listed
on the New York Stock Exchange. Both the Standard & Poor's 500 Composite Stock
Price Index and the Dow Jones Industrial Average assume quarterly reinvestment
of dividends.
In addition, the Company may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate and
inflation indices, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time of
a fixed "market basket" of certain specified goods and services. Similar
comparisons of Sub-Account performance may also be made with appropriate indices
measuring the performance of a defined group of securities widely recognized by
investors as representing a particular segment of the securities markets. For
example, Sub-Account performance may be compared with Donoghue Money Market
Institutional Averages (money market rates), Lehman Brothers Corporate Bond
Index (corporate bond interest rates) or Lehman Brothers Government Bond Index
(long-term U.S. Government obligation interest rates).
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts issued through the Separate
Account with the unit values of variable annuities issued through the separate
accounts of other insurance companies. Such information will be derived from the
Lipper Variable Insurance Products Performance Analysis Service, the VARDS
Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Georgia and published by Financial
Planning Resources, Inc. The VARDS rankings may or may not reflect the deduction
of asset-based insurance charges. Where the charges have not been deducted, the
sales literature will indicate that if the charges had been deducted, the
rankings might have been lower.
Morningstar rates a variable annuity Sub-Account against its peers with similar
investment objectives. Morningstar does not rate any Sub-Account that has less
than three years of performance data. The Morningstar rankings may or may not
reflect the deduction of charges. Where charges have not been deducted, the
sales literature will indicate that if the charges had been deducted, the
rankings might have been lower.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
GENERAL. Section 72 of the Code governs taxation of annuities in general. An
owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Annuity Option selected. For a lump sum payment received as a total
withdrawal (total surrender), the recipient is taxed on the portion of the
payment that exceeds the cost basis of the Contract. For Non-Qualified
Contracts, this cost basis is generally the contributions, while for Qualified
Contracts there may be no cost basis. The taxable portion of the lump sum
payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
Fixed Annuity Option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a Variable Annuity Option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund feature)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income tax rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Owners, Annuitants and Beneficiaries under
the Contracts should seek competent financial advice about the tax consequences
of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
DIVERSIFICATION. Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable annuity contracts. The Code
provides that a variable annuity contract will not be treated as an annuity
contract for any period (and any subsequent period) for which the investments
are not, in accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification of
the Contract as an annuity contract would result in imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios will be managed in such a manner as to
comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS. Under Section 72(u) of the Code,
the investment earnings on Contributions for the Contracts will be taxed
currently to the Owner if the Owner is a non-natural person, e.g., a
corporation, or certain other entities. Such Contracts generally will not be
treated as annuities for federal income tax purposes. However, this treatment is
not applied to Contracts held by a trust or other entity as agent for a natural
person nor to Contracts held by Qualified Plans. Purchasers should consult their
own tax adviser before purchasing a Contract to be owned by a non-natural
person.
MULTIPLE CONTRACTS. The Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year to the same contract owner by
one company or its affiliates are treated as one annuity contract for purposes
of determining the tax consequences of any distribution. Such treatment may
result in adverse tax consequences including more rapid taxation of the
distributed amounts from such combination of contracts. Owners should consult a
tax adviser prior to purchasing more than one non-qualified annuity contract in
any calendar year.
TAX TREATMENT OF ASSIGNMENTS. An assignment or pledge of a Contract may be a
taxable event. Owners should therefore consult competent tax advisers should
they wish to assign or pledge their Contracts.
INCOME TAX WITHHOLDING. All distributions or the portion thereof which is
includible in the gross income of the Owner are subject to federal income tax
withholding. Generally, amounts are withheld from periodic payments at the same
rate as wages and at the rate of 10% from non-periodic payments. However, the
Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or distributions for a specified
period of 10 years or more; or b) distributions which are required minimum
distributions; or c) the portion of the distributions not includible in gross
income (i.e. returns of after-tax contributions). Participants under such plans
should consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS. Section 72 of the Code
governs the treatment of distributions from annuity contracts. It provides that
if the contract value exceeds the aggregate contributions made, any amount
withdrawn will be treated as coming first from the earnings and then, only after
the income portion is exhausted, as coming from the principal. Withdrawn
earnings are includible in gross income. It further provides that a ten percent
(10%) penalty will apply to the income portion of any distribution. However, the
penalty is not imposed on amounts received: (a) after the taxpayer reaches age
59 1/2; (b) after the death of the Owner; (c) if the taxpayer is totally
disabled (for this purpose disability is as defined in Section 72(m)(7) of the
Code); (d) in a series of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy) of the taxpayer or
for the joint lives (or joint life expectancies) of the taxpayer and his or her
Beneficiary; (e) under an immediate annuity; or (f) which are allocable to
purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts," below.)
QUALIFIED PLANS. The Contracts offered by this Prospectus may also be used as
Qualified Contracts. The following discussion of Qualified Contracts is not
exhaustive and is for general informational purposes only. The tax rules
regarding Qualified Contracts are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing Qualified Contracts.
Qualified Contracts include special provisions restricting Contract provisions
that may otherwise be available as described in this Prospectus. Generally,
Qualified Contracts are not transferable except upon surrender or annuitization.
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. Qualified Contracts will utilize annuity tables
which do not differentiate on the basis of sex. Such annuity tables will also be
available for use in connection with certain non-qualified deferred compensation
plans.
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Contributions for a Roth IRA are limited to a maximum
of $2,000 per year. Lower maximum limitations apply to individuals with
adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers
filing joint returns, and between $0 and $10,000 in the case of married
taxpayers filing separately. An overall $2,000 annual limitation continues
to apply to all of a taxpayer's IRA contributions, including Roth IRA and
non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for
at least five years and, in addition, that the distribution is made either
after the individual reaches age 59 1/2, on the individual's death or
disability, or as a qualified first-time home purchase, subject to a $10,000
lifetime maximum, for the individual, a spouse, child, grandchild, or
ancestor. Any distribution which is not a qualified distribution is taxable
to the extent of earnings in the distribution. Distributions are treated as
made from contributions first and therefore no distributions are taxable
until distributions exceed the amount of contributions to the Roth IRA. The
10% penalty tax and the regular IRA exceptions to the 10% penalty tax apply
to taxable distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual
must pay tax on any portion of the IRA being rolled over that represents
income or a previously deductible IRA contribution. However, for rollovers
in 1998, the individual may pay that tax ratably over the four taxable year
period beginning with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS. In the case of a withdrawal
under a Qualified Contract, a ratable portion of the amount received is taxable,
generally based on the ratio of the individual's cost basis to the individual's
total accrued benefit under the retirement plan. Special tax rules may be
available for certain distributions from a Qualified Contract. Section 72(t) of
the Code imposes a 10% penalty tax on the taxable portion of any distribution
from qualified retirement plans, including Contracts issued and qualified under
Code Section 408(b) (Individual Retirement Annuities). To the extent amounts are
not includible in gross income because they have been rolled over to an IRA or
to another eligible qualified plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a) if distribution is
made on or after the date on which the Owner or Annuitant (as applicable)
reaches age 59 1/2; (b) distributions following the death or disability of the
Owner or Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Owner or Annuitant (as applicable) or the joint lives
(or joint life expectancies) of such Owner or Annuitant (as applicable) and his
or her designated Beneficiary; (d) distributions made to the Owner or Annuitant
(as applicable) to the extent such distributions do not exceed the amount
allowable as a deduction under Code Section 213 to the Owner or Annuitant (as
applicable) for amounts paid during the taxable year for medical care; (e)
distributions from an Individual Retirement Annuity for the purchase of medical
insurance (as described in Section 213 (d) (1) (D) of the Code) for the Owner or
Annuitant (as applicable) and his or her spouse and dependents if the Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception will no longer apply after the Owner or Annuitant (as
applicable) has been re-employed for at least 60 days); (f) distributions from
an Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
to the extent such distributions do not exceed the qualified higher education
expenses (as defined in Section 72(t)(7) of the Code) of the Owner or Annuitant
(as applicable) for the taxable year; and (g) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code).
Generally, distributions from a qualified plan must commence no later than April
1 of the calendar year, following the year in which the employee attains age 70
1/2. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
FINANCIAL STATEMENTS
Financial statements of the Company and the Separate Account have been included
in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account,
the Distributor or the Company is a party.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
Company......................................................... 3
Experts......................................................... 3
Legal Opinions.................................................. 3
Distributor..................................................... 3
Yield Calculation for the Salomon Money Market Sub-Account...... 3
Performance Information......................................... 4
Annuity Provisions.............................................. 6
Financial Statements............................................ 7
APPENDIX
The purpose of the Examples below is to demonstrate how the death benefit is
calculated.
DEATH BENEFIT
EXAMPLE A - OWNER AGE 65 AT DEATH; DIES DURING CONTRACT YEAR TWO
Example A assumes the following:
(1) A Contribution of $10,000 was made for the Contract.
(2) Owner dies at Age 65 during the second Contract Year.
(3) The Contract Value at death was $12,000.
(4) No withdrawals have been made.
The following applies to this Example:
(a) Adjusted Contributions equal $10,000, since there were no withdrawals.
(b) No seventh year stepped-up death benefit is available because death
occurred prior to the seventh year Contract Anniversary.
(c) Contract Value is $12,000 and therefore greater than Adjusted
Contributions.
(d) The death benefit is $12,000.
EXAMPLE B - OWNER AGE 65 AT DEATH; DIES DURING CONTRACT YEAR TWO
This Example is based on the same assumptions as Example A except that in this
Example the Contract Value at death is $9,500.
The following applies to this Example:
(a) The Adjusted Contributions are greater than the Contract Value.
(b) The death benefit is $10,000.
EXAMPLE C - OWNER AGE 65 AT DEATH; DIES DURING CONTRACT YEAR TEN
Example C assumes the following:
(1) A single Contribution of $10,000 was made to the Contract.
(2) Owner dies at Age 65 during the tenth Contract Year.
(3) The Contract Value on the seventh Contract Anniversary was $18,000.
(4) The Contract Value at death was $17,000.
(5) A gross withdrawal of $1,500 was made in the sixth Contract Year at
which time the Contract Value was $15,000 before the withdrawal was
made.
The following applies to this Example:
(a) Adjusted Contributions are equal to $9,000. (At the time of the
withdrawal the Contract Value was reduced by 10% ($1,500/$15,000 = .10)
therefore, Adjusted Contributions are reduced by 10% ($10,000 -
($10,000 x .10) = $9,000).
(b) Contract Value on the seventh Contract Anniversary ($18,000) was
greater than that on the death of Owner ($17,000) and greater than
Adjusted Contributions ($9,000).
(c) The death benefit is $18,000.
EXAMPLE D - OWNER AGE 87 AT DEATH; DIES DURING CONTRACT YEAR TWO
This Example is based on the same assumptions as Example A except in this
Example the Owner is Age 87 at death.
The following applies to this Example:
(a) Since the Owner was beyond Age 80, the death benefit will be limited to
the Contract Value.
(b) The death benefit is $12,000.
[Back Cover]
Distributed by:
London Pacific Financial & Insurance Services
1755 Creekside Oaks Drive
Sacramento, CA 95833
Issued by:
[London Pacific Life & Annuity Company Logo}
Home Office:
3109 Poplarwood Court
Raleigh, North Carolina 27604
(919) 790-2243
Annuity Service Center:
P.O. Box 29564
Raleigh, North Carolina 27626
(800) 852-3152
1009 11/97
PART B
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, 1998 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, 1998.
TABLE OF CONTENTS
PAGE
Company..................................................................
Experts..................................................................
Legal Opinions...................... ...................................
Distributor........................... ..................................
Yield Calculation for the Berkeley Money Market Sub-Account........
Performance Information.................................................
Annuity Provisions......................................................
Financial Statements....................................................
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, 1998, the initial capital contributed by the Company represented
approximately 6.03% of the total assets of the Separate Account. The Company
currently intends to retain these funds in the Separate Account.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997, and the financial
statements of the Separate Account for the year ended December 31, 1997 and
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
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice
on certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
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 standardized average annual
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>
The chart below shows the performance of the Accumulation Units calculated for a
specified period of time assuming an initial contribution of $1,000 allocated to
each Portfolio and a deduction of all charges and deductions under the Contract
and the expenses of the Portfolio.
<TABLE>
<CAPTION>
Portfolio 1 Year Since Inception
--------- ------ ---------------
<S> <C> <C>
Harris Associates 24.47% 23.21%
MFS Total Return 19.56% 15.10%
Berkeley U.S. Quality Bond 8.23% 5.03%
Strong International Stock (12.44)% (4.21)%
Berkeley Money Market 3.67% 3.85%
Robertson Stephens Diversified Growth 17.85% 10.15%
Lexington Corporate Leaders 23.64% 18.98%
Strong Growth 24.38% 23.30%
</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 & Liabilities........................... 1
Statement of Operations..................................... 2
Statement of Changes in Net Assets.......................... 3
Notes to Financial Statements................................ 5
Report of Independent Accountants........................... 9
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
Harris MFS Total Berkeley U.S. Berkeley Strong
Associates Value Return Quality Bond Money Market International Stock
Sub-Account (1) Sub-Account Sub-Account (2) Sub-Account (3) Sub-Account
------------------ --------------- ------------------ ------------------- --------------------
ASSETS
Investments in the LPT
Variable Insurance Series
<S> <C> <C> <C> <C> <C> <C>
Trust, at value (Note 3) $3,522,651 $5,973,164 $1,081,897 $1,373,157 $1,250,078
---------- ---------- ---------- ---------- ----------
Total Assets 3,522,651 5,973,164 1,081,897 1,373,157 1,250,078
--------- --------- --------- --------- ---------
LIABILITIES
Amounts retained by London
Pacific Life & Annuity in
LPLA Separate Account One
(Note 7) 125,000 125,000 125,000 0 113,617
- ------- ------- ------- - -------
TOTAL LIABILITIES 125,000 125,000 125,000 0 113,617
------- ------- ------- - -------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS $3,397,651 $5,848,164 $956,897 $1,373,157 $1,136,461
========== ========== ======== ========== ==========
UNIT VALUE $15.08 $13.20 $10.99 $10.76 $9.28
====== ====== ====== ====== =====
UNITS OUTSTANDING 225,262 443,010 87,032 127,652 122,491
======= ======= ====== ======= =======
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
Strong Robertson Stephens Lexington
Growth Diversified Growth Corporate Leaders
Sub-Account Sub-Account (4) Sub-Account
---------------- --------------------- -------------------
ASSETS
Investments in the LPT
Variable Insurance Series
<S> <C> <C> <C> <C>
Trust, at value (Note 3) $2,912,226 $3,043,064 $3,453,305
---------- ---------- ----------
Total Assets 2,912,226 3,043,064 3,453,305
--------- --------- ---------
LIABILITIES
Amounts retained by London
Pacific Life & Annuity in
LPLA Separate Account One
(Note 7) 250,000 148,998 125,000
- ------- ------- -------
TOTAL LIABILITIES 250,000 148,998 125,000
------- ------- -------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS $2,662,226 $2,894,066 $3,328,305
========== ========== ==========
UNIT VALUE $15.72 $12.21 $14.25
====== ====== ======
UNITS OUTSTANDING 169,389 236,983 233,629
======= ======= =======
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Harris MFS Total Berkeley U.S. Berkeley Strong
Associates Value Return Quality Bond Money Market International
Stock
Sub-Account (1) Sub-Account Sub-Account (2) Sub-Account (3) Sub-Account
------------------- -------------- ------------------ ------------------ -----------------
INCOME AND EXPENSES
Income:
Dividends from the LPT Variable
<S> <C> <C> <C> <C> <C>
Insurance Series Trust $335,030 $179,583 $83,991 $57,276 $59,328
Expenses:
Mortality and other expense
Note (4) 22,178 39,996 13,771 15,883 10,947
------ ------ ------ ------ ------
Net investment income 312,852 139,587 70,220 41,393 48,381
------- ------- ------ ------ ------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on sales
of investments 61,876 52,774 7,612 0 8,762
------ ------ ----- - -----
Net unrealized depreciation
(depreciation) on investments
Beginning of period 40,172 19,948 646 0 2,107
End of period (26,304) 257,270 3,760 0 (203,633)
------- ------- ----- - --------
Net unrealized appreciation
(depreciation) during period (66,476) 237,322 3,114 0 (205,740)
------- ------- ----- - --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (4,600) 290,096 10,726 0 (196,978)
------ ------- ------ - --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $308,252 $429,683 $80,946 $41,393 ($148,597)
======== ======== ======= ======= =========
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Strong Robertson Stephens Lexington
Growth Diversified Growth Corporate Leaders
Sub-Account Sub-Account (4) Sub-Account
- ---------------- -------------------- ------------------
INCOME AND EXPENSES
Income:
Dividends from the LPT Variable
<S> <C> <C> <C>
Insurance Series Trust $271,023 $15 $215,915
Expenses:
Mortality and other expense
Note (4) 20,965 19,764 17,667
------ ------ ------
Net investment income 250,058 (19,749) 198,248
------- ------- -------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on sales
of investments 89,791 (130,610) 69,824
------ -------- ------
(depreciation) on investments
Beginning of period (5,660) (142,697) 24,589
End of period (22,600) 344,221 (46,190)
------- ------- -------
Net unrealized appreciation
(depreciation) during period (16,940) 486,918 (70,779)
------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 72,851 356,308 (955)
------ ------- ----
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $322,909 $336,559 $197,293
======== ======== ========
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
Harris MFS Total Berkeley U.S. Berkeley Strong
Associates Value Return Quality Bond Money Market International
Stock
INCREASE (DECREASE) IN NET ASSETS Sub-Account (1) Sub-Account Sub-Account (2) Sub-Account (3) Sub-Account
------------------- --------------- ---------------- ---------------- -------------------
FROM OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income $312,852 $139,587 $70,220 $41,393 $48,381
Net realized gain (loss) on sales
of investments 61,876 52,774 7,612 0 8,762
Net unrealized appreciation
(depreciation) during the year (66,476) 237,322 3,114 0 (205,740)
------- ------- ----- - --------
Net increase (decrease) in net
assets
resulting from operations 308,252 429,683 80,946 41,393 (148,597)
------- ------- ------ ------ --------
CONTRACT RELATED TRANSACTIONS:
Net premiums 448,289 679,593 187,734 14,102,512 239,002
Benefits and contract charges (32,555) (135,077) (37,173) (14,603) (67,415)
Transfers between Sub-Accounts
(including fixed account), net 2,093,609 3,991,383 (65,908) (13,038,636) 661,907
--------- --------- ------- ----------- -------
Net increase in net assets
resulting
from contract related transactions 2,509,343 4,535,899 84,653 1,049,273 833,494
Change in amount retained by
London Pacific Life & Annuity
LPLA Separate Account One, net
(Note 7) (33,183) (24,781) (7,123) (5,183) 19,523
- ------- ------- ------ ------ ------
INCREASE IN NET ASSETS 2,784,412 4,940,801 158,476 1,085,483 704,420
NET ASSETS, BEGINNING OF PERIOD 613,239 907,363 798,421 287,674 432,041
------- ------- ------- ------- -------
NET ASSETS, END OF PERIOD $3,397,651 $5,848,164 $956,897 $1,373,157 $1,136,461
========== ========== ======== ========== ==========
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
Strong Robertson Stephens Lexington
Growth Diversified Growth Corporate Leaders
INCREASE (DECREASE) IN NET ASSETS Sub-Account Sub-Account (4) Sub-Account
---------------- -------------------- -------------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $250,058 ($19,749) $198,248
Net realized gain (loss) on sales
of investments 89,791 (130,610) 69,824
Net unrealized appreciation
(depreciation) during the year (16,940) 486,918 (70,779)
------- ------- -------
Net increase (decrease) in net
assets
resulting from operations 322,909 336,559 197,293
------- ------- -------
CONTRACT RELATED TRANSACTIONS:
Net premiums 474,217 381,037 460,740
Benefits and contract charges (61,170) (95,133) (95,125)
Transfers between Sub-Accounts
(including fixed account), net 1,398,404 1,745,826 2,450,950
--------- --------- ---------
Net increase in net assets
resulting
from contract related transactions 1,811,451 2,031,730 2,816,565
Change in amount retained by
London Pacific Life & Annuity
LPLA Separate Account One, net
(Note 7) (34,493) (17,746) (30,058)
- ------- ------- -------
INCREASE IN NET ASSETS 2,099,867 2,350,543 2,983,800
NET ASSETS, BEGINNING OF PERIOD 562,359 543,523 344,505
------- ------- -------
NET ASSETS, END OF PERIOD $2,662,226 $2,894,066 $3,328,305
========== ========== ==========
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
Harris MFS Total Berkeley U.S. Berkeley Strong
Associates Value Return Quality Bond Money Market International
Stock
INCREASE (DECREASE) IN NET Sub-Account (1) Sub-Account Sub-Account Sub-Account(3) Sub-Account
-------------------- --------------- ---------------- ----------------- ------------------
ASSETS FROM OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income $ 17,561 $ 12,863 $ 31,872 $ 13,221 $ 933
Net realized gain on sales
of investments 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:
Net premiums 286,034 414,918 95,545 2,841,064 155,627
Benefits and contract charges (357) (3,655) (3,368) 0 (1,948)
Transfers between Sub-Accounts
(including fixed account), net 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 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
======== ======== ======== ======== ========
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
Strong Robertson Stephens Lexington
Growth Diversified Growth Corporate Leaders
INCREASE (DECREASE) IN NET Sub-Account Sub-Account (4) Sub-Account
--------------- -------------------- -------------------
ASSETS FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 36,980 $111,424 $ 3,592
Net realized gain on sales
of investments 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:
Net premiums 227,819 246,768 187,429
Benefits and contract charges (2,879) (1,896) (53)
Transfers between Sub-Accounts
(including fixed account), net 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 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
======== ======== ========
<FN>
(1) Formerly MAS Value Sub-Account
(2) Formerly Salomon U.S. Quality Bond Sub-Account
(3) Formerly Salomon Money Market Sub-Account
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
LPLA SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
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.
Prior to May 1, 1997, the Harris Associates Sub-Account was known as the MAS
Value Sub-Account and the Robertson Stephens Diversified Growth Sub-Account was
known as the Berkeley Smaller Companies Sub-Account. Prior to November 3, 1997,
the Berkeley Money Market Sub-Account was known as the Salomon Money Market
Sub-Account and the Berkeley U.S. Quality Bond Sub-Account was known as the
Salomon U.S. Quality Bond Sub-Account.
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
LPLA SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION (CONTINUED)
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.
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, 1997 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Portfolio Information
Investment Number of Aggregate Net Asset
Sub-Account Shares Cost Value Per Share
- --------------------------------------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Harris Associates Value 261,935 $3,548,955 $13.45
MFS Total Return 466,464 5,715,894 12.81
Berkeley U.S. Quality Bond 109,188 1,078,137 9.91
Berkeley Money Market 1,373,157 1,373,157 1.00
Strong International Stock 140,432 1,453,711 8.90
Strong Growth 216,183 2,934,826 13.47
Robertson Stephens Diversified Growth 297,806 2,698,843 10.22
Lexington Corporate Leaders 257,809 3,499,495 13.40
</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
NOTE 5 - CHANGES IN UNITS OUTSTANDING
Changes in units outstanding for the year ended December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Units Units Units Net
Investment Sub-Account Purchased Transferred Redeemed Increase
- ------------------------------------------------ -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Harris Associates Value 31,390 145,533 (2,244) 174,679
MFS Total Return 54,569 316,738 (10,576) 360,731
Berkeley U.S. Quality Bond 18,135 (6,287) (3,516) 8,332
Berkeley Money Market 1,326,219 (1,224,959) (1,371) 99,889
Strong International Stock 22,776 65,340 (6,465) 81,651
Strong Growth 31,965 96,900 (4.031) 124,834
Robertson Stephens Diversified Growth 35,235 156,951 (7,719) 184,467
Lexington Corporate Leaders 33,246 177,264 (6,814) 203,696
</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
contributions to the Separate Account, the underlying investment results and
amounts withdrawn by the Company. 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
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, 1997 were as follows:
<TABLE>
<CAPTION>
Investment Sub-Account Purchases Sales
---------------------- --------- -----
<S> <C> <C>
Harris Associates Value $ 3,043,226 $ 282,433
MFS Total Return 4,968,263 331,810
Berkeley U.S. Quality Bond 460,506 315,786
Berkeley Money Market 11,118,944 10,163,738
Strong International Stock 1,079,388 197,527
Strong Growth 2,696,933 580,516
Robertson Stephens Diversified Growth 2,472,968 461,006
Lexington Corporate Leaders 3,294,773 329,704
</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
(Harris Associates Value, MFS Total Return, Berkeley U.S. Quality Bond, Berkeley
Money Market, Strong International Stock, Strong Growth, Robertson Stephens
Diversified Growth and Lexington Corporate Leaders) constituting LPLA Separate
Account One at December 31, 1997, the results of each of their operations for
the year then ended and the changes in each of their net assets for the periods
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 at December 31, 1997 by correspondence with the
Trust, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 6, 1998
LONDON PACIFIC LIFE
& ANNUITY COMPANY
(A wholly-owned subsidiary
of London Pacific Group Limited)
STATUTORY BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
Statutory Basis Financial Statements
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Accountants............................................... 1
AUDITED FINANCIAL STATEMENTS
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus....... 3
Statutory Statements of 4
Operations......................................................................
Statutory Statements of Changes in Capital and Surplus.......................... 5
Statutory Statements of Cash Flows.............................................. 6-7
Notes to Statutory Financial Statements......................................... 8-20
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 30, 1998, except as to Note 17,
which is as of March 12, 1998
To the Board of Directors and Shareholder of
London Pacific Life & Annuity Company
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, 1997
and 1996, 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, 1997. 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
January 30, 1998, except as to Note 17,
which is as of March 12, 1998
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, 1997
and 1996, or the results of its operations or its cash flows for each of the
three years in the period ended December 31, 1997 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.
Price Waterhouse LLP
Boston, Massachusetts
<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,
------------
1997 1996
---- ----
ASSETS
Investments:
<S> <C> <C>
Bonds $ 1,157,095,942 $ 1,142,464,351
Preferred stock 51,262,033 1,687,616
Common stock 8,477,904 20,479,485
Short-term investments 11,694,690 88,249,049
Policy loans 8,487,559 6,294,811
Receivable for securities 21,836,311 53,223,692
---------- ----------
Total investments 1,258,854,439 1,312,399,004
------------- -------------
Cash 3,347,694 26,008,933
--------- ----------
Total cash and invested assets 1,262,202,133 1,338,407,937
Investment income due and accrued 16,790,319 12,363,810
Electronic data processing equipment, net 185,870 358,143
Receivable from affiliates 11,503 138,877
Other assets 696,682 1,037,418
Separate account assets 22,609,542 5,609,610
---------- ---------
Total assets $ 1,302,496,049 $ 1,357,915,795
================ ================
LIABILITIES, CAPITAL AND SURPLUS
Aggregate reserves for life policies and contracts $ 1,132,728,673 $ 1,097,795,798
Policy and contract claims 354,014 382,429
Accrued dividends to policyholders 433,099 422,330
Interest maintenance reserve 17,684,781 11,668,491
Federal income taxes payable 3,283,673 3,998,217
Remittances and items not allocated 419,689 631,586
Asset valuation reserve 24,184,363 29,133,762
Payable to affiliates 720,136 36,512
Amounts due to broker-dealers 20,558,221 131,945,347
Accounts payable, accrued expenses and other liabilities 1,184,201 1,840,168
Transfers to Separate Account, net (1,330,627) (265,469)
Separate account liabilities 21,596,927 4,489,291
---------- ---------
Total liabilities $ 1,221,817,150 $ 1,282,078,462
================ ================
Commitments and contingent liabilities
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 70,394,120
Unassigned surplus 8,284,779 3,443,213
--------- ---------
Total capital and surplus
80,678,899 75,837,333
---------- ----------
Total liabilities, capital and surplus $ 1,302,496,049 $ 1,357,915,795
================ ================
</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,
-----------------------
1997 1996 1995
---- ---- ----
REVENUES
Insurance premiums and annuity
<S> <C> <C> <C>
considerations $ 176,547,838 $ 137,499,919 $ 203,233,606
Net investment income 88,797,926 91,013,416 88,960,512
Amortization of interest maintenance reserve 2,306,437 683,806 (185,844)
Net gain from operations from separate account 133,043 120,319 --
Other income 552,225 287,470 1,255
------- ------- -----
Total revenues 268,337,469 229,604,930 292,009,529
----------- ----------- -----------
BENEFITS AND EXPENSES
Policyholder benefits and changes in reserve 226,126,436 196,153,897 256,854,252
Commissions 11,156,421 8,531,145 14,237,877
Net transfer to separate account 14,607,074 4,175,745 --
Other operating expenses 11,819,652 12,844,370 10,358,955
---------- ---------- ----------
Total benefits and expenses 263,709,583 221,705,157 281,451,084
----------- ----------- -----------
Gain from operations before dividends to
policyholders, federal income taxes and
net realized capital gains 4,627,886 7,899,773 10,558,445
Dividends to policyholders 930,165 915,864 1,007,373
------- ------- ---------
Gains from operations, before federal income taxes
and net realized capital gains 3,697,721 6,983,909 9,551,072
Federal income tax expense (benefit) (excluding
tax on capital gains) (2,212,021) 991,257 2,597,127
---------- ------- ---------
Gain from operations before net realized capital
gains 5,909,742 5,992,652 6,953,945
Net realized capital gains, less capital gains
tax of $4,852,562, 4,617,743 and
$1,931,162 and excluding $8,322,727, $1,976,127
and $303,286 transferred to the IMR in 1997, 1996
and 1995, respectively. 1,044,541 988,636 3,445,440
--------- ------- ---------
Net income $ 6,954,283 $ 6,981,288 $ 10,399,385
================ ================ ===============
</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
PAID-IN AND
CAPITAL CONTRIBUTED UNASSIGNED
STOCK SURPLUS SURPLUS TOTAL
----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
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
Net income 6,954,283 6,954,283
Increase in unrealized capital losses (886,116) (886,116)
Increase in non-admitted assets (184,000) (184,000)
Decrease in asset valuation reserve 4,949,399 4,949,399
Dividends to stockholder (5,992,000) (5,992,000)
---------- ----------
Balance as of December 31, 1997 $ 2,000,000 $ 70,394,120 $ 8,284,779 $ 80,678,899
============ ============ ============= ============
</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,
1997 1996 1995
---- ---- ----
CASH PROVIDED BY:
Premiums and annuity considerations
<S> <C> <C> <C>
collected $ 176,547,838 $ 137,499,919 $ 203,233,606
Investment income received (excluding
realized gains/losses and net of investment
expenses) 84,805,153 95,583,016 86,134,922
Other income received 552,390 287,305 1,255
------- ------- -----
Total cash provided by operations 261,905,381 233,370,240 289,369,783
----------- ----------- -----------
CASH USED FOR:
Life and accident and health claims paid 1,266,207 832,760 1,213,526
Surrender benefits and other fund
withdrawals paid 136,308,194 110,213,086 81,936,665
Other benefits to policyholders paid 53,647,576 54,325,262 51,869,119
---------- ---------- ----------
191,221,977 165,371,108 135,019,310
----------- ----------- -----------
Commissions and other expenses paid 23,639,673 20,570,531 24,913,719
---------- ---------- ----------
Net transfers to separate account 15,431,650 5,441,049 --
Dividends to policyholders paid 919,396 1,020,952 1,048,627
Federal income taxes (recoverable) paid
(excluding tax on capital gains) (1,497,477) (999,143) (2,654,355)
---------- -------- ----------
Total cash used for operations 229,715,219 191,404,497 158,327,301
----------- ----------- -----------
Net cash provided by operations 32,190,162 41,965,743 131,042,482
---------- ---------- -----------
PROCEEDS FROM INVESTMENTS SOLD, MATURED OR
REPAID:
Bonds 758,322,204 651,187,776 193,271,490
Stocks 23,444,566 105,201,117 11,228,210
Other proceeds 1,403,827 15,922 96,780
--------- ------ ------
783,170,597 756,404,815 204,596,480
Tax on capital gains (4,825,562) (4,617,743) (1,931,162)
---------- ---------- ----------
Total investment proceeds 778,345,035 751,787,072 202,665,318
=========== =========== ===========
</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,
1997 1996 1995
---- ---- ----
COST OF INVESTMENTS ACQUIRED:
<S> <C> <C> <C>
Bonds 762,123,622 735,812,956 268,824,294
Stocks 59,641,808 112,429,288 6,872,362
Miscellaneous other 709,824 52,218 575,445
------- ------ -------
Total investments acquired 822,475,254 848,294,462 276,272,101
Net increase in policy loans 2,192,748 1,838,835 1,456,664
--------- --------- ---------
Net cash from investments (46,322,967) (98,346,225) (75,063,447)
----------- ----------- -----------
CASH FROM FINANCING AND MISCELLANEOUS
SOURCES:
Capital and surplus paid in - 22,000,000 1,455,550
Other cash provided 32,627,192 116,248,250 20,941,157
Dividends to stockholder paid (5,992,000)
Other cash applied (111,717,985) (40,021,732) (17,753,828)
------------ ----------- -----------
Net cash from financing and
miscellaneous sources (85,082,793) 98,226,518 4,642,879
----------- ---------- ---------
Net change in cash and short-term investments (99,215,598) 41,846,036 60,621,914
----------- ---------- ----------
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 114,257,982 72,411,946 11,790,032
----------- ---------- ----------
End of year $ 15,042,384 $ 114,257,982 $ 72,411,946
============== ============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year
for:
Income taxes $ 3,381,115 $ 3,664,978 $ 2,524,651
</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,
1997, the carrying value of the Company's investment in subsidiaries was
$1,050,061. Short-term investments are carried at cost which
approximates market value.
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, 1997, there were no open contracts. 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ELECTRONIC DATA PROCESSING EQUIPMENT
Electronic data processing equipment is recorded at cost, net of
accumulated depreciation of $2,000,381 and $1,783,263 at December 31,
1997 and 1996. Depreciation is provided using the straight-line method
over the estimated useful life of five years. Depreciation expense
amounted to $217,118, $272,204 and $346,495 for the years ended December
31, 1997, 1996 and 1995.
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 $243,843 and $294,629 related to death
benefits payable on life and annuity contracts have been accrued at
December 31, 1997 and 1996. The remaining policy and contract claims of
$110,171 and $87,800 at December 31, 1997 and 1996 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 contract holder, 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:
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.
2. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
STATUTORY ACCOUNTING PRINCIPLES (CONTINUED)
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 statutory required
interest and mortality assumptions rather than estimated expected
experience or actual account balances.
INCOME TAXES
Deferred income taxes are not provided for differences between the
financial statement amounts and the tax bases of assets and liabilities.
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, 1997
-----------------
LEDGER NONLEDGER ASSETS NOT NET
ASSETS ASSETS ADMITTED ADMITTED ASSETS
------ ------ -------- ---------------
<S> <C> <C> <C>
Bonds $ 1,162,584,191 $ 5,488,249 $1,157,095,942
Preferred stock 51,262,033 51,262,033
Common stock 8,436,964 $ 110,474 69,534 8,477,904
Policy loans 8,487,559 8,487,559
Cash 3,347,694 3,347,694
Short-term investments 11,694,690 11,694,690
Receivable for securities 21,836,311 21,836,311
Investment income due and accrued 16,790,319 16,790,319
Electronic data processing
equipment, net 430,341 244,471 185,870
Receivable from affiliates 18,815 7,312 11,503
Furniture and equipment 274,564 274,564
Deposits, prepaid expenses and
other assets 798,486 11,419 113,223 696,682
Separate account assets 22,609,542 22,609,542
---------- ----------
$ 1,291,781,190 $ 16,912,212 $ 6,197,353 $1,302,496,049
=============== ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
LEDGER NONLEDGER ASSETS NOT NET
ASSETS ASSETS ADMITTED ADMITTED ASSETS
------ ------ -------- ---------------
<S> <C> <C> <C>
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
Receivable for securities 53,223,692 53,223,692
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 1,219,000 62,282 104,987 1,176,295
Separate account assets 5,609,610 5,609,610
--------- ---------
$1,350,526,238 $ 12,767,690 $ 5,378,133 $1,357,915,795
============== ============= ============= ==============
</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, 1997, 1996 and 1995 totaling $0, $22,000,000 and
$1,455,550, respectively, principally in the form of investments and
4. RELATED PARTIES (CONTINUED)
related accrued interest. During 1996, the Company made a $500,000
capital contribution to the Marketing Company.
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 $5,742,889, $5,578,673 and
$5,272,984 during the years ended December 31, 1997, 1996, and 1995,
respectively.
Under the terms of a cost-sharing agreement, the Company has agreed to
reimburse Berkeley International Capital Corporation, ("BICC"), an
affiliate, for certain expenses incurred on behalf of the Company. For
the year ended December 31, 1997, 1996 and 1995, the Company paid
$745,344, $87,060 and $100,548, respectively, to BICC.
Commissions on insurance business produced for the Company by its agents
are paid by the Marketing Company, the exclusive master general agent for
the Company. All of the Company's universal life and fixed annuity
business is written through the Marketing Company. For the year ended
December 31, 1997, $138,174,030 of premium was written through the
Marketing Company. Effective January 1, 1995, the Company directly paid
all agents' commissions via the Marketing Company. For the years ended
December 31, 1997, 1996, and 1995, the Company paid commissions of
$9,905,069, $8,261,301 and $14,237,877, respectively, to the Marketing
Company (and the Marketing Company paid commissions to agents of
approximately $9,905,064, $8,261,301 and $14,237,877, respectively).
The Company has payables to affiliates of $720,136 and $36,512 at December
31, 1997 and 1996, respectively, relating to these transactions.
The Company leases certain office space and equipment to Select Advisors,
Inc., ("Select"), an affiliate. During 1997, the Company received rental
income of $188,994 from Select.
The Company acquired and disposed of securities with affiliates BG
Securities Limited ("BGSL") and Berkeley (USA) Holding Limited ("BHL"),
during the year as follows:
<TABLE>
<CAPTION>
Acquisitions
Bonds Transfer Date Consideration From
----- ------------- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
MZ Berger, 8% due 12/2006 1-14-97 $ 13,000,000 BGSL
Catalina Furniture Co., 13% due 6/2002 4-09-97 4,000,000 BHL
COMTECO, 12% due 10/2001 6-30-97 6,000,000 BGSL
Andros Acquisition, Inc., 13% due 03/2003 9-30-97 4,085,213 BGSL
Integral Systems, Inc., 4.75% due 12-2000 9-30-97 8,341,107 BGSL
Childers Products Co., 10% due 05/2006 9-30-97 1,300,392 BGSL
---------
$ 36,726,712
Dispositions
Bonds Transfer Date Consideration From
----- ------------- ------------- ----
COMTECO, 12% due 10/2001 3-31-97 $ 6,000,000 BHL
Hybrid Networks, Inc., 12% due 4/2002 6-30-97 5,500,000 BGSL
Nazareth/Century Mills, Inc., 13.43% due 12/2003 9-30-97 13,726,713 BGSL
----------
$ 25,226,713
</TABLE>
4. RELATED PARTIES (CONTINUED)
As of December 31, 1997, the Company had investments in bonds issued by
affiliates as follows:
<TABLE>
<CAPTION>
STATEMENT
ISSUER COUPON MATURITY VALUE
------ ------ -------- -----
<S> <C> <C> <C>
Bon-Art/Bauchet International 13.00% 10/02 $ 6,529,494
Catalina Furniture Company 13.00% 06/02 $ 4,000,000
Ocean Acquisition Corporation 12.00% 12/00 $ 4,000,000
Select Advisors, Inc. 7.00% 11/98 $ 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
five 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, (4) exclusion of
IMR amortization, and (5) differences in timing for the deduction of
accrued expenses.
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
discount rates of 5.5% - 4.0%. 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 1997 and 1996 issues and 6.00% for 1995
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 annuity and mortality table and with a discount rate of
6.75% for 1997 and 1996 and 7.25% for 1995.
6. AGGREGATE RESERVES FOR LIFE POLICIES AND CONTRACTS (CONTINUED)
The withdrawal characteristics of annuity actuarial reserves and deposit
liabilities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Subject to discretionary withdrawal at book
<S> <C> <C> <C> <C> <C>
value less surrender charge of 5% or more $ 465,856,317 42.21% $ 445,721,115 42.24%
Subject to discretionary withdrawal at book
value less surrender charge greater than
0% but less than 5% 467,548,853 42.36% 440,023,827 41.70%
Subject to discretionary withdrawal at book
value with no surrender charge 18,944,526 1.72% 13,795,748 1.31%
Not subject to discretionary withdrawal 151,396,771 13.71% 155,624,990 14.75%
----------- ----- ----------- -----
$1,103,746,467 100% $1,055,165,680 100%
============== ==== ============== ====
</TABLE>
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, 1997 DECEMBER 31, 1996
----------------- -----------------
STATEMENT PERCENT STATEMENT PERCENT
NAIC CATEGORY VALUE OF TOTAL VALUE OF TOTAL
------------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C>
1 - Highest quality $ 635,602,909 55% $ 642,553,936 57%
2 - High quality 362,777,042 31 309,858,268 27
3 - Medium quality 76,456,905 7 70,923,479 6
4 - Low quality 58,310,711 5 94,156,455 8
5 - Lower quality 13,267,848 1 15,018,522 1
6 - Debt securities in or
near default 10,680,527 1 9,953,691 1
---------- - --------- -
$1,157,095,942 100% $1,142,464,351 100%
============== === ============== ===
</TABLE>
7. INVESTMENTS (CONTINUED)
The cost or amortized cost and the fair, or comparable value of
investments in debt securities are as follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
DECEMBER 31, 1997 AMORTIZED COST GAINS LOSSES FAIR VALUE
----------------- -------------- ----- ------ ----------
U.S. Government
<S> <C> <C> <C> <C>
obligations $ 8,220,444 $ 128,216 ($ 3,560) $ 8,345,100
Obligations of states
and political subdivisions 5,068,119 28,221 -- 5,096,340
Corporate securities 704,295,379 4,004,751 (1,753,246) 706,546,884
Other debt securities 51,306,693 4,868 (3,710) 51,307,851
Mortgage-backed securities 388,205,307 -- -- 388,205,307
----------- -----------
$1,157,095,942 $ 4,166,056 ($ 1,760,516) $1,159,501,482
============== =========== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
DECEMBER 31, 1996 AMORTIZED COST GAINS LOSSES FAIR VALUE
----------------- -------------- ----- ------ ----------
U.S. Government
<S> <C> <C> <C> <C>
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>
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, 1997 and 1996, the fair value of investments in debt
securities includes $823,054,516 and $863,848,633, 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, 1997, 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.
7. INVESTMENTS (CONTINUED)
A summary of the cost or amortized cost and fair value of the Company's
investment in debt securities at December 31, 1997, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED COST FAIR VALUE
-------------- ----------
Maturity:
<S> <C> <C> <C>
In 1998 $ 7,405,626 $ 7,406,823
In 1999-2002 230,271,457 231,042,261
In 2003-2007 287,442,290 287,620,624
After 2007 243,771,262 245,226,467
Mortgage-backed securities 388,205,307 388,205,307
----------- -----------
Total $1,157,095,942 $1,159,501,482
============== ==============
</TABLE>
Proceeds from sales of investments in fixed maturities and related
gross gains and losses on those sales are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Proceeds from sales $758,322,204 $651,187,776 $193,271,491
Gross realized gains $ 13,454,190 $ 13,725,509 $ 2,078,023
Gross realized losses $ 1,537,996 $ 9,195,257 $ 1,618,499
</TABLE>
At December 31, 1997, debt securities with an admitted asset value of
$10,159,313 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>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C>
AT DECEMBER 31, 1997
Preferred stocks $ 41,355,002 $ -- $ -- $ 41,355,002
Common stocks 9,363,323 1,455,866 ( 2,341,285) 8,477,904
--------- --------- - --------- ---------
Total $ 50,718,325 $ 1,455,866 ($ 2,341,285) $ 49,832,906
============= =============== ============== ==============
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
============= ================= ================ ===============
</TABLE>
8. INVESTMENT INCOME
An analysis of the Company's net investment income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest on debt securities $91,803,407 $94,149,963 $91,585,614
Interest on short-term investments 1,840,299 787,618 554,252
Interest on cash on hand and on deposit 268,480 375,723 274,696
Equity in undistributed earnings of subsidiaries 37,168 (39,151) (285,874)
Other investment income 1,696,372 1,532,466 2,493,535
--------- --------- ---------
Gross investment income 95,645,726 96,806,619 94,622,223
Less investment expenses (6,847,800) (5,793,203) (5,661,711)
---------- ---------- ----------
Net investment income $88,797,926 $91,013,416 $88,960,512
</TABLE>
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, 1997 and 1996 totaled
$42,496,000 and $47,349,000 or 11.2% and 11.7% 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
1998 without the Insurance Commissioner's approval is $5,909,742.
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,
1997, the adjusted capital and surplus of the Company is substantially
in excess of the minimum level of RBC that would require regulatory
response.
11. 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 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, 1997, 1996 and 1995 was
to defer total net capital gains of $19,991,216, $12,352,297 and
$10,190,326, respectively, and to recognize $2,306,437, $683,806 and
($185,844), respectively, of IMR amortization into income.
12. 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, 1997 DECEMBER 31, 1996
--------------------- -------------------- -------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------------------- -------------------- -------------------- ---------------------
Assets:
<S> <C> <C> <C> <C>
Debt securities $1,157,095,942 $1,171,666,397 $1,142,464,351 $1,145,112,378
Redeemable preferred
stock $ 9,907,031 $ 10,607,958 $ 1,687,616 $ 1,616,150
Liabilities:
Insurance and annuity
reserves-investment-type
contracts $1,130,221,744 $1,149,093,067 $1,097,795,798 $1,116,979,648
</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.
13. CONCENTRATIONS OF CREDIT RISK
At December 31, 1997, the Company held unrated or less-than-investment
grade corporate bonds of $158,715,991. Those holdings amounted to 13.7%
of the Company's investments in bonds and less than 12.4% 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.
14. RECONCILIATION OF NET TRANSFERS TO OR (FROM) SEPARATE ACCOUNT
Transfers are reported in the Summary of Operations of the Separate
Account Statement:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996
---- ----
<S> <C> <C>
Transfers to separate account $ 16,973,122 $4,455,205
Transfers from separate account 2,527,210 296,184
--------- -------
Net transfers to or (from) separate account 14,445,912 4,159,021
Reconciling Adjustments: Mortality & Expense Fees 161,162 16,724
------- ------
Transfers as reported in the Statutory Summary of Operations
of the Company $ 14,607,074 $4,175,745
============= ==========
</TABLE>
15. DEFERRED COMPENSATION ARRANGEMENTS
Certain agents producing business for the Company participate in a
stock appreciation rights plan sponsored by the Parent. The rights vest
over a five year period based on the persistency of certain levels of
policyholder account values assigned to the agent and the agent
remaining active with the Company. The Parent will reimburse the
Company for any plan benefits as they are withdrawn by the
participating agents. There were no plan benefits paid in 1997 and none
of the plan benefits were vested as of December 31, 1997.
Certain members of Company management are eligible to participate in a
contributory deferred compensation plan sponsored by BHL. Compensation
deferred pursuant to the terms of the plan was $125,408 as of December
31, 1997.
Certain members of Company management participate in an incentive share
option plan sponsored by the Parent whereby the employee can purchase
shares of the Parent's common stock. Stock options are granted to
employees at a price equal to the fair market value of the stock on the
date of grant. The stock options were granted during the years 1990
through 1997. As of December 31, 1997 1,763,500 shares of the Parent's
common stock were subject to options granted under the plan with option
prices ranging from $2.15 to $3.86. During 1997, options on 249,000
shares of common stock became exercisable under the plan with option
prices ranging from $2.39 to $3.86. No options were exercised or
forfeited during 1997. The Parent will reimburse the Company for any
plan benefits as they are paid.
16. COMMITMENT AND CONTINGENT LIABILITIES
Rental expense for all leases was $609,627, $550,944 and $722,359 for
1997, 1996 and 1995, respectively. Future minimum rental commitments
under noncancelable operating leases for office space and equipment
aggregate $2,133,639 through 2000. The amounts due by year are $719,453
in 1998, $723,578 in 1999, $368,891 in 2000, $138,016 in 2001, and
$183,701 thereafter.
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, 1997, 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 $1,007,354, $1,674,481 and $1,075,244 in 1997,
1996 and 1995, respectively.
The Company is, from time to time, involved in various legal actions
concerning policy benefits and certain other matters. Those actions are
considered by the Company in estimating policy reserves and other
liabilities. The Company believes that the resolution of those actions
should not have a material adverse affect on the Company's statutory
surplus.
The Company has been named as a cross-defendant in a complaint filed by
The American Endeavor Fund Limited ("AEF") 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.
17. SUBSEQUENT EVENTS
On March 12, 1998, all legal proceedings involving AEF were settled.
The settlement is conditional upon the passing by AEF shareholders of
resolutions ratifying and approving AEF's participation in the
settlement agreement and upon approval from The Royal Court of the
Island of Jersey for a related reduction of AEF's share premium
account. AEF has announced that it has received irrevocable
undertakings in favor of the resolutions from sufficient shareholders
to assure their passing. The Company does not expect to have any
liability to AEF under the terms of the settlement agreement.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The following financial statements of the Company are included in Part B
hereof:
1. Report of Independent Accountants.
2. Statutory Statements of Admitted Assets, Liabilities, Capital
and Surplus - December 31, 1997 and 1996.
3. Statutory Statements of Operations for the Year Ended
December 31, 1997, 1996 and 1995.
4. Statutory Statements of Changes in Capital and Surplus for the
Years Ended December 31, 1997, 1996 and 1995.
5. Statutory Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.
6. Notes to Statutory Financial Statements.
The following financial statements of the Separate Account are included in
Part B hereof:
1. Statement of Assets and Liabilities as of December 31, 1997.
2. Statement of Operations for the year ended December 31, 1997 and
the period January 31, 1996 (commencement of operations) to
December 31, 1996.
3. Statement of Changes in Net Assets for the year ended December 31,
1997 and the period January 31, 1996 (commencement of operations)
to December 31, 1996.
4. Notes to Financial Statements - December 31, 1997.
5. Report of Independent Accountants.
B. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Separate Account.*
2. Not Applicable.
3. Form of Principal Underwriter's Agreement.*
4. Individual Fixed and Variable Deferred Annuity Contract.*
(i) Enhanced Death Benefit Endorsement.*
5. Application Form.*
6. (i) Copy of Articles of Incorporation of the Company.**
(ii) Copy of the Bylaws of the Company.*
7. Not Applicable.
8. Form of Fund Participation Agreement by and among London
Pacific Life & Annuity Company, Morgan Stanley Universal Funds,
Inc., Morgan Stanley Asset Management Inc. and Miller Anderson &
Sherrerd, LLP
9. Opinion and Consent of Counsel.
10. Consent of Independent Accountants.
11. Not Applicable.
12. Not Applicable.
13. Calculation of Performance Information.
14. Not Applicable.
15. Company Organizational Chart.*
27. Not Applicable.
* Incorporated by reference to Registrant's Form N-4 (File No. 333-1779)
as electronically filed on March 18, 1996.
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 (File No. 333-1779) as electronically filed on May 23, 1996.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Executive Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Position and Offices
Business Address with Depositor
- ------------------------- ---------------------------------------
Ian K. Whitehead President, Chief Executive Officer
1755 Creekside Oaks Drive and Director
Sacramento, CA 95833
Arthur I. Trueger Chairman of the Board and Director
650 California Street
San Francisco, CA 94108
George C. Nicholson Chief Financial Officer, Secretary and
3109 Poplarwood Court Director
Raleigh, NC 27604
Mark E. Prillaman Chief Marketing Officer and Director
1755 Creekside Oaks Drive
Sacramento, CA 95833
Susan Y. Gressel Vice President and Treasurer
3109 Poplarwood Court
Raleigh, NC 27604
Charles M. King Vice President and Controller
3109 Poplarwood Court
Raleigh, NC 27604
William J. McCarthy Vice President and Chief Actuary
3109 Poplarwood Court
Raleigh, NC 27604
Charlotte M. Stott Vice President, National Sales Manager
1755 Creekside Oaks Drive
Sacramento, CA 95833
Jerry T. Tamura Vice President, Administrative Services
1755 Creekside Oaks Drive
Sacramento, CA 95833
Randolph N. Vance Vice President, Financial Actuary
3109 Poplarwood Court
Raleigh, NC 27604
Jerry S. Waters Vice President, Technology Services
1755 Creekside Oaks Drive
Sacramento, CA 95833
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart was included as Exhibit 15 in Registrant's
Form N-4 (File No. 333-1779) filed on March 18, 1996 and is incorporated
herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 1998, there were 273 Qualified Contract Owners and 356
Non-Qualified Contract Owners.
ITEM 28. INDEMNIFICATION
The Bylaws (Article V) of the Company provide that:
Subject to the laws of the State of North Carolina, any present or former
director, officer or employee of the Company, or any person who, at the
request of the Company, express or implied, may have served as a director or
officer of another Company in which this Company owns shares or of which this
Company is a creditor, shall be entitled to reimbursement of expenses and
other liabilities, including attorney's fees actually and reasonably incurred
by him and any amount paid by him in discharge of a judgment, fine, penalty of
costs against him or paid by him in a settlement approved by a court of
competent jurisdiction, in any action or proceeding, including any civil,
criminal or administrative action, suit, hearing or proceeding, to which he is
a party by reason of being or having been a director, officer or employee of
this or such other Company. This section is not intended to extend or to
limit in any way the rights and remedies provided with respect to
indemnification of directors, officers, employees and other persons provided
by the laws of the State of North Carolina but is intended to express the
desire of the stockholders of this Company that indemnification be granted to
such directors, officers, employees and other persons to the fullest extent
allowable by such laws.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not Applicable.
(b) London Pacific Financial and Insurance Services is the principal
underwriter for the Contracts. The following persons are the officers and
directors of London Pacific Financial and Insurance Services.
<TABLE>
<CAPTION>
Name and Principal Position and Offices
Business Address with Underwriter
- ------------------------- -----------------------------------------------
<S> <C>
Ian K. Whitehead Director
1755 Creekside Oaks Drive
Sacramento, CA 95833
Jerry T. Tamura Chairman, President and Chief Executive Officer
1755 Creekside Oaks Drive
Sacramento, CA 95833
George C. Nicholson Treasurer and Director
3109 Poplarwood Court
Raleigh, NC 27604
Bonnie J. Bridge Secretary
1755 Creekside Oaks Drive
Sacramento, CA 95833
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Charles King, whose address is 3109 Poplarwood Court, Raleigh, NC 27604,
maintains physical possession of the accounts, books or documents of the
Separate Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under
this Form promptly upon written or oral request.
d. London Pacific Life & Annuity Company ("Company") hereby represents
that the fees and charges deducted under the Contract described in the
Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of this Registration Statement has caused
this Registration Statement to be signed on its behalf, in the City of
Raleigh, and State of North Carolina on this 21st day of April, 1998.
LPLA SEPARATE ACCOUNT ONE
--------------------------------------------
Registrant
By: LONDON PACIFIC LIFE & ANNUITY COMPANY
--------------------------------------------
By: /s/GEORGE C. NICHOLSON
--------------------------------------------
By: LONDON PACIFIC LIFE & ANNUITY COMPANY
--------------------------------------------
Depositor
By: /s/GEORGE C. NICHOLSON
---------------------------------------------
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board and Director
- ----------------------- ------
Arthur I. Trueger Date
/s/IAN K. WHITEHEAD President, Chief Executive Officer 4/21/98
- ----------------------- ------
Ian K. Whitehead and Director Date
/s/GEORGE C. NICHOLSON Chief Financial Officer, Secretary 4/21/98
- ----------------------- ------
George C. Nicholson and Director Date
/s/MARK E. PRILLAMAN Chief Marketing Officer 4/21/98
- ----------------------- ------
Mark E. Prillaman and Director Date
</TABLE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM N-4
FOR
LPLA SEPARATE ACCOUNT ONE
OF
LONDON PACIFIC LIFE & ANNUITY COMPANY
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B8 Form of Fund Participation Agreement by and among London
Pacific Life & Annuity Company, Morgan Stanley Universal
Funds, Inc., Morgan Stanley Asset Management Inc. and Miller
Anderson & Sherrerd, LLP
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Accountants
EX-99.B13 Calculation of Performance Information
THIS AGREEMENT, made and entered into as of the 2nd day of March, 1998 by
and among LONDON PACIFIC LIFE AND ANNUITY COMPANY (hereinafter the "Company"), a
North Carolina corporation, on its own behalf and on behalf of each separate
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
MORGAN STANLEY UNIVERSAL FUNDS, INC. (hereinafter the "Fund"), a Maryland
corporation, and MORGAN STANLEY ASSET MANAGEMENT INC. and MILLER ANDERSON &
SHERRERD, LLP (hereinafter collectively the "Advisers" and individually the
"Adviser"), a Delaware corporation and a Pennsylvania limited liability
partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Contracts enter into participation
agreements with the Fund and the Advisers (the "Participating Insurance
Companies");
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto (each such series hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
in the Portfolios set forth in Schedule B attached to this Agreement, to fund
certain of the aforesaid Variable Insurance Products and the Underwriter is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Fund and shall execute orders placed for each Account on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
such order. For purposes of this Section 1.1, the Company shall be the designee
of the Fund for receipt of such orders from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such order by 10:00 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make its
shares available indefinitely for purchase at the applicable net asset value per
share by the Company and its Accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange Commission
and the Fund shall use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading. Notwithstanding
the foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans, as permitted by Section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"). No shares of any Portfolio will be sold to the
general public.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund, provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Variable Insurance Products issued
by the Company, under which amounts may be invested in the Fund (hereinafter the
"Contracts"), are listed on Schedule A attached hereto and incorporated herein
by reference, as such Schedule A may be amended from time to time by mutual
written agreement of all of the parties hereto. The Company will give the Fund
and the Adviser forty-five (45) days written notice of its intention to make
available in the future, as a funding vehicle under the Contracts, any other
investment company with h substantially similar investment objectives as a
portfolio listed on Schedule B to this Agreement.
1.6. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the 7:00
p.m. time stated herein, it shall provide additional time for the Company to
place orders for the purchase and redemption of shares. Such additional time
shall be equal to the additional time which the Fund takes to make the net asset
value available to the Company. If the Fund provides the Company with materially
incorrect share net asset value information through no fault of the Company, the
Company, on behalf of the Separate Accounts, shall be entitled to an adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under North Carolina insurance laws and has registered or, prior to any issuance
or sale of the Contracts, will register each Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will maintain such treatment and that it will notify the Fund
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Contracts and the Fund's prospectus printed together
in one document, and to have the statement of additional information for the
Fund and the statement of additional information for the Contracts printed
together in one document. Alternatively, the Company may print the Fund's
prospectus and/or its statement of additional information in combination with
other fund companies' prospectuses and statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing and
distributing Fund prospectuses and statements of additional information shall be
the expense of the Company. For prospectuses and statements of additional
information provided by the Company to its existing owners of Contracts who
currently own shares of one or more of the Fund's Portfolios, in order to update
disclosure as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Fund. If the Company chooses to receive camera-ready film
or computer diskettes in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of x and y where x is the number of such prospectuses distributed to
owners of the Contracts who currently own shares of one or more of the Fund's
Portfolios, and y is the Fund's per unit cost of typesetting and printing the
Fund's prospectus. The same procedures shall be followed with respect to the
Fund's statement of additional information. The Company agrees to provide the
Fund or its designee with such information as may be reasonably requested by the
Fund to assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those actually
distributed to existing owners of the Contracts.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and
(iii)vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting
privileges for variable contract owners. The Company reserves the right to
vote Fund shares held in any segregated asset account in its own right, to
the extent permitted by law. The Fund and the Company shall follow the
procedures, and shall have the corresponding responsibilities, for the
handling of proxy and voting instruction solicitations, as set forth in
Schedule C attached hereto and incorporated herein by reference.
Participating Insurance Companies shall be responsible for ensuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule
C, which standards will also be provided to the other Participating
Insurance Companies.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable cost,
the printing, assembling and/or distribution of the communications in accordance
with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or the Adviser(s) is named, at least fifteen Business Days prior
to its use. No such material shall be used if the Fund or its designee
reasonably objects to such use within ten Business Days after receipt of such
material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee,
except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s)
is named at least fifteen Business Days prior to its use. No such material shall
be used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.4. The Fund and the Advisers shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, which are relevant
to the Company or the Contracts.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund or any affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and each
member of the Board and officers, and each Adviser and each director and officer
of each Adviser, and each person, if any, who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control and other than statements or
representations authorized by the Fund or an Adviser) or unlawful conduct
of the Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification By The Advisers
8.2(a). Each Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of shares of the Portfolio
that it manages or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not supplied by
the Fund or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the Fund,
Adviser(s) or Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Adviser; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.2(c). An Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Adviser in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Adviser of any such claim shall not relieve the Adviser from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
8.3. Indemnification By The Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the commencement
of any litigation or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by 180 days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio is not reasonably available to
meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio
falls to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund by written notice to the Company if
the Fund shall determine, in its sole judgment exercised in good faith,
that the Company and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity, or
(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in
good faith, that either the Fund or the Adviser has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written notice
specified in Section 1.5 hereof and at the time such notice was given there
was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h)
shall be effective ninety (90) days after the notice specified in Section
1.5 was given.
10.2. Notwithstanding any termination of this Agreement, the Fund shall at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing, Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to direct reallocation of
investments in the Fund, redemption of investments in the Fund and/or investment
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund 90 days
prior written notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
c/o Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
London Pacific Life and Annuity Company
1755 Creekside Oaks Drive
Sacramento, California 93833
Attention: Mark E. Prillaman
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that an Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
12. 9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any
event within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or
any state insurance regulator, as soon as practical after the filing
thereof;
12.10. No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
parties hereto.
12.11. The parties hereto agree that Article VIII and Sections 12.6 and
12.7 shall remain in effect after termination of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
LONDON PACIFIC LIFE AND ANNUITY COMPANY
By: ______________________________
NAME:
TITLE:
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: ______________________________
NAME:
TITLE:
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
NAME:
TITLE:
MILLER ANDERSON & SHERRERD, LLP
By: ______________________________
NAME:
TITLE:
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBER AND NAME OF CONTRACT FUNDED BY SEPARATE
DATE ESTABLISHED BY BOARD OF DIRECTORS ACCOUNT
- -------------------------------------- -------
<S> <C>
LPLA Separate Account One Individual Fixed and Variable Annuity Contract 001V
Individual Fixed and Variable Annuity Contract 002V
</TABLE>
SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY
UNIVERSAL FUNDS, INC.
Emerging Markets Equity
International Magnum
High Yield
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
The proxy proposals are given to the Company by the Fund as early as possible
before the date set by the Fund for the shareholder meeting to enable the
Company to consider and prepare for the solicitation of voting instructions from
owners of the Contracts and to facilitate the establishment of tabulation
procedures. At this time the Fund will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months before
meeting.
Promptly after the Record Date, the Company will perform a "tape run", or other
activity, which will generate the names, addresses and number of units which are
attributed to each contract owner/policyholder (the "Customer") as of the Record
Date. Allowance should be made for account adjustments made after this date that
could affect the status of the Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities described
in this Step #2. The Company will use its best efforts to call in the number of
Customers to the Fund , as soon as possible, but no later than two weeks after
the Record Date.
The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of voting, instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall produce
and personalize the Voting Instruction Cards. The Fund or its affiliate must
approve the Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes: C C-1 name (legal name as found on account registration) address fund
or account number coding to state number of units individual Card number for use
in tracking and verification of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
During this time, the Fund will develop, produce and pay for the Notice of Proxy
and the Proxy Statement (one document). Printed and folded notices and
statements will be sent to Company for insertion into envelopes (envelopes and
return envelopes are provided and paid for by the Company). Contents of envelope
sent to Customers by the Company will include:
Voting Instruction Card(s)
One proxy notice and statement (one document)
return envelope (postage pre-paid by Company) addressed to the Company or
its tabulation agent
"urge buckslip" - optional, but recommended. (This is a small, single sheet
of paper that requests
Customers to vote as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
cover letter - optional, supplied by Company and reviewed and approved in
advance by the Fund.
The above contents should be received by the Company approximately 3-5 business
days before mail date. Individual in charge at Company reviews and approves the
contents of the mailing package to ensure correctness and completeness. Copy of
this approval sent to the Fund.
Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including,) the meeting,
counting backwards.
Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark information would
be due to an insurance company's internal procedure and has not been required by
the Fund in the past.
Signatures on Card checked against legal name on account registration which was
printed on the Card. Note: For Example, if the account registration is under
"John A. Smith, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a new
Card and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have been "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
There are various control procedures used to ensure proper tabulation of votes
and accuracy of that tabulation. The most prevalent is to sort the Cards as they
first arrive into categories depending upon their vote; an estimate of how the
vote is progressing may then be calculated. If the initial estimates and the
actual vote do not coincide, then an internal audit of that vote should occur.
This may entail a recount.
The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated in
terms of a percentage and the number of shares.) The Fund must review and
approve tabulation format.
Final tabulation in shares is verbally given by the Company to the Fund on the
morning of the meeting not later than 10:00 a.m. Eastern time. The Fund may
request an earlier deadline if reasonable and if required to calculate the vote
in time for the meeting.
A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. The Fund will
provide a standard form for each Certification.
The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or accounting purposes, the Fund will be permitted
reasonable access to such Cards.
All approvals and "signing-off' may be done orally, but must always be followed
up in writing.
PARTICIPATION AGREEMENT
AMONG
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
AND
LONDON PACIFIC LIFE AND ANNUITY COMPANY
DATED AS OF
MARCH 2, 1998
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II. Representations and Warranties 4
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV. Sales Material and Information 8
ARTICLE V Fees and Expenses 9
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 18
ARTICLE X. Termination 19
ARTICLE XI. Notices 21
ARTICLE XII. Miscellaneous 21
SCHEDULE A Separate Accounts and Contracts A-1
SCHEDULE B Portfolios of Morgan Stanley Universal Funds, Inc. B-1
SCHEDULE C Proxy Voting Procedures C-1
</TABLE>
April 27, 1998
Board of Directors
London Pacific Life & Annuity Company
3109 Poplarwood Court
Raleigh, NC 27604
Re: Opinion and Consent of Counsel - LPLA Separate Account One
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Post-Effective Amendment to the
Registration Statement on Form N-4 for the Individual Fixed and Variable
Deferred Annuity Contracts with Flexible Contributions (the "Contracts") to
be issued by London Pacific Life & Annuity Company and its separate account,
LPLA Separate Account One.
We are of the following opinions:
1. LPLA Separate Account One is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest in such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of
the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By:/s/LYNN KORMAN STONE
--------------------------
Lynn Korman Stone
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 of our report dated January 30, 1998, except as to
Note 17 which is as of March 12, 1998, relating to the statutory basis
financial statements of London Pacific Life & Annuity Company and our report
dated April 6, 1998, relating to the financial statements of LPLA Separate
Account One, both of which appear in such Statement of Additional Information.
We also consent to the reference to us under the headings "Experts" in such
Statement of Additional Information.
/s/PRICE WATERHOUSE LLP
Price Waterhouse LLP
Boston, Massachusetts
April 24, 1998
<TABLE>
<CAPTION>
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1996
VALUATION DATE AS OF DECEMBER 31, 1997
Date Transaction Dollar Amount Unit Value Units This Accum Units Accum Value
Trans
- ---- ----------- ------------- ---------- ---------- ----------- ----------
HARRIS ASSOCIATES VALUE PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
12-31-96 Purchase $1,000.00 12.123468000 82.485 82.485 1,000.00
12-31-97 Contract Fee (1.44) 15.083106243 (0.095) 82.389 1,242.68
12-31-97 Current Value 15.083106243 0.000 82.389 1,242.68
Cumulative & Avg. Annual Total Return without/with chrgs 24.41% 24.27% B
MFS TOTAL RETURN PORTFOLIO
12-31-96 Purchase $1,000.00 11.027930228 90.679 90.679 1,000.00
12-31-97 Contract Fee (1.44) 13.200967296 (0.109) 90.570 1,195.61
12-31-97 Current Value 13.200967296 0.000 90.570 1,195.61
Cumulative & Avg. Annual Total Return without/with chrgs 19.70% 19.56% B
BERKELEY U.S. QUALITY BOND PORTFOLIO
12-31-96 Purchase $1,000.00 10.145108954 98.570 98.570 1,000.00
12-31-97 Contract Fee (1.44) 10.994737701 (0.131) 98.439 1,082.31
12-31-97 Current Value 10.994737701 0.000 98.439 1,082.31
Cumulative & Avg. Annual Total Return without/with chrgs 8.37% 8.23% B
BERKELEY MONEY MARKET PORTFOLIO
12-31-96 Purchase $1,000.00 10.361934076 96.507 96.507 1,000.00
12-31-97 Contract Fee (1.44) 10.757048242 (0.134) 96.373 1,036.69
12-31-97 Current Value 10.757048242 0.000 96.373 1,036.69
Cumulative & Avg. Annual Total Return without/with chrgs 3.81% 3.67% B
STRONG INTERNATIONAL STOCK PORTFOLIO
12-31-96 Purchase $1,000.00 10.578848879 94.528 94.528 1,000.00
12-31-97 Contract Fee (1.44) 9.277966002 (0.155) 94.373 875.59
12-31-97 Current Value 9.277966002 0.000 94.373 875.59
Cumulative & Avg. Annual Total Return without/with chrgs -12.30% -12.44% B
STRONG GROWTH PORTFOLIO
12-31-96 Purchase $1,000.00 12.621549924 79.230 79.230 1,000.00
12-31-97 Contract Fee (1.44) 15.716617098 (0.092) 79.138 1,243.78
12-31-97 Current Value 15.716617098 0.000 79.138 1,243.78
Cumulative & Avg. Annual Total Return without/with chrgs 24.52% 24.38% B
ROBERTSON STEPHENS DIVERSIFIED GROWTH PORTFOLIO
12-31-96 Purchase $1,000.00 10.349591726 96.622 96.622 1,000.00
12-31-97 Contract Fee (1.44) 12.212153514 (0.118) 96.504 1,178.52
12-31-97 Current Value 12.212153514 0.000 96.504 1,178.52
Cumulative & Avg. Annual Total Return without/with chrgs 18.00% 17.85% B
LEXINGTON CORPORATE LEADERS PORTFOLIO
12-31-96 Purchase $1,000.00 11.509183224 86.887 86.887 1,000.00
12-31-97 Contract Fee (1.44) 14.246101967 (0.101) 86.786 1,236.36
12-31-97 Current Value 14.246101967 0.000 86.786 1,236.36
Cumulative & Avg. Annual Total Return without/with chrgs 23.78% 23.64% B
</TABLE>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1997 - Accum. Value at
Purch.)/Accum. Value at Purch.
The contract fee assumes a estimated $25,000 Contract Value so that the Contract
Maintenance Charge per $1,000 of net asset value in the Separate Account is
$1.44. Such charge would be higher for smaller Contract Values and lower for
higher Contract Values.
<TABLE>
<CAPTION>
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1997
Date Transaction Dollar Amount Unit Value Units This Accum Units Accum Value
Trans
- ---- ----------- ------------- ---------- ---------- ----------- -----------
HARRIS ASSOCIATES VALUE PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
2-9-96 Purchase $1,000.00 10.146989359 98.551 98.551 1,000.00
2-8-97 Contract Fee (1.44) 12.123468000 (0.119) 98.433 1,193.34
12-31-97 Current Value 15.083106243 0.000 98.433 1,484.67
Cumulative Total Returns without/with chrgs 48.65% 48.47% C
Avg. Annual Total Returns without/with chrgs 23.29% 23.21% D
MFS TOTAL RETURN PORTFOLIO
2-9-96 Purchase $1,000.00 10.102774711 98.983 98.983 1,000.00
2-8-97 Contract Fee (1.44) 11.027930228 (0.131) 98.852 1,090.13
12-31-97 Current Value 13.200967296 0.000 98.852 1,304.94
Cumulative Total Returns without/with chrgs 30.67% 30.49% C
Avg. Annual Total Returns without/with chrgs 15.18% 15.10% D
BERKELEY U.S. QUALITY BOND PORTFOLIO
2-9-96 Purchase $1,000.00 10.004631790 99.954 99.954 1,000.00
2-8-97 Contract Fee (1.44) 10.145108954 (0.142) 99.812 1,012.60
12-31-97 Current Value 10.994737701 0.000 99.812 1,097.40
Cumulative Total Returns without/with chrgs 9.90% 9.74% C
Avg. Annual Total Returns without/with chrgs 5.11% 5.03% D
BERKELEY MONEY MARKET PORTFOLIO
2-9-96 Purchase $1,000.00 10.000000000 100.000 100.000 1,000.00
2-8-97 Contract Fee (1.44) 10.361934076 (0.139) 99.861 1,034.75
12-31-97 Current Value 10.757048242 0.000 99.861 1,074.21
Cumulative Total Returns without/with chrgs 7.57% 7.42% C
Avg. Annual Total Returns without/with chrgs 3.93% 3.85% D
STRONG INTERNATIONAL STOCK PORTFOLIO
2-9-96 Purchase $1,000.00 10.052005200 99.483 99.483 1,000.00
2-8-97 Contract Fee (1.44) 10.578848879 (0.136) 99.347 1,050.97
12-31-97 Current Value 9.277966002 0.000 99.347 921.73
Cumulative Total Returns without/with chrgs -7.70% -7.83% C
Avg. Annual Total Returns without/with chrgs -4.14% -4.21% D
STRONG GROWTH PORTFOLIO
2-9-96 Purchase $1,000.00 10.558402726 94.711 94.711 1,000.00
2-8-97 Contract Fee (1.44) 12.621549924 (0.114) 94.597 1,193.96
12-31-97 Current Value 15.716617098 0.000 94.597 1,486.75
Cumulative Total Returns without/with chrgs 48.85% 48.67% C
Avg. Annual Total Returns without/with chrgs 23.38% 23.30% D
ROBERTSON STEPHENS DIVERSIFIED GROWTH PORTFOLIO
2-9-96 Purchase $1,000.00 10.156090245 98.463 98.463 1,000.00
2-8-97 Contract Fee (1.44) 10.349591726 (0.139) 98.324 1,017.61
12-31-97 Current Value 12.212153514 0.000 98.324 1,200.75
Cumulative Total Returns without/with chrgs 20.24% 20.07% C
Avg. Annual Total Returns without/with chrgs 10.23% 10.15% D
LEXINGTON CORPORATE LEADERS PORTFOLIO
2-9-96 Purchase $1,000.00 10.238540927 97.670 97.670 1,000.00
2-8-97 Contract Fee (1.44) 11.509183224 (0.125) 97.545 1,122.66
12-31-97 Current Value 14.246101967 0.000 97.545 1,389.64
Cumulative Total Returns without/with chrgs 39.14% 38.96% C
Avg. Annual Total Returns without/with chrgs 19.06% 18.98% D
</TABLE>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at
Purchase B =((A+1) ^(1/1.893150685)) - 1 C = (Accumulated Value as of December
31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
D = ((C+1) ^(1/1.893150685)) - 1
The Contract Fee assumes an estimated $25,000 Contract Value so that the
Contract Maintenance Charge per $1,000 of net asset value in the Separate
Account is $1.44. Such charge would be higher for smaller Contract Values and
lower for higher Contract Values.
