File Nos. 33-87150
811-8890
================================================================================
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. 6 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 15 [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, 1999 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
<TABLE>
<CAPTION>
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 of Terms used in this Prospectus
Item 3. Synopsis Summary
Item 4. Condensed Financial Information Appendix A-Condensed Financial Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies London Pacific; The Separate
Account; Investment Options
Item 6. Deductions and Expenses Expenses
Item 7. General Description of Variable The London Pacific Deferred
Annuity Contracts Variable Annuity Contract
Item 8. Annuity Period Annuity Payments (The Annuity Period)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value How to Purchase the Contracts
Item 11. Redemptions Withdrawals
Item 12. Taxes Taxes
Item 13. Legal Proceedings Not Applicable
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 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 DEFERRED VARIABLE ANNUITY CONTRACT
with a Fixed Account
issued by
LPLA SEPARATE ACCOUNT ONE
and
LONDON PACIFIC LIFE & ANNUITY INSURANCE COMPANY
May 1, 1999
This prospectus describes the individual deferred variable annuity contract with
a Fixed Account issued by London Pacific Life & Annuity Company (London
Pacific). The annuity contract has a Fixed Account which offers an interest rate
which is guaranteed by London Pacific and the following Investment Options:
LPT VARIABLE INSURANCE SERIES TRUST:
Harris Associates Value Portfolio
MFS Total Return Portfolio
Berkeley U.S. Quality Bond Portfolio (not available for new purchases or
additional Contributions)
Berkeley Money Market Portfolio (not available for new purchases or additional
Contributions)
Robertson Stephens Diversified Growth Portfolio
Lexington Corporate Leaders Portfolio(R)
Strong Growth Portfolio
SAI Global Leaders Portfolio
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
Morgan Stanley Dean Witter U.F. High Yield Portfolio
Morgan Stanley Dean Witter U.F. International Magnum Portfolio
Morgan Stanley Dean Witter U.F. Emerging Markets Equity Portfolio
BT INSURANCE FUNDS TRUST:
BT Equity 500 Index Fund
FEDERATED INSURANCE SERIES
Federated Prime Money Fund II
Federated Fund for U.S. Government Securities II
Please read this prospectus carefully before investing and keep it on file for
future reference. It contains important information about the London Pacific
Deferred Variable Annuity Contract.
To learn more about the London Pacific Deferred Variable Annuity Contract with a
Fixed Account, you can obtain a copy of the Statement of Additional information
(SAI) dated May 1, 1999. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of this prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the SAI, material incorporated by
reference, and other information regarding companies that file electronically
with the SEC. The Table of Contents of the SAI is on Page __ of this prospectus.
For a free copy of the SAI, call us at our Annuity Service Center at the address
below.
The Contracts:
*are not bank deposits
*are not federally insured
*are not endorsed by any bank or government agency
*are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
INQUIRIES: If you have any questions about your Contract or need more
information, please contact us at:
Annuity Service Center
P.O. Box 29564
Raleigh, North Carolina 27626
(800) 852-3152
TABLE OF CONTENTS
PAGE
DEFINITIONS OF TERMS USED IN THIS PROSPECTUS ...........
SUMMARY ................................................
FEE TABLE ..............................................
THE LONDON PACIFIC DEFERRED VARIABLE ANNUITY CONTRACT...
ANNUITY PAYMENTS (THE ANNUITY PERIOD)....................
Annuity Date ...................................
Annuity Payments ...............................
Annuity Options ................................
HOW TO PURCHASE THE CONTRACTS ...........................
Contributions ..................................
Allocation of Contributions ....................
Free-Look ......................................
Accumulation Units .............................
Transfers ......................................
INVESTMENT OPTIONS.......................................
LPT Variable Insurance Series Trust.............
Morgan Stanley Dean Witter Universal Funds, Inc.
BT Insurance Funds Trust........................
Federated Insurance Series......................
Dollar Cost Averaging Program ..................
Rebalancing Program ............................
Voting Rights ..................................
Substitution....................................
Exchange Program................................
PERFORMANCE..............................................
EXPENSES ................................................
Mortality and Expense Risk Charge...............
Administrative Charge ..........................
Distribution Charge ............................
Contract Maintenance Charge ....................
Contingent Deferred Sales Charge ...............
Transfer Fee ...................................
Premium Taxes...................................
Income Taxes....................................
Investment Option Expenses......................
TAXES ...................................................
Annuity Contracts in General
Qualified and Non-Qualified Contracts .........
Withdrawals - Non-Qualified Contracts ..........
Withdrawals - Qualified Contracts ..............
Diversification ................................
WITHDRAWALS...............................................
Systematic Withdrawal Option ....................
Suspension of Payments or Transfers .............
DEATH BENEFIT.............................................
Upon Your Death ...................................
Death of Annuitant ................................
OTHER INFORMATION.........................................
London Pacific...................................
Year 2000........................................
The Separate Account.............................
Distribution.....................................
TABLE OF CONTENTS OF THE SAI..............................
APPENDIX A................................................
APPENDIX B ...............................................
DEFINITIONS OF TERMS USED IN THIS PROSPECTUS
Accumulation Period - The period of time before the Annuity Date during which
you can make Contributions.
Annuity Date - The date on which Annuity Payments begin.
Annuity Payments - The series of payments made to you or some you choose after
the Annuity Date.
Annuity Period - The period of time beginning with the Annuity Date during which
we make Annuity Payments.
Annuity Service Center - The office indicated under Inquiries on the first page
of this prospectus to which notices, requests and Contributions must be sent.
Business Day - Any day the New York Stock Exchange (NYSE) and we are open for
business.
Contributions - The money you invest in the Contract.
Fixed Account - A segment of our general account which contains all of our
assets with the exception of segregated separate account assets.
Investment Option(s) - Those variable investments available under the Contract.
Non-Qualified Contract - If you purchase the Contract as an individual and not
under an individual retirement annuity, it is referred to as a Non-Qualified
Contract.
Owner/Joint Owner - The person(s) or entity(ies) entitled to ownership rights
under the Contract.
Qualified Contract - If you purchase the Contract under an individual retirement
annuity, it is referred to as a Qualified Contract.
Separate Account - A segregated asset account maintained by us to support the
London Pacific Deferred Variable Annuity Contract and certain other contracts.
The Separate Account is LPLA Separate Account One. The Separate Account is
divided into sub-accounts.
Written Request - A request in writing, in a form satisfactory to us, which is
received by the Annuity Service Center.
SUMMARY
The sections in this Summary are explained in more detail later in this
prospectus.
The London Pacific Deferred Variable Annuity Contract
This prospectus describes the individual deferred variable annuity contract with
a Fixed Account (Contract). The Contract is offered by London Pacific Life &
Annuity Company (London Pacific). The Contract provides for a death benefit and
guaranteed payment plans. The Contract is designed for retirement savings or
other long-term investment purposes.
The Contract allows you the choice to invest in our Fixed Account or the 12
Investment Options. The Investment Options are intended to offer a better return
than the Fixed Account. However, this is NOT guaranteed. You can also lose your
money.
Under the Contract, you are the Owner. You can name a Joint Owner. The Joint
Owner must be your spouse.
Annuity Payments
You can receive Annuity Payments from your Contract by selecting one of the
available Annuity Options. You can choose to have Annuity Payments come from the
Fixed Account or the Investment Options or both. If you choose to have any
portion of the payments come from the Investment Options, the dollar amount of
your Annuity Payments may go up or down depending on the investment performance
of the Investment Option(s) you select.
How to Purchase the Contract
The Contract requires an initial Contribution of at least $5,000. If you buy the
Contract as an Individual Retirement Annuity (IRA), the initial Contribution
must at least $1,000. You can make additional Contributions of at least $1,000
at any time during the Accumulation Period. Your registered representative can
help you fill out the proper forms.
Investment Options
You can invest in the following Investment Options:
LPT Variable Insurance Series Trust:
Harris Associates Value Portfolio
MFS Total Return Portfolio
Berkeley U.S. Quality Bond Portfolio (not available for new purchases or
additional Contributions)
Berkeley Money Market Portfolio (not available for new purchases or
additional Contributions)
Robertson Stephens Diversified Growth Portfolio
Lexington Corporate Leaders Portfolio(R)
Strong Growth Portfolio
SAI Global Leaders Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.:
Morgan Stanley Dean Witter U.F. High Yield Portfolio
Morgan Stanley Dean Witter U.F. International Magnum Portfolio
Morgan Stanley Dean Witter U.F. Emerging Markets Equity Portfolio
BT Insurance Funds Trust:
BT Equity 500 Index Fund
Federated Insurance Series:
Federated Prime Money Fund II
Federated Fund for U.S. Government Securities II
Depending on market conditions and the performance of the Investment
Option(s) you select, you can make or lose money in any of these
Investment Options.
Expenses
The Contract has insurance features and investment features and there are costs
related to each. The fees and charges are as follows:
Mortality and Expense Risk Charge: 1.25% annually of the average daily net
asset value of each Investment Option.
Administrative Charge: .15% annually of the average daily net asset value
of each Investment Option.
Distribution Charge: .10% annually of the average daily net asset value of
each Investment Option.
Transfer Fee: If you make more than 12 transfers in a Contract year, we
deduct a transfer fee which is equal to $20 per transfer, or 2% of the amount
transferred (whichever is less).
Contingent Deferred Sales Charge: If you make a withdrawal from your
Contract, we will deduct a continent deferred sales charge which declines from
7% to 0% depending upon the number of years we have had your Contribution. After
London Pacific has had your Contribution for 7 years, there is no charge for
withdrawals.
Contract Maintenance Charge: Each year, London Pacific deducts a $36
contract maintenance charge from your Contract. The charge is waived if the
value of your Contract is at least $50,000.
Premium Taxes: When you make a withdrawal, begin receiving Annuity Payments
or when we pay a death benefit, London Pacific may assess a premium tax charge
which ranges from 0% to 4%, depending on the state.
There are also investment charges which range from .30% to 1.75% of the
average daily value of the Investment Option, depending upon the Investment
Option you select.
Taxes
Your earnings are not taxed until you take them out. If you take money out
during the Accumulation Period, earnings come out first and are taxed as income.
If you are younger than 59 1/2 when you take money out, you may be charged a 10%
federal tax penalty on the earnings. Payments during the Annuity Period are
considered partly a return of your original investment. That part of each
payment is not taxable as income.
Death Benefit
If you die, a death benefit will be paid to the Beneficiary.
Exchange Program
London Pacific offers an exchange program (the Exchange Program) which is
available only to purchasers who exchange a contract issued by another insurance
company not affiliated with London Pacific or other financial investment for a
Contract offered by this Prospectus. The Exchange Program is only available to
purchasers who own a fixed annuity contract issued by another insurance company
not affiliated with London Pacific or other financial investments. Under the
Exchange Program, London Pacific adds certain amounts to the Contract as
exchange credits (Exchange Credits). Subject to specific limits, the Exchange
Credits equal the surrender charge paid, if any, to the other insurance company
or the charges and penalties paid to a financial institution.
Free-Look
If you cancel the Contract within 10 days after receiving it (or the period
required in your state), we will we will send your money back. You will receive
whatever your Contract is worth on the day we receive your request. This may be
more or less than your Contribution. If we are required by law to return your
Contribution, we will put your money in the Federated Prime Money Fund II during
the free-look period.
LPLA SEPARATE ACCOUNT ONE FEE TABLE
See Notes to Fee Table and Examples on page ___.
CONTRACT OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge
(See Note 2 on Page )
Charge as a
percentage of
unliquidated
Contract Year Contribution
1 year 7%
2 years 7%
3 years 6%
4 years 5%
5 years 4%
6 years 3%
7 years 2%
8 years or more 0%
Transfer Fee
(See Note 3 on Page )
No charge for first 12 transfers in a Contract year. After
that, the fee is the lesser of $20 or 2% of the amount
transferred.
Contract Maintenance Charge $36 per Contract per Contract year.
(see Note 4 on Page )
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge..................... 1.25%
Administrative Charge................................. .15%
Distribution Charge................................... .10%
-----
Total Separate Account Annual Expenses.................1.50%
<TABLE>
<CAPTION>
LPT VARIABLE INSURANCE SERIES TRUST'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
Other Expenses
Management (after expense Total Annual
Fees reimbursement)* Portfolio Expenses *
<S> <C> <C> <C> <C>
Harris Associates Value 1.00% .29% 1.29%
MFS Total Return .75% .54% 1.29%
Berkeley U.S. Quality Bond** .55% .44% .99%
Berkeley Money Market** .45% .44% .89%
Robertson Stephens Diversified
Growth .95% .44% 1.39%
Lexington Corporate Leaders(R) .65% .64% 1.29%
Strong Growth .75% .54% 1.29%
SAI Global Leaders*** .75% .54% 1.29%
</TABLE>
* London Pacific has voluntarily agreed through December 31, 1999 to
reimburse certain Portfolios 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, 1998, the
"Total Annual Expenses" (on an annualized basis) were: 1.85% for the Harris
Associates Value Portfolio; 1.87% for the MFS Total Return Portfolio; 3.60%
for the Berkeley U.S. Quality Bond Portfolio; 3.14% for the Berkeley Money
Market Portfolio; 2.39% for the Strong Growth Portfolio; 2.37% for the
Robertson Stephens Diversified Growth Portfolio; and 1.60% for the
Lexington Corporate Leaders Portfolio. The examples following are
calculated based upon such expense reimbursement arrangements.
** Prior to May 1, 1999, London Pacific reimbursed the Berkeley U.S. Quality
Bond Portfolio and the Berkeley Money Market Portfolio for certain
expenses. Effective May 1, 1999, this arrangement has been terminated. For
the year ending December 31, 1999, the "Other Expenses" are estimated to be
2.75% for the Berkeley U.S. Quality Bond Portfolio and 2.25% for the
Berkeley Money Market Portfolio.
*** Estimated. The Portfolio commenced investment operations on May 1, 1999.
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
Other Operating
Management Expenses (after expense Total Annual
Fees reimbursement)* Portfolio Expenses *
---- --------------- --------------------
<S> <C> <C> <C>
Morgan Stanley Dean
Witter U.F. High Yield .15% .65% .80%
Morgan Stanley Dean Witter
U.F. International Magnum .15% 1.00% 1.15%
Morgan Stanley Dean Witter
U.F. Emerging Markets
Equity 0.0% 1.75% 1.75%
</TABLE>
* 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, 1998,
"Management Fees," "Other Operating Expenses," and "Total Annual Expenses"
would have been: 0.50%, 0.65% and 1.15% for the Morgan Stanley Dean Witter
U.F. High Yield Portfolio; 0.80%, 1.00%, and 1.80% for the Morgan Stanley
Dean Witter U.F. International Magnum Portfolio; and 1.25%, 2.20% and 3.45%
for the Morgan Stanley Dean Witter U.F. Emerging Markets Portfolio.
<TABLE>
<CAPTION>
BT INSURANCE FUNDS TRUST'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
Other Expenses Total
Management Administ- (after expense Annual Portfolio
Fees rative Fee reimbursement)* Expenses (after
expense
reimbursement)*
<S> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index .20% .02% .08% .30%
</TABLE>
* Without expense waivers and reimbursements for the year ended December 31,
1998, the total operating expenses for the BT Equity 500 Index Fund would
have been 1.19%.
Federated Insurance Series' Annual Expenses (as a percentage of the average
daily net assets of a Portfolio)
<TABLE>
<CAPTION>
Other Total Annual
Expenses Expenses
Management (after waivers (after waivers
Portfolio Fees and reimbursements) and reimbursements)
- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II * .50% .30% .80%
Federated Fund for U.S.
Government Securities II * .60% .25% .85%
</TABLE>
* Without expense waivers and reimbursements, the total annual operating
expenses for the year ending December 31, 1998 would have been 0.81% for
the Federated Prime Money Fund II and .93% for the Federated Fund for U.S.
Government Securities II.
EXAMPLES:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your assets:
(a) if you surrender your Contract at the end of each time period;
(b) if you do not surrender your Contract.
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
Harris Associates Value
<S> <C> <C> <C> <C>
a)$100.04 a)$154.47 a)$205.22 a)$374.10
b)$ 30.04 b)$ 94.47 b)$165.22 b)$374.10
MFS Total Return
a)$100.04 a)$154.47 a)$205.22 a)$374.10
b)$ 30.04 b)$ 94.47 b)$165.22 b)$374.10
Berkeley U.S. Quality Bond
a)$ 96.96 a)$144.78 a)$188.23 a)$335.42
b)$ 26.96 b)$ 84.78 b)$148.23 b)$335.42
Berkeley Money Market
a)$ 95.94 a)$141.55 a)$182.56 a)$322.53
b)$ 25.94 b)$ 81.55 b)$142.56 b)$322.53
Robertson Stephens Diversified Growth
a)$101.06 a)$157.70 a)$210.88 a)$386.99
b)$ 31.06 b)$ 97.70 b)$170.88 b)$386.99
Lexington Corporate Leaders
a)$100.04 a)$154.47 a)$205.22 a)$374.10
b)$ 30.04 b)$ 94.47 b)$165.22 b)$374.10
Strong Growth
a)$100.04 a)$154.47 a)$205.22 a)$374.10
b)$ 30.04 b)$ 94.47 b)$165.22 b)$374.10
SAI Global Leaders
a)$100.04 a)$154.47 a)$205.22 a)$374.10
b)$ 30.04 b)$ 94.47 b)$165.22 b)$374.10
Morgan Stanley Dean Witter U.F. High Yield
a)$ 95.02 a)$138.64 a)$177.47 a)$310.92
b)$ 25.02 b)$ 78.64 b)$137.47 b)$310.92
Morgan Stanley Dean Witter U.F. International Magnum
a)$ 98.60 a)$149.95 a)$197.2 a)$356.05
b)$ 28.60 b)$ 89.95 b)$157.29 b)$356.05
Morgan Stanley Dean Witter U.F. Emerging Markets Equity
a)$104.75 a)$169.34 a)$231.27 a)$433.40
b)$ 34.75 b)$109.34 b)$191.27 b)$433.40
BT Equity 500 Index
a)$ 89.89 a)$122.48 a)$149.15 a)$246.46
b)$ 19.89 b)$ 62.48 b)$109.15 b)$246.46
Federated Prime Money Fund II
a)$ 95.02 a)$138.64 a)$177.47 a)$310.92
b)$ 25.02 b)$ 78.64 b)$137.47 b)$310.92
Federated Fund for U.S. Government Securities II
a)$ 95.23 a)$140.26 a)$186.30 a)$317.37
b)$ 25.53 b)$ 80.26 b)$140.30 b)$317.37
<FN>
NOTES TO FEE TABLE AND EXAMPLES
1. The purpose of the fee table is to show you the various expenses you will
incur directly or indirectly with the Contract. The Fee Table reflects
expenses of the Separate Account as well as the Investment Options.
2. Once each Contract year, you can withdraw up to 10% of unliquidated
Contributions (which means not previously withdrawn) on a non-cumulative
basis without the imposition of the contingent deferred sales charge (free
withdrawal). You can make a free withdrawal once each Contract year unless
you selected the Systematic Withdrawal Option. If you are younger than 59
1/2 when you make a withdrawal, it may be subject to a ten percent (10%)
federal income tax penalty.
3. London Pacific will not charge you the transfer fee even if there are more
than 12 transfers in a year if the transfer is made at the end of the
fee-look period and any transfers made pursuant to an approved Dollar Cost
Averaging Program or Rebalancing Program.
4. During the Accumulation Period, London Pacific will not charge the contract
maintenance charge if the value of your Contract is at least $50,000 or
more. However, if you make a complete withdrawal, London Pacific will
charge the contract maintenance charge. During the Annuity Period, the full
charge will be deducted regardless of the size of your Contract. In the
state of North Dakota, the contract maintenance charge is $30.
5. The examples below assume an estimated $25,000 Contract value. Therefore,
the contract maintenance charge is calculated as $1.44 in the examples. The
charge would be higher for smaller Contract values and lower for higher
Contract values.
6. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
7. The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
</FN>
</TABLE>
THERE IS AN ACCUMULATION UNIT VALUE HISTORY (CONDENSED FINANCIAL INFORMATION)
CONTAINED IN APPENDIX A TO THIS PROSPECTUS.
THE LONDON PACIFIC DEFERRED VARIABLE ANNUITY CONTRACT
This prospectus describes the Individual Deferred Variable Annuity Contract with
a Fixed Account (Contract) issued by London Pacific.
An annuity is a contract between you (the Owner) and us (an insurance company)
where we promise to pay you (or someone you choose) an income, in the form of
Annuity Payments. Until you decide to begin receiving Annuity Payments, your
annuity is in the Accumulation Period. Once you begin receiving Annuity
Payments, your Contract switches to the Annuity Period.
The Contract benefits from tax deferral. This means that you are not taxed on
the earnings or appreciation on the money in your Contract until you take money
out.
You can choose to invest in the 12 Investment Options. Depending on market
conditions and the performance of the Investment Option(s) you select, you can
make or lose money in any of these portfolios. If you select the variable
annuity portion of the Contract, the amount of money you are able to accumulate
in your Contract during the Accumulation Period depends upon the investment
performance of the Investment Option(s) you select. The amount of Annuity
Payments you receive during the Annuity Period from the variable annuity portion
of the Contract also depends, in part, on the investment performance of the
Investment Option(s) you select for the Annuity Period.
The Contract also offers you a Fixed Account. The Fixed Account offers an
interest rate that guaranteed by London Pacific. If you select the Fixed
Account, your money will be placed with the other general assets of London
Pacific.
Ownership
Owner - Under the Contract you are the Owner. You name an Annuitant. You 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 us prior to the time it was received.
If the Contract is Non-Qualified and is owned by a non-natural person (for
example, a corporation) it is not treated as an annuity contract for tax
purposes. This means that income on the Contract is treated as ordinary income
received by the Owner during the taxable year. You should seek tax advice before
you buy the Contract if it is going to be owned by a trust or other non-natural
person.
The Contract may be owned by Joint Owners. Any Joint Owner must be your spouse.
When either Owner dies, the surviving Joint Owner will be the primary
Beneficiary. We will treat any other designated Beneficiary as a contingent
Beneficiary unless you specify otherwise in a Written Request.
Unless you tell us otherwise, if there are Joint Owners all transactions will
require both signatures except for 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 we base Annuity Payments.
You designate the Annuitant when the Contract is issued. You can change the
Annuitant at any time before 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 our underwriting rules which are in effect at the time.
Beneficiary - The Beneficiary is the person(s) or entity you name to receive any
death benefit. The Beneficiary is named at the time the Contract is issued
unless changed at a later late. Unless an irrevocable Beneficiary has been
named, you may change the primary Beneficiary(ies) or contingent
Beneficiary(ies). A change must be made by Written Request. The change will take
effect as of the date the Written Request is signed. London Pacific will not be
liable for any payment made or action it takes before the change is recorded.
Assignment
You can assign (transfer ownership) the Contract at any time during your
lifetime. You must send a Written Request to our Annuity Service Center
specifying the terms of the assignment. London Pacific will not be liable for
any payment or other action we take in accordance with the Contract until we
receive notice of the assignment. Any assignment made after the death benefit
has become payable will only be valid with our consent. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
Modification of the Contract
The Contract may be modified in order to comply with applicable state and
federal law. A Contract may be changed or altered only by the President or Vice
President and the Secretary of London Pacific. Any change must be in writing.
ANNUITY PAYMENTS (THE ANNUITY PERIOD)
Annuity Date
You can receive regular Annuity Payments from your Contract. The day on which
those payments begin is called the Annuity Date. The Annuity Date must be the
first day of a calendar month and must be at least one month after we issue your
Contract. The Annuity Date may not be later than when the Annuitant reaches age
85 or 10 years after we issue your Contract if you are age 75 or older on the
day your Contract is issued. You can change the Annuity Date by Written Request.
Any change must be requested at least 7 days prior to the Annuity Date.
Annuity Payments
You will receive the Annuity Payments unless you choose someone else to receive
them. During the Annuity Period, you have the same investment choices you had
just before the start of the Annuity Period. During the Annuity Period, payments
can come from the Investment Options you have selected (meaning they are
variable Annuity Payments) or from the Fixed Account (meaning they are fixed
Annuity Payments). You must select if you want variable Annuity Payments or
fixed Annuity Payments or a combination of both no later than 15 days before the
Annuity Date. If you do not instruct us, your payments will be variable Annuity
Payments.
Annuity Payments are made monthly. If the Annuity Payment would be or become
less than $200 ($100 if a combination fixed and variable annuity is selected),
we will reduce the frequency of the Annuity Payments to an interval which will
result in each payment being at least $200 ($100 if a combination fixed and
variable annuity is selected).
If you choose to have any portion of your Annuity Payments come from the
Investment Options, the dollar amount of your payments will depend on the
following:
(1) the value of your Contract in the Investment Option on the Annuity
Date;
(2) the 4% assumed investment rate used in the Contract;
(3) the performance of the Investment Option(s) you select;
(4) the Annuity Option you select; and
(5) the age of the Annuitant and any joint Annuitant with respect to
certain Annuity Options.
If the actual performance exceeds the 4% assumed investment rate, your Annuity
Payments will increase. Likewise, if the actual investment rate is less than 4%,
you Annuity Payments will decrease.
The SAI contains a description of how Annuity Payments and Annuity Unit values
are calculated.
Annuity Options
You can choose among income plans. We call them Annuity Options. We ask you to
choose an Annuity Option when you buy the Contract. Prior to the Annuity Date
you may change the Annuity Option by Written Request. Any change must be
requested at least 7 days prior to the Annuity Date.
You can choose one of the following Annuity Options or any other Annuity Option
acceptable to London Pacific.
OPTION A. LIFE ANNUITY. Under this option, we will make monthly Annuity Payments
during the life of the Annuitant. After the Annuitant dies, we stop making
Annuity Payments.
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 120 MONTHS. Under this option, we
will make monthly Annuity Payments during the life of the Annuitant. If the
Beneficiary does not want payments to continue for the rest 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 & SURVIVOR ANNUITY. Under this option, we will make monthly
Annuity Payments so long as the Annuitant and the Joint Annuitant are alive.
After the first Annuitant dies and during the lifetime of the surviving
Annuitant, we will continue making Annuity Payments at 66 2/3%. After the
surviving Annuitant dies, we will stop making Annuity Payments.
OPTION D. PAYMENT FOR A PERIOD CERTAIN. Under this option, we will make monthly
Annuity Payments for a fixed period of years. The period must be at least 10
years and cannot be more than 30 years. If you do not want to continue to
receive payments for the rest of the selected period, you may elect to have the
present value of the remaining payments commuted and paid in a lump sum or as
and Annuity Option purchased at the date of the elected.
HOW TO PURCHASE THE CONTRACT
Contributions
Contributions are the money you give us to buy the Contract. The minimum
Contribution we will accept is $5,000 when the Contract is bought as a Non-
Qualified Contract. If you are buying the Contract as part of an IRA (individual
retirement annuity), the minimum we will accept is $1,000. You can make
additional Contributions of $1,000 ($100 if the periodic investment plan option
is elected). The maximum Contributions we will accept without our prior approval
are $1,000,000 except if you are 75 years old when you buy the Contract in which
case the maximum is $500,000. We reserve the right to reject any Contribution or
Contract.
Allocation of Contributions
When you purchase the Contract, we will allocate your Contribution to the
Investment Option(s) you have selected. Unless you instruct us otherwise,
subsequent Contributions will be allocated in the same manner as the initial
Contribution. Your allocations must be in whole numbers 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 we will allocate your initial Contribution to the Federated Prime
Money Fund II until the end of the free-look period.
Once we receive your Contribution and the necessary information and they are
deemed to be in good order, we will issue you a Contract and allocate your
Contribution within 2 business days. If the information is not in good order, we
will contact you to get the necessary information. If for some reason we are
unable to complete this process within 5 business days, we will either sent back
your money or get your permission to keep it until we get all of the necessary
information. If you add more money to your Contract by making additional
Contributions, we will credit these amounts to your Contract within one business
day. Our business day closes when the New York Stock Exchange closes, usually
4:00 p.m. Eastern time.
Free-Look
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it (or the period required in your state), and we will send
your money back. You will receive whatever your Contract is worth on the day we
receive your request. This may be more or less than your Contribution. If you
have purchased the Contract as an individual retirement annuity or in certain
states, we are required to return your Contribution. If that is the case, we
will put your money in the Federated Prime Money Fund II for 15 days after we
allocate your Contribution (or whatever period is required in your state) and
refund the greater of your Contribution (less withdrawals) or the value of your
Contract.
Accumulation Units
The value of your Contract allocated to the Investment Options will go up or
down depending upon the investment performance of the Investment Option(s) you
select. In order to keep track of the value of your Contract, we use a unit of
measure we call an accumulation unit. During the Annuity Period, we call it an
annuity unit. The difference between accumulation unit values and annuity unit
values is the assumed investment rate factor raised to the power equal to the
number of years since the initial accumulation unit values were set.
Every Business Day we determine the value of an accumulation unit for each
Investment Option. We do this by:
1. determining the total amount of money invested in the particular
Investment Option;
2. subtracting from that amount the mortality and expense risk charge,
the administrative charge and the distribution charge; and
3. dividing this amount by the number of outstanding Accumulation Units.
The value of an accumulation unit may go up or down from day to day.
When you make your Contribution to the Contract, London Pacific will credit your
Contract with accumulation units. The number of accumulation units credited is
determined by dividing the amount of the Contribution allocated to an Investment
Option by the value of the accumulation unit for that Investment Option.
London Pacific calculates that value of an accumulation unit for each Investment
Option after the New York Stock Exchange (NYSE) closes each day and then credits
your Contract. There may be days when the NYSE is open for business and we are
closed. The day after Thanksgiving is the only such date. On such date, you will
not have access to your account and therefore no transactions will be processed
for the Separate Account.
Example:
On Wednesday we receive an additional Contribution from of you $4,000. You have
instructed us to allocate it to the Harris Associates Value Portfolio. When the
New York Stock Exchange closes on that Wednesday, we determine that the value of
an accumulation unit for the Harris Associates Value Portfolio is $12.50. We
then divide $4,000 by 12.50 and credit your Contract with 320 accumulations
units for the Harris Associates Value Portfolio on that Wednesday night.
Transfers
You can make transfers among the Investment Options and the Fixed Account before
the Annuity Date.
The minimum amount which you can transfer is $500 from one or more Investment
Options or the Fixed Account or your entire interest in the Investment Option or
Fixed Account, if less. The minimum amount which must remain in an Investment
Option or the Fixed Account after a transfer is $500 for each Investment Option
or the Fixed Account, or $0 if the entire interest in the Investment Option or
Fixed Account is transferred.
During the Annuity Period you may make a transfer from one or more of the
Investment Options to the Fixed Account once a Contract year. You may not make a
transfer from the Fixed Account to the Investment Options during the Annuity
Period.
If you make more than 12 transfers in a year, a transfer fee may be assessed.
Telephone transfers can be made pursuant to Written Request. London Pacific will
use reasonable procedures to confirm that instructions given us by telephone are
genuine. If we fail to use such procedures, we may be liable for losses due to
fraudulent or unauthorized instructions. London Pacific tape records all
telephone instructions.
London Pacific reserves the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privilege described above.
The Contracts are not designed for professional market timing organizations.
Repeated patterns of frequent transfers are disruptive to the operations of the
Investment Options. When London Pacific becomes aware of such disruptive
transactions, we may modify the transfer provisions of the Contract.
INVESTMENT OPTIONS
The following Investment Options are available. Additional Investment Options
may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
Shares of the funds 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 London Pacific. Certain
portfolios may also be sold directly to qualified plans. The funds do not
believe that offering their shares in this manner will be disadvantageous to
you.
London Pacific may enter into certain arrangements under which it is reimbursed
by the Investment Options' advisers, distributors and/or affiliates for the
administrative services which it provides to the portfolios.
LPT VARIABLE INSURANCE SERIES TRUST
LPT Variable Insurance Series Trust (Trust) is a mutual fund with multiple
portfolios. LPIMC Insurance Marketing Services Adviser, a subsidiary of London
Pacific 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 money managers for investment of the
assets of each portfolio of the Trust. The Sub-Adviser for each portfolio is
listed under each portfolio below. The following Investment Options 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 (not available for new purchases or
additional Contributions)
The Sub-Adviser for this Portfolio is Berkeley Capital Management.
Berkeley Money Market Portfolio (not available for new purchases or
additional Contributions)
The Sub-Adviser for this Portfolio is Berkeley Capital Management.
Robertson Stephens Diversified Growth Portfolio
The Sub-Adviser for this Portfolio is Robertson, Stephens & Company Investment
Management, L.P.
Lexington Corporate Leaders Portfolio(R)(long-term capital growth and
income through investment in common stocks of large, well-established companies)
The Sub-Adviser for this Portfolio is Lexington Management Corporation.
Strong Growth Portfolio
The Sub-Adviser for this Portfolio is Strong Capital Management, Inc.
SAI Global Leaders Portfolio (long-term capital growth through investment
in common stocks of large foreign and domestic companies)
The Sub-Adviser for this Portfolio is Select Advisors, Inc.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Morgan Stanley Dean Witter Universal Funds, Inc. is a mutual fund with eighteen
portfolios, three of which are available under the Contracts. Prior to January
6, 1999, the name of the fund was Morgan Stanley Universal Funds, Inc. Miller
Anderson & Sherrerd, LLP is the investment adviser to the High Yield Portfolio.
Morgan Stanley Dean Witter Investment Management Inc. (formerly Morgan Stanley
Asset Management Inc.) is the investment adviser for the International Magnum
and Emerging Markets Equity Portfolios. The following Investment Options are
available under the Contract:
High Yield Portfolio
International Magnum Portfolio (long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers domiciled in EAFE
countries)
Emerging Markets Equity Portfolio
BT INSURANCE FUNDS TRUST
BT Insurance Funds Trust (Fund) 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 Investment Option is available under the
Contract:
BT Equity 500 Index Fund
FEDERATED INSURANCE SERIES
Federated Insurance Series is a mutual fund with multiple separate investment
portfolios, two of which are available under the Contracts. Federated Investment
Management Company is the investment adviser of the Federated Prime Money Fund
II and the Federated Fund for U.S. Government Securities II. The following
Investment Options are available under the Contract:
Federated Prime Money Fund II
Federated Fund for U.S. Government Securities II
Dollar Cost Averaging Program
The Dollar Cost Averaging Program is a program, which if elected, permits you to
systematically transfer amounts monthly, quarterly, semi-annually or annually
from the Federated Prime Money Fund II, the Federated Fund for U.S. Government
Securities II, the Morgan Stanley Dean Witter U.F. High Yield Portfolio or the
Fixed Account to one or more of the other Investment Options. Transfers to the
Fixed Account are not permitted. To participate in the program, the value of
your Contract must be at least $20,000. By allocating amounts on a regular
schedule as opposed to allocating the total amount at one particular time, you
may be less susceptible to the impact of market fluctuations.
You must participate in Dollar Cost Averaging for at least 12 months. There is
no current charge for Dollar Cost Averaging. However, we reserve the right to
charge for it in the future. Transfers under this program will take place on the
date you request to participate in the program and anniversaries of that date.
Transfers made pursuant to the Dollar Cost Averaging Program are not taken into
account in determining the transfer fee.
We reserve the right at any time and without prior notice to any party, to
terminate, suspend or modify the Dollar Cost Averaging Program.
Rebalancing Program
You may use an asset allocation model know as the Asset Equalizer to help you
establish your initial investment allocations. If you do, you may rebalance your
investments monthly to maintain the allocation in the Asset Equalizer model.
Rebalancing provides for periodic automatic transfers among the Investment
Options. Any amounts in the Fixed Account will not be transferred as part of
this program.
Transfers made pursuant to the Rebalancing Program are not taken into account in
determining the transfer fee.
Voting Rights
London Pacific is the legal owner of the Investment Option shares. However,
London Pacific believes that when an Investment Option solicits proxies in
conjunction with a vote of shareholders, it is required to obtain from you and
other owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that London Pacific owns on its
own behalf. Should London Pacific determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
Substitution
London Pacific may be required to substitute one of the Investment Options you
have selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intention to do this.
Exchange Program
London Pacific currently offers an exchange program (Exchange Program) which is
available only to purchasers who exchange an existing contract issued by another
insurance company not affiliated with London Pacific or other financial
investment (Exchange Investment) for a Contract offered by this prospectus. The
Exchange Program is not available to purchasers who own variable annuity
contract and want to exchange it for the Contract described in this prospectus.
We reserve the right to modify, suspend, or terminate the Exchange Program at
any time or from time to time without notice. If the Exchange Program is in
effect, it will apply to all exchanges which qualify for the program for a
Contract offered by this prospectus. The Exchange Program is available only
where permitted by law. While we know of no adverse federal income tax
consequences, you should consult with your own tax adviser regarding the tax
consequences of an exchange.
A currently owned annuity contract or life insurance policy may be exchanged for
a Contract pursuant to Section 1035 of the Internal Revenue Code (Code), or
where applicable, may qualify for a "rollover" or transfer to a Contract
pursuant to other sections of the Code.
You should carefully evaluate whether the Exchange Program offers benefits which
are more favorable than if you continued to hold your Exchange Investment.
Factors to consider include, but are not limited to:
(a) the amount, if any, of surrender charges or other charges and penalties
incurred in surrendering a contract or financial investment which can be
obtained from the insurance company or financial institution which issued the
contract or instrument;
(b) the time remaining under your Exchange Investment during which
surrender charges or other charges and penalties apply;
(c) the on-going charges, if any, under the Exchange Investment versus the
on-going charges under the Contracts described in this prospectus;
(d) the contingent deferred sales charge;
(e) the amount and timing of any benefits under the Exchange Program; and
(f) the potentially greater cost to you if the charges under a Contract or
the surrender charge or charges and penalties on the Exchange Investment exceeds
the benefits under the Exchange Program.
Under the currently available Exchange Program, London Pacific adds certain
amounts to the value of your Contract as exchange credits (Exchange Credits).
The Exchange Credits are credited by London Pacific on behalf of Owners of an
Exchange Investment from our general account. Subject to a specified limit
(Exchange Credit Limit) discussed below, Exchange Credits equal the surrender
charge paid, if any, to the other insurance company or the charges and penalties
paid, if any, to the other financial institution. The Exchange Program is
subject to the following rules:
1. London Pacific does not add Exchange Credits unless we receive in
writing, not later than 30 days after the issue of the Contract, evidence
satisfactory to us:
a. of the surrender charge or other charges and penalties, if any,
paid by you to surrender the Exchange Investment and the amount of any such
charge; and
b. you acknowledge that you are aware that the contingent deferred
sales charge under the Contract will be assessed in full against a
subsequent withdrawal to the extent applicable.
2. London Pacific allocates the Exchange Credits to the Contract 30 days
after a Contract is issued (40 days after a Contract is issued in California if
the purchaser is 60 years of age or older).The Exchange Credits will be
allocated prorata among the Investment Options based on the ratio of the values
in the Investment Option at the time we add the Exchange Credits. Exchange
Credits are added to the Fixed Account based on the allocation to the Fixed
Account on the date the Contract is issued.
3. The value of the Exchange Credits as of the date of the allocation to
the Investment Options is equal to the lesser of the Exchange Credit Limit or
the surrender charge paid or other charges and penalties paid to surrender the
Exchange Investment. The Exchange Credit Limit currently is 5% of the amount
payable upon surrender of the Exchange Investment. We reserve the right at any
time and from time to time to increase or decrease the Exchange Credit Limit.
However, the Exchange Credit Limit in effect at any time will apply to all
purchases qualifying for the Exchange Program.
4. The value of the Exchange Credits we add to your Contract is not
available as a free withdrawal.
5. London Pacific does not consider additional amounts credited to your
Contract under the Exchange Program to be an increase in your investment in the
Contract.
PERFORMANCE
London Pacific may advertise performance of the various Investment Options.
Performance information of an Investment Option is based on past performance
only and is no indication of future performance. London Pacific will calculate
performance by determining the percentage change in an Investment Option by
dividing the increase (decrease) for the Option by the value of the Investment
Option at the beginning of the period. The performance number will reflect the
expenses of the Investment Option and the deduction of the mortality and expense
risk charge, the administrative charge, the distribution charge and any
applicable contract maintenance charge. This non-standard performance will not
reflect the deduction of the contingent deferred sales charge. The deduction of
any applicable contingent deferred sales charge would reduce the percentage
increase or make greater any percentage decrease. London Pacific may also
advertise performance information which is computed on a different basis. Any
advertisement will also include average annual total return figures
(standardized performance) which reflect the deduction of all fees and
charges.
Future performance will vary and the results which may be shown are not
necessarily representative of future results.
EXPENSES
There are charges and other expenses associated with the Contract that reduce
the return on your investment in the Contract. These charges and expenses are:
Mortality and Expense Risk Charge. This charge is equal, on an annual basis, to
1.25% of the daily value of the Contract invested in an Investment Option, after
fund expenses have been deducted. This charge is for all the insurance benefits
e.g., guarantee of annuity rates, the death benefit, for certain expenses of the
Contract, and for assuming the risk (expense risk) that the current charges will
be insufficient in the future to cover the cost of administering the Contract.
London Pacific may use any profits it makes from this charge to pay for the
costs of distributing the Contract.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
daily value of the Contract invested in an Investment Option, after fund
expenses have been deducted. This charge, together with the contract maintenance
charge (see below), is for the expenses associated with the administration of
the Contract. Some of these expenses are: preparation of the Contract,
confirmations, annual reports and statements, maintenance of Contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
Distribution Charge. This charge is equal, on an annual basis, to .10% of the
daily value of the Contract invested in an Investment Option, after fund
expenses have been deducted. This charge compensates London Pacific for the
costs associated with the distribution of the Contract.
Contract Maintenance Charge. On each anniversary of the date when your Contract
was issued, London Pacific deducts $36 ($30 in the state of North Dakota) from
your Contract as a contract maintenance charge. This charge is for
administrative expenses. This charge cannot be increased.
London Pacific will not deduct this charge during the Accumulation Period if,
when the deduction is to be made, the value of your Contract is $50,000 or more.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. The contract maintenance charge is deducted
prorata from the Investment Options and the Fixed Account (except in South
Carolina, Texas and Washington, the charge is only deducted from the Investment
Options).
After the Annuity Date, the charge will be collected monthly out of each Annuity
Payment regardless of the size of the Contract.
Contingent Deferred Sales Charge. During the Accumulation Period, you can make
withdrawals from your Contract. However, if all or a portion of the unliquidated
Contribution is withdrawn within the first 7 Contract years London Pacific will
assess a contingent deferred sales charge (unliquidated Contributions means
Contributions that you have not previously surrendered or withdrawn). The charge
is based on the Contract year in which you make a withdrawal and is applied only
to a withdrawal of Contribution. The charge is as follows:
Charge as a
percentage of
unliquidated
Contract Year Contribution
------------- ------------
1 year 7%
2 years 7%
3 years 6%
4 years 5%
5 years 4%
6 years 3%
7 years 2%
8 years or more 0%
Free Withdrawals. Once a year on a non-cumulative basis, you can withdraw up to
10% of your unliquidated Contributions without the contingent deferred sales
charge (free withdrawal amount). For purposes of the free withdrawal amount and
the contingent deferred sales charge, amounts you withdraw as a free withdrawal
are not considered a liquidation of Contributions. If you choose to make
withdrawals under our Systematic Withdrawal Option, the once a year limitation
on withdrawals for the free withdrawal amount is waived if you have not made any
other free withdrawals during that Contract year.
In addition, in certain states, if you have been confined to a convalescent care
facility for any continuous ninety day period or if you are first diagnosed as
having a terminal illness and it is at least 90 days after the day your contract
was issued, you can make a one time withdrawal of a certain amount and London
Pacific will not assess the contingent deferred sales charge. We call this the
Convalescent Care Facility/Terminal Illness Benefit. This benefit may not be
available in all states.
Income taxes and tax penalties may apply to any withdrawal you make.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money into the Contract. Thus, for tax purposes, earnings are considered to come
out first.
See Appendix B for examples of how the contingent deferred sales charge is
calculated.
Reduction or Elimination of the Contingent Deferred Sales Charge. London Pacific
will reduce or eliminate the amount of the contingent deferred sales charge when
the Contract is sold under circumstances which reduce its sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the Contract or a prospective purchaser already had a relationship with London
Pacific. London Pacific will not deduct a contingent deferred sales charge under
a Contract issued to an officer, director or employee of London Pacific or any
of its affiliates.
Transfer Fee. You can make 12 free transfers every year. We measure a year from
the day we issue your Contract. If you make more than 12 transfers a year, we
will deduct a transfer fee of $20 for each transfer thereafter or 2% of the
amount transferred (whichever is less). The transfer fee will be deducted from
the Investment Option or the Fixed Account from which the transfer is made. If
your entire interest in the Investment Option or Fixed Account is being
transferred, the transfer fee will be deducted from the amount which is
transferred. If the transfer is made from more than one Investment Option or the
Fixed Account, the transfer fee will be deducted pro-rata from each Investment
Option or the Fixed Account from which a transfer is made.
Any transfers made pursuant to the Dollar Cost Averaging or Rebalancing Programs
will not count in determining the transfer fee. A transfer at the end of the
free-look period will also not count in determining the transfer fee.
Premium Taxes. Some states and other governmental entities (e.g.,
municipalities) charge premium taxes or similar taxes. London Pacific is
responsible for the payment of these taxes and will make a deduction from the
value of the Contract for them. Some of these taxes are due when the Contract is
issued, other are due when Annuity Payments begin. It is London Pacific's
current practice to pay premium taxes when they are incurred and deduct for them
from your Contract when you make a partial or full withdrawal, when we pay a
death benefit or when you start receiving Annuity Payments. Premium taxes
generally range from 0% to 4%, depending on the state.
Income Taxes. London Pacific will deduct from the Contract for any income taxes
which it incurs because of the Contract. At the present time, we are not making
any such deductions.
Investment Option Expenses. There are deductions from and expenses paid out of
the assets of the various Investment Options, which are described in the
attached fund prospectuses.
TAXES
NOTE: London Pacific has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. London Pacific has included an additional discussion regarding
taxes in the Statement of Additional Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of contract -
qualified or non-qualified (see following sections).
You, as the owner, will not be taxed on increases in the value of your Contract
until a distribution occurs - either as a withdrawal or as Annuity Payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For Annuity Payments, different rules apply. A portion of each Annuity
Payment is treated as a partial return of your Contribution and will not be
taxed. The remaining portion of the Annuity Payment will be treated as ordinary
income. How the Annuity Payment is divided between taxable and non-taxable
portions depends upon the period over which the Annuity Payments are expected to
be made. Annuity Payments received after you have received all of your
Contributions are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract as an individual and not under an individual
retirement annuity, your Contract is referred to as a Non-Qualified Contract.
If you purchase the Contract as an individual retirement annuity, your Contract
is referred to as a qualified Contract.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Contribution. Such withdrawn
earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern with
respect to Qualified Contracts. We have provided a more complete discussion in
the Statement of Additional Information.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. London Pacific believes that the Investment Options are being
managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not London Pacific
would be considered the owner of the shares of the Investment Options. If you
are considered the owner of the shares, it will result in the loss of the
favorable tax treatment for the Contract. It is unknown to what extent Owners
are permitted to select Investment Option, to make transfers among the
Investment Options or the number and type of Investment Options Owners may
select from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
Owner of the Contract, could be treated as the Owner of the Investment Options.
Due to the uncertainty in this area, London Pacific reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
WITHDRAWALS
At any time during the Accumulation Period, you may make a partial or total
withdrawal from your Contract by Written Request (in the state of Washington,
you can also make a withdrawal on the Annuity Date). Unless you tell us
otherwise, withdrawals will be made from the Investment Options. The withdrawal
will be made prorata from the Investment Options (unless you tell us otherwise).
A partial withdrawal is taken from the value for which the free withdrawal
amount applies and then from the value which is subject to a contingent deferred
sales charge.
Each partial withdrawal must be for at least $500 (this requirement may be
waived to meet the minimum distribution requirements for Qualified Contracts).
London Pacific requires that after you make a partial withdrawal, the greater of
$2,000 or 150% of the applicable contingent deferred sales charge must remain in
your Contract (this requirement may be waived to meet the minimum distribution
requirements for Qualified Contracts). We also require that after a partial
withdrawal, at least $500 must remain in an Investment Option or the Fixed
Account.
When you make a withdrawal, you will receive the value of your Contract, less
any premium tax, less any contract maintenance charge and less any contingent
deferred sales charge. London Pacific will pay the amount of any withdrawal
within 7 days of your request unless the suspension of payments or transfer
provision is in effect (see below).
INCOME TAXES AND TAX PENALTIES MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
Systematic Withdrawal Option
You may use the Systematic Withdrawal Option which permits you to pre- authorize
automatic withdrawals. You may participate in this option if the value of your
Contract is at least $20,000 on the day you request this option. Withdrawals can
be made monthly, quarterly or semi-annually. The minimum amount you can withdraw
under the option is $100 each payment. The standard date of the month for
withdrawals is the date you request to enroll in this option. You can specify a
different date. You can stop systematic withdrawals with 30 days' written notice
to us.
Under the systematic withdrawal option, you can withdraw up to 10% of the
unliquidated Contributions as of the immediately preceding Contract anniversary
or, if during the first Contract year, as of the date your Contract is issued.
If you use the systematic withdrawal option, it replaces the free withdrawal in
the same year. Any amount you withdraw in excess of the free withdrawal amount
may be subject to the contingent deferred sales charge.
We do not currently charge for systematic withdrawals. We reserve the right to
charge for this option in the future.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
Suspension of Payments or Transfers
London Pacific may be required to suspend or postpone payments for surrenders or
transfers 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 shares of the
Investment Options is not reasonably practicable or London Pacific cannot
reasonably value the shares of the Investment Options; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners.
London Pacific reserves the right to postpone payment for a withdrawal or
transfer from the Fixed Account for a period of up to 6 months.
DEATH BENEFIT
Upon Your Death
If you or any Joint Owner die before the Annuity Date, London Pacific will pay
your Beneficiary a death benefit. Upon the death of the 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. The amount of the death benefit depends on how old the
Owner or Joint Owner is.
Prior to the Owner or oldest Joint Owner reaching age 75, the death benefit will
be the greater of:
1. the adjusted Contributions (which means your initial Contribution, plus
any subsequent Contributions less any subsequent partial withdrawals in the same
proportion that the Contract value was reduced on the date of the withdrawal);
or
2. the value of your Contract as of the day London Pacific receives at its
Annuity Service Center both proof of death and a payment method election; or
3. the value of your Contract 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 is reduced for subsequent partial withdrawals in
the same proportion that the Contract value was reduced on the date of the
withdrawal.
After Owner or the oldest Joint Owner reaches age 75 but before reaching age 85,
the death benefit will be determined in accordance with the above and will be
subject to any applicable contingent deferred sales charge determined at the
time the death benefit is paid.
After the Owner or the oldest Joint Owner reaches age 85, the death benefit will
be the value of the Contract as of the day we receive both proof of death and an
election of the payment method, less any applicable contingent deferred sales
charge determined at the time the death benefit is paid.
In certain states, the death benefit will be the value of your Contract as of
the day London Pacific receives proof of death and an election of the payment
method less any contingent deferred sales charge determined at the time the
death benefit is paid.
See Appendix B for examples of how the death benefit is calculated.
The entire death benefit must be paid within 5 years of the date of death unless
the Beneficiary elects to have the death benefit payable under an Annuity
Option. The death benefit payable under an Annuity Option must be paid over the
Beneficiary's lifetime or for a period not extending beyond the Beneficiary's
life expectancy. Payment must begin within one year of the date of death. In the
event of the death of the Owner who is not an Annuitant, if the Beneficiary is
the spouse of the Owner, he or she may elect to continue the Contract in his/her
own name at the then current Contract value.
Payment to the Beneficiary, other than a single lump sum, can only be elected
during the 60 day period beginning with the date of receipt of proof of death.
If you or a Joint Owner (who is not the Annuitant) die during the Annuity
Period, any remaining Annuity Payments will continue at least as rapidly as
under the method of distribution in effect at the 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, you may designate a new Annuitant subject to our underwriting rules then
in effect. If you do not designate a new Annuitant within 30 days of the death
of the Annuitant, you will become the Annuitant. If the Owner is a non- natural
person, the death or change of the Annuitant will be treated as the death of the
Owner and a new Annuitant may not be designated.
OTHER INFORMATION
LONDON PACIFIC
London Pacific Life & Annuity Company (London Pacific) was organized in 1927 in
North Carolina as a stock life insurance company. London Pacific was acquired
from Liberty Life in 1989. London Pacific is authorized to sell life insurance
and annuities in 40 states and the District of Columbia. London Pacific's
ultimate parent is London Pacific Group Limited, an international fund
management firm chartered in Jersey, Channel Islands.
London Pacific's financial statements appear in the SAI and should be considered
only as bearing upon London Pacific's ability to meet its obligations under the
Contracts.
YEAR 2000
London Pacific's computer systems related to variable annuity products are Year
2000 compliant. Like other variable annuity companies, London Pacific would be
adversely affected if the computer systems used by the adviser, the sub-advisers
and other service providers to the Investment Options do not properly process
and calculate data-related information and data as of and after January 1, 2000.
London Pacific believes the adviser, sub-advisers and service providers are
taking steps that they believe are reasonably designed to address the Year 2000
issue. At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact.
THE SEPARATE ACCOUNT
London Pacific established a separate account known as LPLA Separate Account One
(Separate Account) to hold the assets that underlie the Contracts. The Board of
Directors of London Pacific adopted a resolution to establish the Separate
Account under North Carolina insurance law on November 21, 1994. We have
registered the Separate Account with the SEC as a unit investment trust under
the Investment Company Act of 1940. The Separate Account is divided into
sub-accounts.
The assets of the Separate Account are held in London Pacific's name on behalf
of the Separate Account and legally belong to London Pacific. However, those
assets that underlie the Contracts, are not chargeable with liabilities arising
out of any other business London Pacific may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not gains any other contracts we may issue.
DISTRIBUTION
London Pacific Financial and Insurance Services, 1755 Creekside Oaks Drive,
Sacramento, California 96833 acts as the principal underwriter of the Contracts.
London Pacific Financial and Insurance Services is registered as a broker-dealer
with the SEC and is a member of the National Association of Securities Dealers,
Inc. London Pacific Financial and Insurance Services is an affiliate of London
Pacific. Commissions will paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid a commission, up to an amount currently equal to 7%
of Contributions for promotional or distribution expenses.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Company
Experts
Legal Opinions
Distributor
Reduction or Elimination of Contingent Deferred Sales Charge
Calculation of Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The financial statements of London Pacific and the Separate Account may be found
in the Statement of Additional Information. The table below gives per
accumulation unit information about the financial history of each sub-account of
the Separate Account for the periods indicated. There are no accumulation unit
values for the Federated Prime Money Fund II and the Federated Fund for U.S.
Government Securities II because they were first offered under the Contract on
January 25, 1999. There are no accumulation unit values for the SAI Global
Leaders Sub-Account because it was first offered under the Contract on May 1,
1999. 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>
YEAR ENDED YEAR ENDED PERIOD FROM COMMENCEMENT OF
12-31-98 12-31-97 OPERATIONS TO 12-31-96
Sub-Account
<S> <C> <C>
Unit Value at beginning of period $15.08 $12.12 $10.00
Unit value at end of period $15.50 $15.08 $12.12
No. of units outstanding at end of period 458,166 225,262 50,583
MFS Total Return
Unit value at beginning of period $13.20 $11.03 $10.00
Unit value at end of period $14.56 $13.20 $11.03
No. of units outstanding at end of period 798,518 443,010 82,279
Berkeley U.S. Quality Bond
Unit value at beginning of period $10.99 $10.15 $10.00
Unit value at end of period $11.68 $10.99 $10.15
No. of units outstanding at end of period 158,002 87,032 78,700
Berkeley Money Market
Unit value at beginning of period $10.76 $10.36 $10.00
Unit value at end of period $11.08 $10.76 $10.36
No. of units outstanding at end of period 117,712 127,652 27,763
Strong Growth
Unit value at beginning of period $15.72 $12.62 $10.00
Unit value at end of period $20.16 $15.72 $12.62
No. of units outstanding at end of period 324,168 169,389 44,555
Robertson Stephens Diversified Growth
Unit value at beginning of period $12.21 $10.35 $10.00
Unit value at end of period $14.13 $12.21 $10.35
No. of units outstanding at end of period 431,784 236,983 52,516
Lexington Corporate Leaders
Unit value at beginning of period $14.25 $11.51 $10.00
Unit value at end of period $15.72 $14.25 $11.51
No. of units outstanding at end of period 509,938 233,629 29,933
Morgan Stanley Dean Witter U.F. High Yield
Unit value at beginning of period (5/4/98) $10.00 N/A N/A
Unit value at end of period $ 9.95 N/A N/A
No. of units outstanding at end of period 39,568 N/A N/A
Morgan Stanley Dean Witter U.F. International Magnum
Unit value at beginning of period (5/4/98) $10.00 N/A N/A
Unit value at end of period $ 9.10 N/A N/A
No. of units outstanding at end of period 233,470
Morgan Stanley Dean Witter U.F. Emerging Markets Equity
Unit value at beginning of period (5/4/98) $10.00 N/A N/A
Unit value at end of period $ 6.99 N/A N/A
No. of units outstanding at end of period 7,980 N/A N/A
BT Equity 500 Index
Unit value at beginning of period (5/4/98) $10.00 N/A N/A
Unit value at end of period $10.94 N/A N/A
No. of units outstanding at end of period 155,738 N/A N/A
</TABLE>
APPENDIX B
The purpose of the examples below is to help you understand how the contingent
deferred sales charge is calculated and to show you how the death benefit is
calculated. These are just examples and may not represent your particular facts
and circumstances. The death benefit amounts in the examples below are purely
hypothetical.
I. Withdrawals and Contingent Deferred Sales Charges
EXAMPLE A - TOTAL WITHDRAWAL IN CONTRACT YEAR TWO
Example A assumes the following:
(1) Your initial Contribution was $10,000 and you selected one Investment
Option.
(2) You make a total withdrawal during the second Contract year.
(3) The value of your Contract at the time of the total withdrawal is
$10,950.
(4) You did not make any other Contributions or previous withdrawals.
The following applies to this Example:
(a) Earnings in the Contract are not subject to the contingent deferred
sales charge (CDSC). Therefore, $950 ($10,950 - $10,000 = $950) is not subject
to the CDSC.
(b) The balance of the total withdrawal of $10,000 is subject to the CDSC
applied during the second year, since the free withdrawal amount does not apply
to total withdrawals.
(c) The amount of the applicable CDSC is .07 x 10,000 = $700.
(d) The amount of the total withdrawal is $10,950 - $700 = $10,250.*
* If you make a total withdrawal on other than a Contract anniversary and
the Contract value when you make the total withdrawal is less than $50,000, then
London Pacific will deduct the full contract maintenance charge of $36 at the
time of the total withdrawal.
EXAMPLE B - PARTIAL WITHDRAWAL IN THE AMOUNT OF $3,000 IN CONTRACT YEAR TWO
We have used the same assumptions in this Example as we used in Example A except
that in this Example we assume that you made a partial withdrawal for $3,000 in
Contract year two.
(a) In a partial withdrawal, 10% of the unliquidated Contributions may be
withdrawn as a free withdrawal without the imposition of the CDSC. (10,000 x .10
= $1,000). Therefore $1,000 of the $3,000 partial withdrawal is not subject to
the CDSC.
(b) For purposes of determining the amount of the CDSC, unliquidated
Contributions are deemed to be withdrawn before earnings in the Contract.
(c) The amount of the CDSC is $140 ($2,000 x .07 = $140).
(d) In this Example, from the partial withdrawal of $3,000 you will receive
$2,860.
EXAMPLE C - PARTIAL WITHDRAWAL IMMEDIATELY FOLLOWED BY A TOTAL WITHDRAWAL
Example C assumes the following:
(1) Your initial Contribution was $10,000 and you selected one Investment
Option.
(2) You make withdrawals during the second Contract year.
(3) The value of your Contract at the time of the withdrawals is $10,950.
(4) You make a partial withdrawal of $1,000.
The following applies to the Example:
(a) As noted in Example B, the partial withdrawal of $1,000 is not subject
to the CDSC because of the 10% free withdrawal amount of $1,000. The remaining
Contract value is $9,950.
(b) For purposes of the total withdrawal you make immediately following the
partial withdrawal, your original Contribution of $10,000 is used for
calculating the CDSC because free withdrawal amounts do not reduce the
Contributions for purposes of calculating the CDSC.
(c) The amount of the CDSC is $700 (.07 x $10,000).
(d) The amount of the total withdrawal is 9,250 ($9,950 - $700).
Note: Withdrawals of income may be subject to a ten percent federal income tax
penalty if you are younger than 59 1/2 at the time you make the withdrawal.
II. Death Benefit Calculations
EXAMPLE A - OWNER AGE 65 AT DEATH; DIES DURING CONTRACT YEAR TWO
Example A assumes the following:
(1) You make a Contribution of $10,000.
(2) You die at age 65 during the second Contract year.
(3) The value of your Contract at the time of your death was $12,000.
(4) You have not made any withdrawals.
The following applies to this Example:
(a) Adjusted Contributions equal $10,000, because you have not make any
withdrawals.
(b) No seventh year stepped-up death benefit is available because death
occurred prior to the seventh year Contract anniversary.
(c) The 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) You made a single Contribution of $10,000.
(2) You die at age 65 during the tenth Contract year.
(3) The value of your Contract on the seventh Contract anniversary was
$18,000.
(4) The value of your Contract at death was $17,000.
(5) You made a withdrawal of $1,500 in the sixth Contract year at which
time the value of your Contract was $15,000 before you made the withdrawal.
The following applies to this Example:
(a) Adjusted Contributions are equal to $9,000. (At the time you made the
withdrawal the value of your Contract 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) The value of your Contract on the seventh Contract anniversary
($18,000) was greater than that at the time of your death ($17,000) and greater
than Adjusted Contributions ($9,000).
(c) The death benefit is $18,000.
EXAMPLE D - OWNER AGE 77 AT DEATH; DIES DURING CONTRACT YEAR TWO
This Example is based on the same assumptions as Example A except that in this
Example you die at age 77.
The following applies to this Example:
(a) The death benefit is $12,000 less any CDSC which applies at the time
the death benefit or any portion is withdrawn.
(b) Any applicable CDSC will be calculated as set forth under Examples of
Withdrawals and Contingent Deferred Sales Charges above.
EXAMPLE E - 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 you are 87 at the time you die.
The following applies to this Example:
(a) Since you were beyond age 85, the death benefit will be limited to the
value of your Contract, less any CDSC applicable at the time the death benefit
or any portion is withdrawn.
(b) Any applicable CDSC will be calculated as set forth under Examples of
Withdrawals and Contingent Deferred Sales Charges above.
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, 1999, 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, 1999.
TABLE OF CONTENTS
PAGE
Company..................................................................
Experts..................................................................
Legal Opinions..........................................................
Distributor..............................................................
Reduction or Elimination of Contingent Deferred Sales Charge...........
Calculation of Performance Information...................................
Federal Tax Status.......................................................
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
March 31, 1999, the initial capital contributed by the Company represented
approximately 2.33% 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, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, and the financial
statements of the Separate Account as of December 31, 1998 and for the years
ended December 31, 1998 and 1997 included in this Statement of Additional
Information have been so included in reliance on the reports of
PricewaterhouseCoopers 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.
Reduction or Elimination of the Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge (CDSC) on the Contracts may
be reduced or eliminated when sales of the Contracts are made to individuals or
to a group of individuals in a manner that results in savings of sales expenses.
The entitlement to reduction of the CDSC will be determined by the Company after
examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than for a
smaller group because of the ability to implement large numbers of Contracts
with fewer sales contacts.
2. The total amount of contributions to be received will be considered. Per
Contract sales expenses are likely to be less on larger contributions than on
smaller ones.
3. Any prior or existing relationship with the Company will be considered.
Per Contract sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with fewer
sales contacts.
4. There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the CDSC.
The CDSC may be eliminated when the Contracts are issued to an officer, director
or employee of the Company or any of its affiliates. In no event will any
reduction or elimination of the CDSC be permitted where the reduction or
elimination will be unfairly discriminatory to any person.
YIELD CALCULATION FOR THE FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
The Federated Prime Money Fund II 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 Federated Prime Money Fund II Sub-Account.
The current yield of the Federated Prime Money Fund II 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 Federated Prime Money Fund II 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 Federated Prime Money Fund II
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
Federated Prime Money Fund II 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 Federated Prime Money Fund II Sub-Account and
changes in the interest rates on such investments, but also on changes in the
Federated Prime Money Fund II Sub-Account's expenses during the period.
Yield information may be useful in reviewing the performance of the Federated
Prime Money Fund II Sub-Account and for providing a basis for comparison with
other investment alternatives. However, the Federated Prime Money Fund II
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 also 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 and Contingent
Deferred Sales Charges.
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
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.
Chart 1 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. Chart 2 is identical to Chart 1 except that
it does not reflect the deduction of the Contingent Deferred Sales Charge.
<TABLE>
<CAPTION>
CHART 1
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/98
<S> Separate Account <C> <C>
Sub-Account Inception Date 1 Year Since Inception
- ------------ -------------- --------- ----------------
Harris Associates 2/9/96 (4.37)% 14.09%
MFS Total Return 2/9/96 3.16% 11.72%
Robertson Stephens Diversified 2/9/96 8.57% 10.29%
Growth
Lexington Corporate Leaders 2/9/96 3.19% 14.29%
Strong Growth 2/9/96 21.38% 23.67%
Morgan Stanley Dean Witter U.F.
High Yield 5/4/98 N/A (7.61)%
Morgan Stanley Dean Witter U.F.
International Magnum 5/4/98 N/A (16.17)%
Morgan Stanley Dean Witter U.F.
Emerging Markets Equity 5/4/98 N/A (37.27)%
BT Equity 500 Index 5/4/98 N/A 2.26%
</TABLE>
<TABLE>
<CAPTION>
CHART 2
Sub-Account Inception Date 1 Year Since Inception
- ------------ --------------- --------- ----------------
<S> <C> <C> <C> <C>
Harris Associates 2/9/96 2.63% 15.69%
MFS Total Return 2/9/96 10.16% 13.38%
Robertson Stephens Diversified 2/9/96 15.57% 11.99%
Growth
Lexington Corporate Leaders 2/9/96 10.19% 15.88%
Strong Growth 2/9/96 28.38% 25.04%
Morgan Stanley Dean Witter U.F.
High Yield 5/4/98 N/A (0.61)%
Morgan Stanley Dean Witter U.F.
International Magnum 5/4/98 N/A (9.17)%
Morgan Stanley Dean Witter U.F.
Emerging Markets Equity 5/4/98 N/A (30.27)%
BT Equity 500 Index 5/4/98 N/A 9.26%
</TABLE>
In addition to total return data, the Company may include yield information in
its advertisements. For each Sub-Account (other than the Federated Prime Money
Fund II 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
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.
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.
You 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 your total return or yield may be in any future period.
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. For purposes of this
rule, contracts received in a Section 1035 exchange will be considered issued in
the year of the exchange. 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); or d) hardship withdrawals.
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.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
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.
Individual Retirement Annuities
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 taxable 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.
Roth IRA
Section 408A of the Code provides that 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 and are not
deductible from taxable income. 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 and 408A (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).
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
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.
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 Payments" (The Annuity Period) in the Prospectus.)
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
LPLA SEPARATE ACCOUNT ONE
FINANCIAL STATEMENTS
CONTENTS
Audited Financial Statements
Statement of Assets and Liabilities............................... 1-2
Statement of Operations........................................... 3-4
Statement of Changes in Net Assets................................ 5-7
Notes to Financial Statements..................................... 8-11
Report of Independent Accountants................................. 12
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
Harris MFS Berkeley
Associates Total U.S. Berkeley Money International Strong
Value Return Quality Bond Market Stock Growth
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account (1) Sub-Account
----------- ----------- ----------- ----------- --------------- -----------
Assets
Investments in the LPT Variable
<S> <C> <C> <C> <C> <C> <C>
Insurance Series Trust $7,222,833 $11,765,590 $1,978,446 $1,304,175 0 $6,846,120
Investments in the BT Insurance
Funds Trust 0 0 0 0 0 0
Investments in Morgan Stanley
Dean Witter U.F., Inc. 0 0 0 0 0 0
--------- ---------- -------- --------- - ---------
Total Assets 7,222,833 11,765,590 1,978,446 1,304,175 0 6,846,120
--------- ---------- --------- --------- - ---------
Liabilities
Amounts retained by London
Pacific Life & Annuity in LPLA
Separate Account One 128,470 137,884 132,804 0 0 320,669
------- ------- ------- - - -------
Total Liabilities 128,470 137,884 132,804 0 0 320,669
------- ------- ------- - - -------
Net Assets Attributable to
Contract Owners $7,094,363 $11,627,706 $1,845,642 $1,304,175 0 $6,525,451
========= ========== ========= ========= = =========
Unit Value $15.50 $14.56 $11.68 $11.08 0 $20.16
===== ===== ===== ===== = =====
Units Outstanding 457,647 798,518 158,002 117,712 0 323,694
======= ======= ======= ======= = =======
<FN>
(1) Formerly Strong International Stock Sub-Account
</FN>
</TABLE>
(Continued on next page)
See Notes to Financial Statements
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 1998
Morgan Stanley
Lexington Morgan Stanley Dean Witter U.F. Morgan Stanley
Robertson Stephens Corporate BT Equity Dean Witter U.F. Emerging Dean Witter U.F.
Diversified Growth Leaders 500 Index International Magnum Markets Equity High Yield
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
----------- ----------- ----------- ----------- ----------- -----------
Assets
Investments in the LPT Variable
<S> <C> <C> <C> <C> <C> <C>
Insurance Series Trust $6,257,633 $8,168,740 0 0 0 0
Investments in the BT Insurance
Funds Trust 0 0 $1,731,196 0 0 0
Investments in Morgan Stanley
Dean Witter U.F., Inc. 0 0 0 $2,146,644 $73,234 $418,714
--------- --------- --------- --------- ------ -------
Total Assets 6,257,633 8,168,740 1,731,196 2,146,644 73,234 418,714
--------- --------- --------- --------- ------ -------
Liabilities
Amounts retained by London
Pacific Life & Annuity in LPLA
Separate Account One 165,333 161,599 27,351 22,743 17,470 24,883
------- ------- ------ ------ ------ ------
Total Liabilites 165,333 161,599 27,351 22,743 17,470 24,883
------- ------- ------ ------ ------ ------
Net Assets Attributable to
Contract Owners $6,092,300 $8,007,141 $1,703,845 $2,123,901 $55,764 $393,831
========= ========= ========= ========= ====== =======
Unit Value $14.13 $15.72 $10.94 $9.10 $6.99 $9.95
===== ===== ===== ==== ==== ====
Units Outstanding 431,127 509,410 155,738 233,470 7,980 39,568
======= ======= ======= ======= ===== ======
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Harris MFS Berkeley
Associates Total U.S. Berkeley Money International Strong
Value Return Quality Bond Market Stock Growth
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account (1) Sub-Account
----------- ----------- ----------- ----------- --------------- -----------
Income and Expenses
Income:
Dividends from the LPT Variable
<S> <C> <C> <C> <C> <C> <C>
Insurance Series Trust 0 $38,091 0 $80,328 $2,702 $194,821
Dividends from BT Insurance
Funds Trust 0 0 0 0 0 0
Dividends from Morgan Stanley
Dean Witter U.F., Inc. 0 0 0 0 0 0
Expenses:
Mortality and other expenses $85,441 137,660 $23,432 26,846 13,189 69,327
------ ------- ------ ------ ------ ------
Net investment income (85,441) (99,569) (23,432) 53,482 (10,487) 125,494
------- ------- ------- ------ ------- -------
Realized and Unrealized Gain
(Loss ) on Investments
Net realized gain (loss) on sales
of investments 111,115 100,795 24,347 0 (17,373) 44,914
------- ------- ------ - ------- ------
Net unrealized appreciation
(depreciation ) on investments
Beginning of period (26,304) 257,270 3,760 0 (203,633) (22,600)
End of period 14,999 1,083,136 96,589 0 0 1,148,680
------ --------- ------ - - ---------
Net unrealized appreciation
(depreciation) during period 41,303 825,866 92,829 0 203,633 1,171,280
------ ------- ------ - ------- ---------
Net Realized and Unrealized Gain
(Loss) on Investments 152,418 926,661 117,176 0 186,260 1,216,194
------- ------- ------- - ------- ---------
Net Increase (Decrease) in Net
Assets Resulting from Operations $66,977 $827,092 $93,744 $53,482 $175,773 $1,341,688
====== ======= ====== ====== ======= =========
<FN>
(1) Formerly Strong International Stock
Sub-Account
</FN>
</TABLE>
(Continued on next page)
See Notes to Financial Statements
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
Morgan Stanley
Lexington Morgan Stanley Dean Witter U.F. Morgan Stanley
Robertson Stephens Corporate BT Equity Dean Witter U.F. Emerging Dean Witter U.F.
Diversified Growth Leaders 500 Index International Magnum Markets Equity High Yield
Sub-Account Sub-Account Sub-Account(2) Sub-Account(2) Sub-Account(2) Sub-Account(2)
----------- ----------- ----------- ----------- ----------- -----------
Income and Expenses
Income:
Dividends from the LPT Variable
<S> <C> <C> <C> <C> <C> <C>
Insurance Series Trust 0 $14,110 0 0 0 0
Dividends from BT Insurance
Funds Trust 0 0 $43,968 0 0 0
Dividends from Morgan Stanley
Dean Witter U.F., Inc. 0 0 0 $11,335 $456 $27,873
Expenses:
Mortality and other expenses $71,773 90,079 5,895 13,883 619 3,448
------ ------ ----- ------ --- -----
Net investment income (71,773) (75,969) 38,073 (2,548) (163) 24,425
------- ------- ------ ------ ---- ------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on sales
of investments 55,700 59,981 15,691 (10,481) (5,470) 29,538
------ ------ ------ ------- ------ ------
Net unrealized appreciation
(depreciation) on investments
Beginning of period 344,221 (46,190) 0 0 0 0
End of period 1,196,899 512,465 166,882 (110,842) (8,716) (7,607)
--------- ------- ------- -------- ------ ------
Net unrealized appreciation
(depreciation) during period 852,678 558,655 166,882 (110,842) (8,716) (7,607)
------- ------- ------- -------- ------ ------
Net Realized and Unrealized
Gain (Loss) on Investments 908,378 618,636 182,573 (121,323) (14,186) 21,931
------- ------- ------- -------- ------- ------
Net Increase (Decrease)in Net
Assets Resulting from Operations $836,605 $542,667 $220,646 $(123,871) $(14,349) $46,356
======= ======= ======= ======== ======= ======
<FN>
(2) For the period May 4, 1998 (inception date) to December 31, 1998
</FN>
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
Harris MFS Berkeley
Associates Total U.S. Berkeley Money International Strong
Value Return Quality Bond Market Stock Growth
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account (1) Sub-Account
----------- ----------- ----------- ----------- --------------- -----------
Increase (Decrease) in Net Assets
from Operations
<S> <C> <C> <C> <C> <C> <C>
Net investments income $(85,441) $(99,569) $(23,432) $53,482 $(10,487) $125,494
Net realized gain (loss) on sales
of investments 111,115 100,795 24,347 0 (17,373) 44,914
Net unrealized appreciation
(depreciation) during the year 41,303 825,866 92,829 0 203,633 1,171,280
------ ------- ------ - ------- ---------
Net increase (decrease) in net assets
resulting from operations 66,977 827,092 93,744 53,482 175,773 1,341,688
------ ------- ------ ------ ------- ---------
Contract Related Transactions
Net premiums 1,311,201 1,879,093 624,534 14,104,609 70,916 942,178
Benefits and contract charges (384,443) (614,365) (52,116) (72,987) (61,285) (286,584)
Transfers between Sub-Accounts
(including fixed account),
net 2,706,447 3,700,606 230,386 (14,154,086) (1,435,482) 1,936,612
--------- --------- ------- ----------- ---------- ---------
Net increase in net assets
resulting from contract
related transactions 3,633,205 4,965,334 802,804 (122,464) (1,425,851) 2,592,206
--------- --------- ------- -------- ---------- ---------
Change in amount retained by
London Pacific Life & Annuity
LPLA Separate Account One, net (3,470) (12,884) (7,803) 0 113,617 (70,669)
------ ------- ------ - ------- -------
Increase (Decrease)in Net Assets 3,696,712 5,779,542 888,745 (68,982) (1,136,461) 3,863,225
Net Assets, Beginning of Period 3,397,651 5,848,164 956,897 1,373,157 1,136,461 2,662,226
--------- --------- ------- --------- --------- ---------
Net Assets, End of Period $7,094,363 $11,627,706 $1,845,642 $1,304,175 $0 $6,525,451
========= ========== ========= ========= = =========
<FN>
(1)Formerly Strong International Stock Sub-Account
</FN>
</TABLE>
(Continued on next page)
See Notes to Financial Statements
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
Morgan Stanley
Lexington Morgan Stanley Dean Witter U.F. Morgan Stanley
Robertson Stephens Corporate BT Equity Dean Witter U.F. Emerging Dean Witter U.F.
Diversified Growth Leaders 500 Index International Magnum Markets Equity High Yield
Sub-Account Sub-Account Sub-Account(2) Sub-Account(2) Sub-Account(2) Sub-Account(2)
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets
from Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income $(71,773) $(75,969) $38,073 $(2,548) $(163) $24,425
Net realized gain (loss) on
sales of investments 55,700 59,981 15,691 (10,481) (5,470) 29,538
Net unrealized appreciation
(depreciation)during the year 852,678 558,655 166,882 (110,842) (8,716) (7,607)
------- ------- ------- -------- ------ ------
Net increase(decrease) in net assets
resulting from operations 836,605 542,667 220,646 (123,871) (14,349) 46,356
------- ------- ------- -------- ------- ------
Contract Related Transaction:
Net premiums 1,068,730 1,521,553 243,108 230,477 17,687 311,229
Benefits and contract charges(329,799) (328,127) (135,660) (62,419) (805) (99,190)
Transfers between Sub-Accounts
(including fixed account),
net 1,639,033 2,979,341 1,403,101 2,102,457 70,702 160,319
--------- --------- --------- --------- ------ -------
Net increase in net assets
resulting from contact
related transactions 2,377,964 4,172,767 1,510,549 2,270,515 87,584 372,358
--------- --------- --------- --------- ------ -------
Change in amount retained by
London Pacific Life & Annuity
LPLA Separate Account One,
net (16,335) (36,598) (27,350) (22,743) (17,471) (24,883)
------- ------- ------- ------- ------- -------
Increase (Decrease) in
Net Assets 3,198,234 4,678,836 1,703,845 2,123,901 55,764 393,831
Net Assets, Beginning
of Period 2,894,066 3,328,305 0 0 0 0
--------- --------- - - - -
Net Assets, End of Period $6,092,300 $8,007,141 $1,703,845 $2,123,901 $55,764 $393,831
========= ========= ========= ========= ====== =======
<FN>
(2) For the period May 4, 1998 (inception date) to December 31, 1998
</FN>
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
LPLA SEPARATE ACCOUNT ONE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
Berkeley Strong
Harris MFS Total U.S. Berkeley International
Associates Value Return Quality Bond Money Market Stock
Sub-Account (1) Sub-Account Sub-Account(2) Sub-Account(3) Sub-Account
--------------- ----------- -------------- -------------- -----------
Increase (Decrease) in Net Assets
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 (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
</FN>
</TABLE>
See Notes to Financial Statements
<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
Sub-Account Sub-Account (4) Sub-Account
----------- --------------- -----------
Increase (Decrease) in Net Assets
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 (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>
(4) Formerly Berkeley Smaller Companies Sub-Account
</FN>
</TABLE>
See Notes to Financial Statements
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 in a corresponding investment portfolio of: (1)
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; (2) the BT Insurance Funds Trust; or (3) Morgan
Stanley Dean Witter Universal Funds, Inc. (collectively, the "Trusts").
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. Prior to June 1, 1998, the International
Stock Sub-Account was known as the Strong International Stock Sub-Account. The
International Sub-Account was liquidated on October 31, 1998.
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 Trusts. Realized gains and losses on
sales of shares of the Trusts 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 Trusts.
Federal Income Taxes - Operations of the Separate Account are included in the
income tax return of the Company, which is taxed as a life insurance company
under the Internal Revenue Code. The Separate Account will not be taxed as a
registered investment company under Sub-Chapter M of the Internal Revenue Code.
Under existing federal income tax law, no taxes are payable on the investment
income or on the capital gains of the Separate Account.
NOTE 3 - Investments
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trusts at December 31,1998 were as follows:
<TABLE>
<CAPTION>
Net Asset Value
Investment Sub-Account Shares Cost Per Share
- ---------------------- ------ ---- ---------
<S> <C> <C> <C>
Harris Associates Value 514,791 $7,207,834 $14.03
MFS Total Return 823,663 10,682,454 14.28
Berkeley U.S. Quality Bond 185,153 1,881,857 10.69
Berkeley Money Market 1,304,175 1,304,175 1.00
Strong Growth 402,026 5,697,440 17.03
Robertson Stephens Diversified Growth 521,422 5,060,734 12.00
Lexington Corporate Leaders 545,704 7,656,275 14.97
BT Equity 500 Index 135,993 1,564,314 12.73
Morgan Stanley Dean Witter U.F. International Magnum 191,153 2,257,486 11.23
Morgan Stanley Dean Witter U.F. Emerging Markets Equity 10,300 81,950 7.11
Morgan Stanley Dean Witter U.F. High Yield 40,455 426,321 10.35
</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, 1998 were as
follows:
<TABLE>
<CAPTION>
Units Units Units Net
Investment Sub-Account Purchased Transferred Redeemed Change
- ---------------------- --------- ----------- -------- ------
<S> <C> <C> <C> <C>
Harris Associates Value 87,725 170,013 (25,353) 232,385
MFS Total Return 134,884 265,201 (44,577) 355,508
Berkeley U.S. Quality Bond 54,496 21,017 (4,543) 70,970
Berkeley Money Market 1,295,765 (1,298,833) (6,872) (9,940)
International Stock 7,248 (123,674) (6,065) (122,491)
Strong Growth 56,265 115,358 (17,317) 154,306
Robertson Stephens Diversified Growth 89,990 131,337 (27,183) 194,144
Lexington Corporate Leaders 103,457 194,009 (21,685) 275,781
BT Equity 500 Index 24,415 144,321 (12,998) 155,738
Morgan Stanley Dean Witter U.F. International Magnum 24,991 215,645 (7,166) 233,470
Morgan Stanley Dean Witter U.F. Emerging Markets Equity 2,670 5,418 (108) 7,980
Morgan Stanley Dean Witter U.F. High Yield 32,182 17,334 (9,948) 39,568
</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 Trusts shares by the Separate
Account during the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Investment Sub-Account Purchases Sales
- ---------------------- --------- -----
<S> <C> <C>
Harris Associates Value $4,362,618 $814,854
MFS Total Return 5,385,507 519,742
Berkeley U.S. Quality Bond 1,116,585 337,213
Berkeley Money Market 10,069,719 10,138,701
International Stock 367,299 1,803,637
Strong Growth 3,068,321 350,621
Robertson Stephens Diversified Growth 2,675,347 369,156
Lexington Corporate Leaders 4,387,183 290,385
BT Equity 500 Index 1,862,527 313,905
Morgan Stanley Dean Witter U.F. International Magnum 2,362,145 94,178
Morgan Stanley Dean Witter U.F. Emerging Markets Equity 100,272 12,851
Morgan Stanley Dean Witter U.F. High Yield 1,088,977 692,194
</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, International Stock, Strong Growth, Robertson Stephens Diversified
Growth , Lexington Corporate Leaders, BT Equity 500 Index, Morgan Stanley Dean
Witter U.F. International Magnum, Morgan Stanley Dean Witter U.F. Emerging
Markets Equity and Morgan Stanley Dean Witter U.F. High Yield) constituting LPLA
Separate Account One at December 31, 1998, the results of each of their
operations 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, 1998 by correspondence with the
Trusts, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 6, 1999
London Pacific Life & Annuity Company
(A wholly-owned subsidiary of London Pacific Group Limited)
Statutory Basis Financial Statements
Years ended December 31, 1998, 1997 and 1996
Contents
Report of Independent Accountants......................................... 1
Audited Financial Statements
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus. 3
Statutory Statements of Operations........................................ 4
Statutory Statements of Changes in Capital and Surplus.................... 5
Statutory Statements of Cash Flows........................................ 6-7
Notes to Statutory Financial Statements................................... 8-19
Supplementary Information
Report of Independent Accountants on Supplemental Schedule of
Assets and Liabilities................................................... 21
Schedule 1 - Supplemental Schedule of Assets and Liabilities.............. 22-24
Report of Independent Accountants
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, 1998
and 1997, 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, 1998. 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.
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, 1998
and 1997, or the results of its operations or its cash flows for each of the
three years in the period ended December 31, 1998 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.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
January 29, 1999
<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,
------------
1998 1997
---- ----
Assets
Investments:
<S> <C> <C>
Bonds $ 1,079,610,476 $ 1,157,095,942
Preferred stock 115,693,328 51,262,033
Common stock 46,252,918 8,477,904
Short-term investments 19,251,573 11,694,690
Policy loans 9.829,719 8,487,559
Other invested assets 20,683,278 -
Receivable for securities 66,995 21,836,311
------ ----------
Total investments 1,291,388,287 1,258,854,439
------------- -------------
Cash 2,704,561 3,347,694
--------- ---------
Total cash and invested assets 1,294,092,848 1,262,202,133
Investment income due and accrued 18,769,336 16,790,319
Electronic data processing equipment, net 69,265 185,870
Receivable from affiliates 6,089 11,503
Other assets 24,123,109 696,682
Separate account assets 47,913,325 22,609,542
---------- ----------
Total assets $1,384,973,972 $1,302,496,049
============== ==============
Liabiliites, Capital and Surplus
Aggregate reserves for life policies and contracts $1,200,939,291 $1,132,728,673
Policy and contract claims 456,424 354,014
Accrued dividends to policyholders 436,814 433,099
Interest maintenance reserve 18,326,723 17,684,781
Federal income taxes (refundable) payable (1,733,125) 3,283,673
Remittances and items not allocated 1.373,171 419,689
Asset valuation reserve 39,037,080 24,184,363
Payable to affiliates 381,529 720,136
Amounts due to broker-dealers - 20,558,221
Accounts payable, accrued expenses and other liabilities 1,445,232 1,184,201
Transfers to separate account, net (2,778,943) (1,330,627)
Separate account liabilities 46,774,118 21,596,927
---------- ----------
Total liabilities $1,304,658,314 $1,221,817,150
============== ==============
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 7,921,538 8,284,779
--------- ---------
Total capital and surplus 80,315,658 80,678,899
---------- ----------
Total liabilities, capital and surplus $1,384,973,972 $1,302,496,049
============== ==============
</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,
-----------------------
1998 1997 1996
---- ---- ----
Revenues
Insurance premiums and annuity
<S> <C> <C> <C>
considerations $218,217,846 $176,547,838 $137,499,919
Net investment income 89,420,046 88,797,926 91,013,416
Amortization of interest maintenance reserve 2,054,884 2,306,437 683,806
Net gain from operations from separate account 126,592 133,043 120,319
Other income 821,309 552,225 287,470
------- ------- -------
Total revenues 310,640,677 268,337,469 229,604,930
----------- ----------- -----------
Benefits and expenses
Policyholder benefits and changes in reserve 263,063,811 226,126,436 196,153,897
Commissions 14,474,451 11,156,421 8,531,145
Net transfer to separate account 19,809,661 14,607,074 4,175,745
Other operating expenses 11,529,486 11,819,652 12,844,370
---------- ---------- ----------
Total benefits and expenses 308,877,409 263,709,583 221,705,157
----------- ----------- -----------
Gain from operations before dividends to
policyholders, federal income taxes and
net realized capital gains (losses) 1,763,268 4,627,886 7,899,773
Dividends to policyholders 866,445 930,165 915,864
------- ------- -------
Gains from operations, before federal income taxes
and net realized capital gains (losses) 896,823 3,697,721 6,983,909
Federal income tax expense (benefit) (excluding
tax on capital gains (losses)) (2,300,416) (2,212,021) 991,257
---------- ---------- -------
Gain from operations before net realized capital
gains (losses) 3,197,239 5,909,742 5,992,652
Net realized capital gains (losses), less capital gains
tax of $2,757,516, $4,852,562 and $4,617,743
and excluding $2,696,826, $8,322,727, and
$1,976,127 transferred to the IMR in 1998, 1997
and 1996, respectively. (3,063,974) 1,044,541 988,636
---------- --------- -------
Net income $ 133,265 $ 6,954,283 $ 6,981,288
========== ============ ============
</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>
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
Net income 133,265 133,265
Increase in unrealized capital gains 20,246,568 20,246,568
Decrease in non-admitted assets 9,643 9,643
Increase in asset valuation reserve (14,852,717) (14,852,717)
Dividends to stockholder (5,900,000) (5,900,000)
---------- ------------ ---------- ----------
Balance as of December 31, 1998 $2,000,000 $ 70,394,120 $ 7,921,538 $ 80,315,658
========== ============ =========== ============
</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,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash provided by:
Premiums and annuity considerations
collected $ 218,217,846 $ 176,547,838 $137,499,919
Investment income received (excluding
realized gains/losses and net of investment
expenses) 80,811,293 84,805,153 95,583,016
Other income received 821,309 552,390 287,305
------- ------- -------
Total cash provided by operations 299,850,448 261,905,381 233,370,240
----------- ----------- -----------
Cash used for:
Life and accident and health claims paid 894,411 1,266,207 832,760
Surrender benefits and other fund
withdrawals paid 140,910,187 136,308,194 110,213,086
Other benefits to policyholders paid 52,946,186 53,647,576 54,325,262
---------- ---------- ----------
194,750,784 191,221,977 165,371,108
----------- ----------- -----------
Commissions and other expenses paid 25,731,833 23,639,673 20,570,531
---------- ---------- ----------
Net transfers to separate account 21,257,977 15,431,650 5,441,049
Dividends to policyholders paid 862,730 919,396 1,020,952
Federal income taxes (recoverable) paid
(excluding tax on capital gains) 2,716,382 (1,497,477) (999,143)
--------- ---------- --------
Total cash used for operations 245,319,706 229,715,219 191,404,497
----------- ----------- -----------
Net cash provided by operations 54,530,742 32,190,162 41,965,743
---------- ---------- ----------
Proceeds from investments sold, matured or
repaid:
Bonds 645,481,099 758,322,204 651,187,776
Stocks 29,082,052 23,444,566 105,201,117
Other proceeds - 1,403,827 15,922
---------- --------- ------
674,563,151 783,170,597 756,404,815
Tax on capital gains (2,757,516) (4,825,562) (4,617,743)
---------- ---------- ----------
Total investment proceeds 671,805,635 778,345,035 751,787,072
----------- ----------- -----------
</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,
-----------------------
1998 1997 1996
---- ---- ----
Cost of investments acquired:
<S> <C> <C> <C>
Bonds 588,146,927 762,123,622 735,812,956
Stocks 81,870,393 59,641,808 112,429,288
Other invested assets 20,683,278 - -
Miscellaneous other - 709,824 52,218
---------- ------- ------
Total investments acquired 690,700,598 822,475,254 848,294,462
Net increase in policy loans 1,342,160 2,192,748 1,838,835
--------- --------- ---------
Net cash from investments (20,237,123) (46,322,967) (98,346,225)
----------- ----------- -----------
Cash from financing and miscellaneous
sources:
Capital and surplus paid in - - 22,000,000
Other cash provided 1,130,513 32,627,192 116,248,250
Dividends to stockholder paid (5,900,000) (5,992,000) -
Other cash applied (22,610,382) (111,717,985) (40,021,732)
----------- ------------ -----------
Net cash from financing and
miscellaneous sources (27,379,869) (85,082,793) 98,226,518
----------- ----------- ----------
Net change in cash and short-term investments 6,913,750 (99,215,598) 41,846,036
--------- ----------- ----------
Cash and short-term investments:
Beginning of year 15,042,384 114,257,982 72,411,946
---------- ----------- ----------
End of year $ 21,956,134 $ 15,042,384 $ 114,257,982
============ ============ =============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 5,551,869 $ 3,381,115 $ 3,664,978
</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, Oklahoma 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, 1998, the
carrying value of the Company's investment in subsidiaries was $13,092,025.
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, 1998, 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.
Electronic data processing equipment
Electronic data processing equipment is recorded at cost, net of accumulated
depreciation of $2,198,459 and $2,000,381 at December 31, 1998 and 1997.
Depreciation is provided using the straight-line method over the estimated
useful life of five years. Depreciation expense amounted to $198,078, $217,118
and $272,204 for the years ended December 31, 1998, 1997 and 1996.
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 $324,472 and $243,843 related to death benefits
payable on life and annuity contracts have been accrued at December 31, 1998 and
1997. The remaining policy and contract claims of $131,952 and $110,171 at
December 31, 1998 and 1997 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.
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.
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. Non-Admitted Assets
Certain assets, designated as non-admitted assets, have been excluded from
admitted assets and charged against capital and surplus as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Invested assets $151,723 $5,557,783
Electronic data processing equipment 393,216 244,471
Furniture and equipment 206,690 274,564
Other 30,021 120,535
------ -------
Total Non-Admitted Assets $781,650 $6,197,353
======== ==========
</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, 1998, 1997 and 1996 totaling $0, $0 and $22,000,000,
respectively, principally in the form of investments and related accrued
interest. During 1998, the Company made a $6,529,494 capital contribution to the
Marketing Company in the form of a debt security.
Expenses
The Company receives investment advisory services under the terms of an
investment management agreement with Berkeley Institutional Investment, Inc.
(BIII), an affiliate. Fees charged to the Company under the agreement amounted
to $5,824,767, $5,742,889 and $5,578,673 during the years ended December 31,
1998, 1997, and 1996, 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,
1998, 1997, and 1996, the Company paid $535,581, $745,344 and $87,060,
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 years ended December 31, 1998,
1997, and 1996, the Company paid commissions of $12,740,349, $9,905,064 and
$8,261,301, respectively, to the Marketing Company (and the Marketing Company
paid commissions to agents of approximately $12,740,349, $9,905,064 and
$8,261,301, respectively).
The Company has payables to affiliates of $381,529 and $720,136 at December 31,
1998 and 1997, respectively, relating to these transactions.
The Company leases certain office space and equipment to Select Advisors, Inc.,
("Select"), an affiliate. During 1998 and 1997, the Company received rental
income of $290,871 and $188,994, respectively, 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>
Hybrid Networks, Inc: 12%, due 4/2002 4-30-98 $5,500,000 BGSL
Continuus Software Co.; 12%, due 9/2002 8-10-98 6,000,000 BGSL
$11,500,000
Equities
--------
Adeza Biomedical Corp., Series 1 4-30-98 $500,000 BGSL
Dispositions
Bonds Transfer Date Consideration To
----- ------------- ------------- --
Continuus Software Co.; 12%, due 9/2002 4-30-98 $6,000,000 BGSL
PGI,Inc.; 12%, due 5/2002 12-31-98 12,000,000 BGSL
$18,000,000
Equities
--------
Vina Technologies,Inc.; Series B & C 12-31-98 $11,380,692 BGSL
</TABLE>
As of December 31, 1998, the Company had investments in bonds issued by
affiliates as follows:
<TABLE>
<CAPTION>
Statement
Issuer Coupon Maturity Value
------ ------ -------- -----
<S> <C> <C> <C>
Catalina Furniture Company 13.00% 06/02 $ 4,000,000
Select Advisors, Inc. 7.00% 11/99 $ 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 5.25% for 1998 issues and 5.50% for 1997 and 1996 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
6.25% for 1998 and 6.75% for 1997 and 1996.
The withdrawal characteristics of annuity actuarial reserves and deposit
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Subject to discretionary withdrawal with
<S> <C> <C> <C> <C>
Market value adjustment $4,778,568 0.40% $ - 0.00%
Subject to discretionary withdrawal at book
value less surrender charge of 5% or more 579,276,921 48.48% 465,856,317 42.21%
Subject to discretionary withdrawal at book
value less surrender charge greater than
0% but less than 5% 448,254,936 37.53% 467,548,853 42.36%
Subject to discretionary withdrawal at book
value with no surrender charge 19,839,689 1.66% 18,944,526 1.72%
Not subject to discretionary withdrawal 142,571,259 11.93% 151,396,771 13.71%
----------- ----- ----------- -----
$1,194,721,373 100% $1,103,746,467 100%
============== === ============== ===
</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, 1998 December 31, 1997
----------------- -----------------
Statement Percent Statement Percent
NAIC Category Value of Total Value of Total
------------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C>
1 - Highest quality $ 428,372,871 39.68% $ 635,602,909 54.93%
2 - High quality 470,345,693 43.57 362,777,042 31.35
3 - Medium quality 94,990,427 8.80 76,456,905 6.61
4 - Low quality 49,381,718 4.57 58,310,711 5.04
5 - Lower quality 36,519,767 3.38 13,267,848 1.15
6 - Debt securities in or
near default 10,680,527 0.92
-------------- ---- ---------- ----
$1,079,610,476 100% $1,157,095,942 100%
============== === ============== ===
</TABLE>
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, 1998 Amortized Cost Gains Losses Fair Value
----------------- -------------- ----- ------ ----------
U.S. Government
<S> <C> <C> <C> <C>
obligations $ 3,219,914 $ 229,186 $ - $ 3,449,100
Obligations of states
and political subdivisions 5,265,374 143,104 - 5,408,478
Corporate securities 781,196,584 6,525,279 ( 14,240,334) 773,481,529
Other debt securities 47,810,342 36,745 ( 292) 47,846,795
Mortgage-backed securities 242,118,262 - - 242,118,262
----------- ----------- ------------ -----------
$1,079,610,476 $ 6,934,314 ($14,240,626) $1,072,304,164
============== =========== ============ ==============
</TABLE>
<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>
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, 1998 and
1997, the fair value of investments in debt securities includes
$511,199,170 and $823,054,516, 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, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
prepayment penalties.
A summary of the cost or amortized cost and fair value of the Company's
investment in debt securities at December 31, 1998, by contractual
maturity, is as follows:
<TABLE>
<CAPTION>
Cost or
Maturity: Amortized Cost Fair Value
--------- -------------- ----------
<S> <C> <C> <C>
In 1999 $ 10,233,282 $ 10,287,954
In 2000-2003 187,647,331 188,168,207
In 2004-2008 328,666,904 324,251,852
After 2008 310,944,697 307,477,889
Mortgage-backed securities 242,118,262 242,118,262
----------- -----------
Total $1,079,610,476 $1,072,304,164
============== ==============
</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, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Proceeds from sales $645,481,099 $758,322,204 $651,187,776
Gross realized gains $ 7,688,430 $13,454,190 $13,725,509
Gross realized losses $ 9,091,536 $ 1,537,996 $ 9,195,257
</TABLE>
At December 31, 1998, debt securities with an admitted asset value of
$10,159,944 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
---- ----- ------ -----
At December 31, 1998
<S> <C> <C> <C> <C>
Preferred stocks $73,836,981 $ - $ - $ 73,836,981
Common stocks 26,789,515 21,836,620 (2,373,217) 46,252,918
---------- ---------- ---------- ----------
Total $100,626,496 $ 21,836,620 ($2,373,217) $120,089,899
============ ============ =========== ============
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
=========== =========== =========== ============
</TABLE>
8. Investment Income
An analysis of the Company's net investment income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest on debt securities $84,560,205 $91,803,407 $94,149,963
Interest on short-term investments 576,053 1,840,299 787,618
Interest on cash on hand and on deposit 231,075 268,480 375,723
Equity in undistributed earnings of subsidiaries 5,590,498 37,168 (39,151)
Other investment income 5,036,371 1,696,372 1,532,466
--------- --------- ---------
Gross investment income 95,994,202 95,645,726 96,806,619
Less investment expenses (6,574,157) (6,847,800) (5,793,203)
---------- ---------- ----------
Net investment income $89,420,045 $88,797,926 $91,013,416
=========== =========== ===========
</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, 1998 and 1997 totaled $41,489,000 and $42,496,000
or 11.4% and 11.2% 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 1999 without the
Insurance Commissioner's approval is $3,197,239.
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, 1998, 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, 1998, 1997 and 1996 was to
defer total net capital gains of $20,381,606, $19,991,216 and $12,352,297,
respectively, and to recognize $2,054,884, $2,306,437 and $683,806,
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, 1998 December 31, 1997
--------------------- -------------------- -------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------------- -------------------- -------------------- ---------------------
Assets:
<S> <C> <C> <C> <C>
Debt securities $ 1,079,610,476 $1,076,633,837 $ 1,157,095,942 $1,171,666,397
Redeemable preferred
stock $ 41,856,347 $ 40,283,550 $ 9,907,031 $ 10,607,958
Liabilities:
Insurance and annuity
reserves $ 1,195,553,184 $1,216,367,799 $1,130,22 1,744 $1,149,093,067
</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, 1998, the Company held unrated or less-than-investment
grade corporate bonds of $181,851,912. Those holdings amounted to 16.8% of
the Company's investments in bonds and less than 13.6% 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
----------------------
1998 1997
---- ----
<S> <C> <C>
Transfers to separate account $23,664,751 $16,973,122
Transfers from separate account 4,417,686 2,527,210
Net transfers to or (from) separate account 19,247,065 14,445,912
---------- ----------
Reconciling Adjustments: Mortality & Expense Fees 562,596 161,162
------- -------
Transfers as reported in the Statutory Summary of Operations
of the Company $19,809,661 $14,607,074
=========== ===========
</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 accrued or
paid in 1998 or 1997 and 7% of the plan benefits were vested as of December 31,
1998.
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 $336,514 and $125,408 as of
December 31, 1998 and 1997, respectively.
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 1998.
As of December 31, 1998 2,746,500 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. As of December 31, 1998 options on 377,125 shares of common
stock became exercisable under the plan with option prices ranging from
$3.26 to $3.86. No options were exercised or forfeited during 1998. 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 $568,588, $609,627 and $550,944 for 1998,
1997 and 1996, respectively. Future minimum rental commitments under
noncancelable operating leases for office space and equipment aggregate
$1,417,834 through 2003. The amounts due by year are $779,801 in 1999,
$362,149 in 2000, $122,615 in 2001, $122,615 in 2002, and $30,654
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, 1998,
the Company estimates its net contingent liability for future state
guaranty association assessments is within range of $500,000 to $1,000,000.
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 $889,561, $1,007,354
and $1,674,481 in 1998, 1997 and 1996, 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 effect on the Company's statutory
surplus.
16. Pending Accounting Pronouncement-Codification of Statutory
Accounting Principles
In March 1998, the National Association of Insurance Commissioners (NAIC)
finalized the Codification of Statutory Accounting Principles which will replace
the current Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting. The codification, which is effective as of
January 1, 2001, provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas.
The company does not know if or when the North Carolina Department of Insurance
will adopt the Codification. The Company believes the effect of such adoption
will not have a material adverse effect on the Company's statutory surplus.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The financial statements of the Separate Account and the Company are included
in Part B hereof.
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.*
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. (i) 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**
(ii) Form of Fund Participation Agreement by and between BT Insurance
Funds Trust, Bankers Trust Company and London Pacific Life &
Annuity Company.***
(iii) Form of Fund Participation Agreement by and between Federated
Insurance Series and London Pacific Life & Annuity Company.***
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 Post-Effective Amendment No. 1
to Form N-4 (File No. 33-87150) as electronically filed April 18, 1996.
** Incorporated by reference to Registrant's Post-Effective Amendment No. 3
to Form N-4 (File No. 33-87150) as electronically filed on April 27, 1998.
*** Incorporated by reference to Registrant's Post-Effective Amendment No. 5
to Form N-4 (File No. 33-87150) as electronically filed on February 17, 1999.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Executive Officers and Directors of the Company:
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
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
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart was filed as Exhibit 15 in Registrant's
Post-Effective Amendment No. 1 (File No. 33-87150) and is incorporated herein by
reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31 1999, there was 601 Qualified Contract Owners and 627
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.
Name and Principal Position and Offices
Business Address with Underwriter
- ------------------------- -----------------------------------------------
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
(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, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf, in the City
of Raleigh, and State of North Carolina on this 26th day of April, 1999.
LPLA SEPARATE ACCOUNT ONE
----------------------------------------------
Registrant
By: LONDON PACIFIC LIFE & ANNUITY COMPANY
----------------------------------------------
By: /S/ GEORGE NICHOLSON
----------------------------------------------
By: LONDON PACIFIC LIFE & ANNUITY COMPANY
----------------------------------------------
Depositor
By: /S/ GEORGE 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.
Chairman of the Board and Director
- ----------------------- ------
Arthur I. Trueger Date
/S/ IAN K. WHITEHEAD President, Chief Executive Officer 4/26/99
- ----------------------- and Director ------
Ian K. Whitehead Date
/S/ GEORGE NICHOLSON Chief Financial Officer, Secretary 4/26/99
- ----------------------- ------
George C. Nicholson and Director Date
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM N-4
FOR
LPLA SEPARATE ACCOUNT ONE
OF
LONDON PACIFIC LIFE & ANNUITY COMPANY
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Consent of Independent Accountants
EX-99.B13 Calculation of Performance Information
April 27, 1999
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. 6 to the Registration
Statement on Form N-4 of our report dated January 29, 1999, relating to the
statutory basis financial statements of London Pacific Life & Annuity Company
and our report dated April 6, 1999, 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 heading "Experts"
in such Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 1999
<TABLE>
<CAPTION>
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1997
VALUATION DATE AS OF DECEMBER 31, 1998
Date Transaction Dollar Amount Unit Value
- ---- ----------- ------------- ----------
HARRIS ASSOCIATES VALUE PORTFOLIO
<S> <C> <C> <C>
12-31-97 Purchase $1,000.00 15.083106243
12-31-98 Contract Fee (1.44) 15.501823242
12-31-98 Value before Surr Chg 15.501823242
12-31-98 Surrender Charge (70.00) 15.501823242
Cumulative Total Returns without/with chrgs 2.78% A
MFS TOTAL RETURN PORTFOLIO
12-31-97 Purchase $1,000.00 13.200967296
12-31-98 Contract Fee (1.44) 14.561603711
12-31-98 Value before Surr Chg 14.561603711
12-31-98 Surrender Charge (70.00) 14.561603711
Cumulative Total Returns without/with chrgs 10.31% A
STRONG GROWTH PORTFOLIO
12-31-97 Purchase $1,000.00 15.716617098
12-31-98 Contract Fee (1.44) 20.199713132
12-31-98 Value before Surr Chg 20.199713132
12-31-98 Surrender Charge (70.00) 20.199713132
Cumulative Total Returns without/with chrgs 28.52% A
ROBERTSON STEPHENS DIVERSIFIED GROWTH PORTFOLIO
12-31-97 Purchase $1,000.00 12.212153514
12-31-98 Contract Fee (1.44) 14.131123317
12-31-98 Value before Surr Chg 14.131123317
12-31-98 Surrender Charge (70.00) 14.131123317
Cumulative Total Returns without/with chrgs 15.71% A
LEXINGTON CORPORATE LEADERS PORTFOLIO
12-31-97 Purchase $1,000.00 14.246101967
12-31-98 Contract Fee (1.44) 15.718449356
12-31-98 Value before Surr Chg 15.718449356
12-31-98 Surrender Charge (70.00) 15.718449356
Cumulative Total Returns without/with chrgs 10.34% A
</TABLE>
<TABLE>
<CAPTION>
Units This Trans Accum Units Accum Value
---------------- ----------- -----------
<S> <C> <C>
66.299 66.299 1,000.00
(0.093) 66.206 1,026.32
0.000 66.206 1,026.32
(4.516) 61.691 956.32
-4.37% C
75.752 75.752 1,000.00
(0.099) 75.653 1,101.63
0.000 75.653 1,101.63
(4.807) 70.846 1,031.63
3.16% C
63.627 63.627 1,000.00
(0.071) 63.556 1,283.81
0.000 63.556 1,283.81
(3.465) 60.090 1,213.81
21.38% C
81.886 81.886 1,000.00
(0.102) 81.784 1,155.70
0.000 81.784 1,155.70
(4.954) 76.830 1,085.70
8.57% C
70.195 70.195 1,000.00
(0.092) 70.103 1,101.91
0.000 70.103 1,101.91
(4.453) 65.650 1,031.91
3.19% C
</TABLE>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch.
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.
<TABLE>
<CAPTION>
SAMPLE
<S> <C> <C> <C> <C> <C> <C>
12-31-93 Purchase $1,000.00 13.676948110 73.116 73.116 1,000.00
12-31-94 Contract Fee (1.00) 13.214629410 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.309659990 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.489598600 (0.051) 72.931 1,421.40
12-31-96 Value before Surr Chg 19.489598600 0.000 72.931 1,421.40
12-31-96 Surrender Charge (22.00) 19.489598600 (1.129) 71.802 1,399.40
Cumulative Total Returns without/with chrgs 42.50% A 39.94% C
Avg. Annual Total Returns without/with chrgs 12.53% B 11.85% D
2.64109589041
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1998
Date Transaction Dollar Amount Unit Value
- ---- ----------- ------------- ----------
HARRIS ASSOCIATES VALUE PORTFOLIO
<S> <C> <C>
2-9-96 Purchase $1,000.00 10.146989359
2-8-97 Contract Fee (1.44) 12.123468000
2-9-98 Contract Fee (1.44) 15.293320523
12-31-98 Value before Surr Chg 15.501823242
12-31-98 Surrender Charge (60.00) 15.501823242
Cumulative Total Returns without/with chrgs 52.77% A
Avg. Annual Total Returns without/with chrgs 15.77% B
MFS TOTAL RETURN PORTFOLIO
2-9-96 Purchase $1,000.00 10.102774711
2-8-97 Contract Fee (1.44) 11.027930228
2-9-98 Contract Fee (1.44) 13.375506975
12-31-98 Value before Surr Chg 14.561603711
12-31-98 Surrender Charge (60.00) 14.561603711
Cumulative Total Returns without/with chrgs 44.13% A
Avg. Annual Total Returns without/with chrgs 13.47% B
STRONG GROWTH PORTFOLIO
2-9-96 Purchase $1,000.00 10.558402726
2-8-97 Contract Fee (1.44) 12.621549924
2-9-98 Contract Fee (1.44) 16.045981936
12-31-98 Value before Surr Chg 20.199713132
12-31-98 Surrender Charge (60.00) 20.199713132
Cumulative Total Returns without/with chrgs 91.31% A
Avg. Annual Total Returns without/with chrgs 25.14% B
ROBERTSON STEPHENS DIVERSIFIED GROWTH PORTFOLIO
2-9-96 Purchase $1,000.00 10.156090245
2-8-97 Contract Fee (1.44) 10.349591726
2-9-98 Contract Fee (1.44) 12.205056788
12-31-98 Value before Surr Chg 14.131123317
12-31-98 Surrender Charge (60.00) 14.131123317
Cumulative Total Returns without/with chrgs 39.14% A
Avg. Annual Total Returns without/with chrgs 12.09% B
LEXINGTON CORPORATE LEADERS PORTFOLIO
2-9-96 Purchase $1,000.00 10.238540927
2-8-97 Contract Fee (1.44) 11.509183224
2-9-98 Contract Fee (1.44) 14.531551006
12-31-98 Value before Surr Chg 15.718449356
12-31-98 Surrender Charge (60.00) 15.718449356
Cumulative Total Returns without/with chrgs 53.52% A
Avg. Annual Total Returns without/with chrgs 15.97% B
BANKERS TRUST EQUITY 500 INDEX
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 10.940352162
12-31-98 Value before Surr Chg 10.940352162
12-31-98 Surrender Charge (70.00) 10.940352162
Cumulative Total Returns without/with chrgs 9.40% A
MORGAN STANLEY INTERNATIONAL MAGNUM
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 9.097114857
12-31-98 Value before Surr Chg 9.097114857
12-31-98 Surrender Charge (70.00) 9.097114857
Cumulative Total Returns without/with chrgs -9.03% A
MORGAN STANLEY EMERGING MARKETS EQUITY
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 6.987877449
12-31-98 Value before Surr Chg 6.987877449
12-31-98 Surrender Charge (70.00) 6.987877449
Cumulative Total Returns without/with chrgs -30.12% A
MORGAN STANLEY HIGH YIELD
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 9.953220938
12-31-98 Value before Surr Chg 9.953220938
12-31-98 Surrender Charge (70.00) 9.953220938
Cumulative Total Returns without/with chrgs -0.47% A
</TABLE>
<TABLE>
<CAPTION>
Units This Trans Accum Units Accum Value
---------------- ----------- -----------
<S> <C> <C>
98.551 98.551 1,000.00
(0.119) 98.433 1,193.34
(0.094) 98.338 1,503.92
0.000 98.338 1,524.43
(3.871) 94.468 1,464.43
46.44% C
14.09% D
98.983 98.983 1,000.00
(0.131) 98.852 1,090.13
(0.108) 98.744 1,320.76
0.000 98.744 1,437.88
(4.120) 94.624 1,377.88
37.79% C
11.72% D
94.711 94.711 1,000.00
(0.114) 94.597 1,193.96
(0.090) 94.507 1,516.47
0.000 94.507 1,909.02
(2.970) 91.537 1,849.02
84.90% C
23.67% D
98.463 98.463 1,000.00
(0.139) 98.324 1,017.61
(0.118) 98.206 1,198.61
0.000 98.206 1,387.76
(4.246) 93.960 1,327.76
32.78% C
10.29% D
97.670 97.670 1,000.00
(0.125) 97.545 1,122.66
(0.099) 97.446 1,416.04
0.000 97.446 1,531.70
(3.817) 93.629 1,471.70
47.17% C
14.29% D
100.000 100.000 1,000.00
(0.132) 99.868 1,092.60
0.000 99.868 1,092.60
(6.398) 93.470 1,022.60
2.26% C
100.000 100.000 1,000.00
(0.158) 99.842 908.27
0.000 99.842 908.27
(7.695) 92.147 838.27
-16.17% C
100.000 100.000 1,000.00
(0.206) 99.794 697.35
0.000 99.794 697.35
(10.017) 89.777 627.35
-37.27% C
100.000 100.000 1,000.00
(0.145) 99.855 993.88
0.000 99.855 993.88
(7.033) 92.822 923.88
-7.61% C
</TABLE>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase
B =((A+1) ^(1/2.89315068493)) - 1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch.
D = ((C+1) ^(1/2.89315068493)) - 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.
<TABLE>
<CAPTION>
SAMPLE
<S> <C> <C> <C> <C> <C> <C>
12-31-93 Purchase $1,000.00 13.676948110 73.116 73.116 1,000.00
12-31-94 Contract Fee (1.00) 13.214629410 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.309659990 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.489598600 (0.051) 72.931 1,421.40
12-31-96 Value before Surr Chg 19.489598600 0.000 72.931 1,421.40
12-31-96 Surrender Charge (22.00) 19.489598600 (1.129) 71.802 1,399.40
Cumulative Total Returns without/with chrgs 42.50% A 39.94% C
Avg. Annual Total Returns without/with chrgs 12.53% B 11.85% D
2.89315068493
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1998
Date Transaction Dollar Amount Unit Value
- ---- ----------- ------------- ----------
HARRIS ASSOCIATES VALUE PORTFOLIO
<S> <C> <C> <C>
2-9-96 Purchase $1,000.00 10.146989359
2-8-97 Contract Fee (1.44) 12.123468000
2-9-98 Contract Fee (1.44) 15.293320523
12-31-98 Value 15.501823242
Cumulative Total Returns without/with chrgs 52.77% A
Avg. Annual Total Returns without/with chrgs 15.77% B
MFS TOTAL RETURN PORTFOLIO
2-9-96 Purchase $1,000.00 10.102774711
2-8-97 Contract Fee (1.44) 11.027930228
2-9-98 Contract Fee (1.44) 13.375506975
12-31-98 Value 14.561603711
Cumulative Total Returns without/with chrgs 44.13% A
Avg. Annual Total Returns without/with chrgs 13.47% B
STRONG GROWTH PORTFOLIO
2-9-96 Purchase $1,000.00 10.558402726
2-8-97 Contract Fee (1.44) 12.621549924
2-9-98 Contract Fee (1.44) 16.045981936
12-31-98 Value 20.199713132
Cumulative Total Returns without/with chrgs 91.31% A
Avg. Annual Total Returns without/with chrgs 25.14% B
ROBERTSON STEPHENS DIVERSIFIED GROWTH PORTFOLIO
2-9-96 Purchase $1,000.00 10.156090245
2-8-97 Contract Fee (1.44) 10.349591726
2-9-98 Contract Fee (1.44) 12.205056788
12-31-98 Value 14.131123317
Cumulative Total Returns without/with chrgs 39.14% A
Avg. Annual Total Returns without/with chrgs 12.09% B
LEXINGTON CORPORATE LEADERS PORTFOLIO
2-9-96 Purchase $1,000.00 10.238540927
2-8-97 Contract Fee (1.44) 11.509183224
2-9-98 Contract Fee (1.44) 14.531551006
12-31-98 Value 15.718449356
Cumulative Total Returns without/with chrgs 53.52% A
Avg. Annual Total Returns without/with chrgs 15.97% B
BANKERS TRUST EQUITY 500 INDEX
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 10.940352162
12-31-98 Value 10.940352162
Cumulative Total Returns without/with chrgs 9.40% A
MORGAN STANLEY INTERNATIONAL MAGNUM
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 9.097114857
12-31-98 Value 9.097114857
Cumulative Total Returns without/with chrgs -9.03% A
MORGAN STANLEY EMERGING MARKETS EQUITY
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 6.987877449
12-31-98 Value 6.987877449
Cumulative Total Returns without/with chrgs -30.12% A
MORGAN STANLEY HIGH YIELD
5-4-98 Purchase $1,000.00 10.000000000
12-31-98 Contract Fee ($1.44) 9.953220938
12-31-98 Value 9.953220938
Cumulative Total Returns without/with chrgs -0.47% A
</TABLE>
<TABLE>
<CAPTION>
Units This Trans Accum Units Accum Value
---------------- ----------- -----------
<S> <C> <C>
98.551 98.551 1,000.00
(0.119) 98.433 1,193.34
(0.094) 98.338 1,503.92
0.000 98.338 1,524.43
52.44% C
15.69% D
98.983 98.983 1,000.00
(0.131) 98.852 1,090.13
(0.108) 98.744 1,320.76
0.000 98.744 1,437.88
43.79% C
13.37% D
94.711 94.711 1,000.00
(0.114) 94.597 1,193.96
(0.090) 94.507 1,516.47
0.000 94.507 1,909.02
90.90% C
25.04% D
98.463 98.463 1,000.00
(0.139) 98.324 1,017.61
(0.118) 98.206 1,198.61
0.000 98.206 1,387.76
38.78% C
11.99% D
97.670 97.670 1,000.00
(0.125) 97.545 1,122.66
(0.099) 97.446 1,416.04
0.000 97.446 1,531.70
53.17% C
15.88% D
100.000 100.000 1,000.00
(0.132) 99.868 1,092.60
0.000 99.868 1,092.60
9.26% C
100.000 100.000 1,000.00
(0.158) 99.842 908.27
0.000 99.842 908.27
-9.17% C
100.000 100.000 1,000.00
(0.206) 99.794 697.35
0.000 99.794 697.35
-30.27% C
100.000 100.000 1,000.00
(0.145) 99.855 993.88
0.000 99.855 993.88
-0.61% C
</TABLE>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase
B =((A+1) ^(1/2.89315068493)) - 1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch.
D = ((C+1) ^(1/2.89315068493)) - 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.
<TABLE>
<CAPTION>
SAMPLE
<S> <C> <C> <C> <C> <C> <C>
12-31-93 Purchase $1,000.00 13.676948110 73.116 73.116 1,000.00
12-31-94 Contract Fee (1.00) 13.214629410 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.309659990 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.489598600 (0.051) 72.931 1,421.40
12-31-96 Value before Surr Chg 19.489598600 0.000 72.931 1,421.40
12-31-96 Surrender Charge (22.00) 19.489598600 (1.129) 71.802 1,399.40
Cumulative Total Returns without/with chrgs 42.50% A 39.94% C
Avg. Annual Total Returns without/with chrgs 12.53% B 11.85% D
2.89315068493
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1997
VALUATION DATE AS OF DECEMBER 31, 1998
Date Transaction Dollar Amount Unit Value
- ---- ----------- ------------- ----------
HARRIS ASSOCIATES VALUE PORTFOLIO
<S> <C> <C> <C>
12-31-97 Purchase $1,000.00 15.083106243
12-31-98 Contract Fee (1.44) 15.501823242
12-31-98 Value 15.501823242
Cumulative Total Returns without/with chrgs 2.78% A
MFS TOTAL RETURN PORTFOLIO
12-31-97 Purchase $1,000.00 13.200967296
12-31-98 Contract Fee (1.44) 14.561603711
12-31-98 Value 14.561603711
Cumulative Total Returns without/with chrgs 10.31% A
STRONG GROWTH PORTFOLIO
12-31-97 Purchase $1,000.00 15.716617098
12-31-98 Contract Fee (1.44) 20.199713132
12-31-98 Value 20.199713132
Cumulative Total Returns without/with chrgs 28.52% A
ROBERTSON STEPHENS DIVERSIFIED GROWTH PORTFOLIO
12-31-97 Purchase $1,000.00 12.212153514
12-31-98 Contract Fee (1.44) 14.131123317
12-31-98 Value 14.131123317
Cumulative Total Returns without/with chrgs 15.71% A
LEXINGTON CORPORATE LEADERS PORTFOLIO
12-31-97 Purchase $1,000.00 14.246101967
12-31-98 Contract Fee (1.44) 15.718449356
12-31-98 Value before Surr Chg 15.718449356
Cumulative Total Returns without/with chrgs 10.34% A
</TABLE>
<TABLE>
<CAPTION>
Units This Trans Accum Units Accum Value
---------------- ----------- -----------
<S> <C> <C>
66.299 66.299 1,000.00
(0.093) 66.206 1,026.32
0.000 66.206 1,026.32
2.63% C
75.752 75.752 1,000.00
(0.099) 75.653 1,101.63
0.000 75.653 1,101.63
10.16% C
63.627 63.627 1,000.00
(0.071) 63.556 1,283.81
0.000 63.556 1,283.81
28.38% C
81.886 81.886 1,000.00
(0.102) 81.784 1,155.70
0.000 81.784 1,155.70
15.57% C
70.195 70.195 1,000.00
(0.092) 70.103 1,101.91
0.000 70.103 1,101.91
10.19% C
</TABLE>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch.
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.
<TABLE>
<CAPTION>
SAMPLE
<S> <C> <C> <C> <C> <C> <C>
12-31-93 Purchase $1,000.00 13.676948110 73.116 73.116 1,000.00
12-31-94 Contract Fee (1.00) 13.214629410 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.309659990 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.489598600 (0.051) 72.931 1,421.40
12-31-96 Value before Surr Chg 19.489598600 0.000 72.931 1,421.40
12-31-96 Surrender Charge (22.00) 19.489598600 (1.129) 71.802 1,399.40
Cumulative Total Returns without/with chrgs 42.50% A 39.94% C
Avg. Annual Total Returns without/with chrgs 12.53% B 11.85% D
2.64109589041
</TABLE>
