[Federal Register Volume 60, Number 157 (Tuesday, August 15, 1995)]
[Notices]
[Pages 42196-42200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20048]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21274; File No. 812-9382]


Landmark VIP Funds, et al.

August 8, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: Landmark VIP Funds (the ``Trust''), Citibank, N.A. 
(``Citibank'') and certain life insurance companies and their accounts 
investing now or in the future in the Trust (``Separate Accounts'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act for exemptions from the provisions of Sections 9(a), 13(a), 
15(a) and 15(b) of the 1940 Act and Rules (6e-2(b)(15) and 6e-
3(T)(b)(15).

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of any current or future series of the Trust 
to be sold to and held by separate accounts funding variable 

[[Page 42197]]
annuity and variable life insurance contracts issued by both affiliated 
and unaffiliated life insurance companies.

FILING DATE: The application was filed on December 20, 1994. An 
amendment was filed on July 19, 1995. Applicants have represented that 
they will file another amendment to the application during the notice 
period to include the representations contained herein.

HEARING AND NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving Applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on 
September 5, 1995, and should be accompanied by proof of service on 
Applicants in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the requester's 
interest, the reason for the request and the issues contested. Persons 
may request notification of a hearing by writing to the Secretary of 
the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, Lea Anne Copenhefer, Esq., Bingham, Dana & Gould, 
150 Federal Street, Boston, Massachusetts 02110.

FOR FURTHER INFORMATION CONTACT: Mark C. Amorosi, Staff Attorney, or 
Wendy Finck Friedlander, Deputy Chief, at (202) 942-0670, Office of 
Insurance Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the SEC's Public 
Reference Branch.

Applicants' Representations

    1. The Trust is an open-end management investment company organized 
as a Massachusetts business trust on August 22, 1991. The Trust 
currently consists of four separate series: (1) the Landmark VIP U.S. 
Government Portfolio, (2) the Landmark VIP Balanced Portfolio, (3) the 
Landmark VIP Equity Portfolio and (4) the Landmark VIP International 
Equity Portfolio (each individually a ``Portfolio'' and collectively 
the ``Portfolios''). The Board of Trustees may establish additional 
portfolios at any time.
    2. Shares of the Portfolios initially will be offered only to 
Citicorp Life Variable Annuity Separate Account and First Citicorp Life 
Variable Annuity Separate Account, separate accounts of Citicorp Life 
Insurance Company and first Citicorp Life Insurance Company (the 
``Citicorp Insurance Companies''), respectively, to serve as an 
investment vehicle for variable annuity contracts issued by the 
Citicorp Insurance Companies. The Citicorp Insurance Companies are 
affiliated companies by virtue of both being indirect subsidiaries of 
Citicorp, a bank holding company organized under the laws of Delaware. 
Shares of the Portfolios, and of any future series of the Trust that 
serves exclusively as an investment vehicle for Separate Accounts 
(hereinafter referred to as ``Other Portfolios''), will be offered to 
separate accounts of other insurance companies, including insurance 
companies that are not affiliated with the Citicorp Insurance 
Companies, to serve as the investment vehicle for various types of 
insurance products, which may include variable annuity contracts, 
single premium variable life insurance contracts, scheduled premium 
variable life insurance contracts and flexible premium variable life 
insurance contracts (collectively ``variable contracts''). Insurance 
companies whose separate account or accounts own shares of the 
Portfolios or of any Other Portfolio are referred to herein as 
``Participating Insurance Companies.''
    3. Citibank will serve as the investment adviser for each 
Portfolio. the Landmark Funds Broker-Dealer Services, Inc. will serve 
as administrator and distributor for each Portfolio.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust, Rule 6e-2(b)(15) 
provides exemptions from Sections 9(a), 13(a), 15(a), and 15(b) of the 
1940 Act. The relief provided by Rule 6e-2 is available to a separate 
account's investment adviser, principal underwriter, and sponsor or 
depositor. The exemptions granted by Rule 6e-2(b)(15) are available 
only where a management investment company underlying a unit investment 
trust (``underlying fund'') offers its shares ``exclusively to variable 
life insurance separate accounts of the life insurer, or of any 
affiliated life insurance company.'' Therefore, the relief granted by 
Rule 6e-2(b)(15) is not available with respect to a scheduled premium 
variable life insurance separate account that owns shares of an 
underlying fund that also offers it shares to a variable annuity or a 
flexible premium variable life insurance separate account of the same 
company or of any affiliated life insurance company. The use of a 
common management investment company as the underlying investment 
medium for both variable annuity and variable life insurance separate 
accounts of the same life insurance company or of any affiliated life 
insurance company is referred to herein as ``mixed funding.''
    2. In addition, the relief granted by Rule 6e-2(b)(15) is not 
available with respect to a scheduled premium variable life insurance 
separate account that owns shares of an underlying fund that also 
offers its shares to separate accounts funding variable contracts of 
one or more unaffiliated life insurance companies. The use of a common 
management investment company as the underlying investment medium for 
variable life insurance separate accounts of one insurance company and 
separate accounts funding variable contracts of one or more 
unaffiliated life insurance companies is referred to herein as ``shared 
funding.''
    3. In connection with the funding of flexible premium variable life 
insurance contracts through a unit investment trust, Rule 6e-
3(T)(b)(15) provides partial exemptions from Sections 9(a), 13(a), 
15(a), and 15(b) of the 1940 Act. The relief provided by Rule 6e-3(T) 
is available to a separate account's investment adviser, principal 
underwriter, and sponsor or depositor. The exemptions granted by Rule 
6e-3(T) are available only where a unit investment trust's underlying 
fund offers its shares ``exclusively to separate accounts of the life 
insurer, or of any affiliated life insurance company, offering either 
scheduled contracts or flexible contracts, or both; or which also offer 
their shares to variable annuity separate accounts of the life insurer 
or of an affiliated life insurance company * * *.'' Therefore, Rule 6e-
3(T) permits mixed funding with respect to a flexible premium variable 
life insurance separate account, subject to certain conditions. 
However, Rule 6e-3(T) does not permit shared funding because the relief 
granted by Rule 6e-3(T)(b)(15) is not available with respect to a 
flexible premium variable life insurance separate account that owns 
shares of a management company that also offers its shares to separate 
accounts (including variable annuity and flexible premium and scheduled 
premium variable life insurance separate accounts) of unaffiliated life 
insurance companies.
    4. Applicants therefore request that the Commission, under its 
authority in Section 6(c) of the 1940 Act, grant relief from Sections 
9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 
6e-3(T)(b)(15) thereunder for 

[[Page 42198]]
themselves and for variable life insurance separate accounts of the 
Participating Insurance Companies, and the principal underwriters and 
depositors of such separate accounts, to the extent necessary to permit 
mixed funding and shared funding.
    5. Section 9(a) of the 1940 Act makes it unlawful for any company 
to serve as an investment adviser to, or principal underwriter for, any 
registered open-end investment company if an affiliated person of that 
company is subject to any disqualification specified in Sections 
9(a)(1) or 9(a)(2). Rule 6e-2(b)(15)(i) and (ii) and Rule 6e-
3(T)(b)(15)(i) and (ii) provide exemptions from Section 9(a) under 
certain circumstances, subject to limitations on mixed and shared 
funding. The relief provided by Rules 6e-2(b)(15)(i) and 6e-
3(T)(b)(15)(i) permits a person disqualified under Section 9(a) to 
serve as an officer, director, or employee of the life insurer, or any 
of its affiliates, so long as that person does not participate directly 
in the management or administration of the underlying fund. The relief 
provided by Rules 6e-2(b)(15)(ii) and 6e-3(T)(b)(15)(ii) permits the 
life insurer to serve as the underlying fund's investment adviser or 
principal underwriter, provided that none of the insurer's personnel 
who are ineligible pursuant to Section 9(a) participate in the 
management or administration of the fund.
    6. Applicants state that the partial relief granted in Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9(a), in 
effect, limits the monitoring of an insurer's personnel that would 
otherwise be necessary to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of Section 9. 
Applicants state that Rules 6e-2 and 6e-3(T) recognize that it is not 
necessary for the protection of investors or for the purposes of the 
1940 Act to apply the provisions of Section 9(a) to the many 
individuals in an insurance company complex, most of whom typically 
will have no involvement in matters pertaining to an investment 
company. Applicants submit that there is no regulatory reason to apply 
the provisions of Section 9(a) to the many individuals in various 
unaffiliated insurance companies (or affiliated companies of 
Participating Insurance Companies) that may utilize the Trust as the 
funding medium for variable contracts.
    7. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide partial 
exemptions from Sections 13(a), 15(a), and 15(b) of the 1940 Act to the 
extent that those sections have been deemed by the Commission to 
require ``pass-through'' voting with respect to management investment 
company share held by a separate account, to permit the insurance 
company to disregard the voting instructions of its contract owners in 
certain limited circumstances.
    Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that 
the insurance company may disregard voting instructions of its contract 
owners in connection with the voting of shares of an underlying fund if 
such instructions would require such share to be voted to cause such 
companies to make, or refrain from making, certain investments which 
would result in changes in the subclassification or investment 
objectives of such companies, or to approve or disapprove any contract 
between an underlying fund and its investment adviser, when required to 
do so by an insurance regulatory authority, subject to the provisions 
of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of each Rule.
    Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that 
the insurance company may disregard contract owners' voting 
instructions in the contract owners initiate any change in such 
company's investment policies or any principal underwriter or 
investment adviser, provided that disregarding such voting instructions 
is reasonable and subject to the other provisions of paragraphs 
(b)(5)(ii) and (b)(7)(ii)(B) and (C) of each Rule.
    8. Applicants submit that shared funding by unaffiliated insurance 
companies does not present any issues that do not already exist where a 
single insurance company is licensed to do business in several or all 
states. In this regard, Applicants state that a particular state 
insurance regulatory body could require action that is inconsistent 
with the requirements of other states in which the insurance company 
offers its policies. Accordingly, Applicants submit that the fact that 
different insurers may be domiciled in different states does not create 
a significantly different or enlarged problem.
    9. Applicants state further that, under Rules 6e-2(b)(15)(iii) and 
6e-3(T)(b)(15)(iii), the rights of the insurance company to disregard 
the voting instructions of its contract owners do not rise any issues 
different from those raised by the authority of state insurance 
administrators over separate accounts, and that affiliation does not 
eliminate the potential, if any, for divergent judgments as to the 
advisability or legality of a change in investment policies, principal 
underwriter, or investment adviser initiated by contractowners. 
Applicants state that the potential for disagreement is limited by the 
requirement in Rules 6e-2 and 6e-3(T) that the insurance company's 
disregard of voting instructions be reasonable and based on specific 
good faith determinations.
    10. Applicants submit that mixed funding and shared funding should 
benefit variable contract owners by: (a) eliminating a significant 
portion of the costs of establishing and administering separate funds; 
(b) allowing for a greater amount of assets available for investment by 
the Portfolios, thereby promoting economies of scale, permitting 
greater safety through greater diversification, and/or making the 
addition of new portfolios more feasible; and (c) encouraging more 
insurance companies to offer variable contracts, resulting in increased 
competition with respect to both variable contract design and pricing, 
which can be expected to result in more product variation and lower 
charges. Each Portfolio will be managed to attempt to achieve its 
investment objectives and not to favor or disfavor any particular 
Participating Insurance Company or type of insurance product.
    11. Applicants assert that there is no significant legal impediment 
to permitting mixed and shared funding. Applicants state that separate 
accounts organized as unit investment trusts have historically been 
employed to accumulate shares of mutual funds which have not been 
affiliated with the depositor or sponsor of the separate account. 
Applicants also represent that mixed and shared funding will have no 
adverse federal income tax consequences.

Applicants' Conditions

    The Applicants have consented to the following conditions:
    1. A majority of the Board of Trustees of the Trust (``Board'') 
shall consist of persons who are not ``interested persons,'' as defined 
by Section 2(a)(19) of the 1940 Act and Rules thereunder and as 
modified by any applicable orders of the Commission, except that, if 
this condition is not met by reason of death, disqualification, or bona 
fide resignation of any trustee or trustees, then the operation of this 
condition shall be suspended: (i) for a period of 45 days, if the 
vacancy or vacancies may be filled by the Board; (ii) for a period of 
60 days, if a vote of shareholders is required to fill the vacancy or 
vacancies; or (iii) for such longer period as the Commission may 
prescribe by order upon application.
    2. The Board will monitor the Trust for the existence of any 
material 

[[Page 42199]]
irreconcilable conflict between the interests of the contract owners of 
all separate accounts investing in any Portfolio or Other Portfolio. A 
material irreconcilable conflict may arise for a variety of reasons, 
including: (a) state insurance regulatory authority action; (b) a 
change in applicable federal or state insurance, tax, or securities 
laws or regulations, or a public ruling, private letter ruling, no-
action or interpretive letter, or any similar action by insurance, tax, 
or securities regulatory authorities; (c) an administrative or judicial 
decision in any relevant proceeding; (d) the manner in which the 
investments of a Portfolio or Other Portfolio are being managed; (e) a 
difference in voting instructions given by variable annuity and 
variable life insurance contract owners; or (f) a decision by a 
Participating Insurance Company to disregard contract owner voting 
instructions.
    3. Participating Insurance Companies and Citibank will report any 
potential or existing conflicts, of which they become aware, to the 
Board and will be obligated to assist the Board in carrying out its 
responsibilities by providing the Board with all information reasonably 
necessary for it to consider any issues raised. This responsibility 
includes, but is not limited to, an obligation by each Participating 
Insurance Company to inform the Board whenever contract owner voting 
instructions are disregarded. These responsibilities will be 
contractual obligations of all Participating Insurance Companies 
investing in a Portfolio or Other Portfolio under their agreements 
governing participation therein, and such agreements shall provide that 
such responsibilities will be carried out with a view only to the 
interests of the contract owners.
    4. If a majority of the Board, or a majority of the disinterested 
members of the Board, determine that a material irreconcilable conflict 
exists, the relevant Participating Insurance Companies shall, at their 
expense and to the extent reasonably practicable (as determined by a 
majority of disinterested members of the Board), take whatever steps 
are necessary to remedy or eliminate the irreconcilable material 
conflict, up to and including: (a) withdrawing the assets allocable to 
some or all of the separate accounts from the Trust or any Portfolio or 
Other Portfolio therein and reinvesting such assets in a different 
investment medium (including another Portfolio, if any, of the Trust), 
or submitting the question whether such segregation should be 
implemented to a vote of all affected contract owners and, as 
appropriate, segregating the assets of any appropriate group (i.e., 
annuity contract owners, life insurance contract owners, or variable 
contract owners of one or more participating Insurance Companies) that 
votes in favor of such segregation, or offering to the affected 
contract owners the option of making such a change; and (b) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a Participating Insurance Company's decision to disregard contract 
owner voting instructions, and that decision represents a minority 
position or would preclude a majority vote, the Participating Insurance 
Company may be required, at the election of the Portfolio or Other 
Portfolio, to withdraw its separate account's investment therein, and 
no charge or penalty will be imposed as a result of such withdrawal. 
The responsibility to take remedial action in the event of a Board 
determination of an irreconcilable material conflict and to bear the 
cost of such remedial action shall be a contractual obligation of all 
Participating Insurance Companies under their agreements governing 
participation in a Portfolio or Other Portfolio and these 
responsibilities will be carried out with a view only to the interests 
of the contract owners.
    For the purposes of condition (4), a majority of disinterested 
members of the Board shall determine whether or not any proposed action 
adequately remedies any irreconcilable material conflict, but in no 
event will the Trust or Citibank be required to establish a new funding 
medium for any variable contract. No Participating Insurance Company 
shall be required by this condition (4) to establish a new funding 
medium for any variable contract if an offer to do so has been declined 
by a vote of a majority of contract owners materially affected by the 
irreconcilable material conflict.
    5. The determination by the Board of the existence of an 
irreconcilable material conflict and its implications shall be made 
known promptly in writing to all Participating Insurance Companies.
    6. Participating Insurance Companies will provide pass-through 
voting privileges to all variable contract owners so long as the 
Commission continues to interpret the 1940 Act as requiring pass-
through voting privileges for variable contract owners. Accordingly, 
each Participating Insurance Company will vote shares of each Portfolio 
or Other Portfolio held in its separate accounts in a manner consistent 
with timely voting instructions received from contract owners. Each 
Participating Insurance Company also will vote shares of each Portfolio 
and Other Portfolio held in its separate accounts for which no timely 
voting instructions from contract owners are received, as well as 
shares it owns, in the same proportion as those shares for which voting 
instructions are received. Each Participating Insurance Company shall 
be responsible for assuring that each of their separate accounts 
participating in a Portfolio or Other Portfolio calculates voting 
privileges in a manner consistent with all other Participating 
Insurance Companies. The obligation to calculate voting privileges in a 
manner consistent with all other separate accounts investing in the 
Trust shall be a contractual obligation of all Participating Insurance 
Companies under their agreements governing participation in the Trust.
    7. Each Portfolio or Other Portfolio will notify all Participating 
Insurance Companies that prospectus disclosure regarding potential 
risks of mixed and shared funding may be appropriate. Each Portfolio 
and Other Portfolio shall disclose in its prospectus that: (a) its 
shares are offered to separate accounts which fund both annuity and 
life insurance contracts of both affiliated and unaffiliated 
Participating Insurance Companies; (b) because of differences of tax 
treatment or other considerations, the interests of various contract 
owners participating in the Trust might at some time be in conflict; 
and (c) the Board will monitor the Trust for any material conflicts and 
determine what action, if any, should be taken.
    8. All reports received by the Board regarding potential or 
existing conflicts, and all Board action with respect to determining 
the existence of a conflict, notifying Participating Insurance 
Companies of a conflict, and determining whether any proposed action 
adequately remedies a conflict, will be properly recorded in the 
minutes of the Board or other appropriate records, and such minutes or 
other records shall be made available to the Commission upon request.
    9. If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or 
Rule 6e-3 is adopted, to provide exemptive relief from any provision of 
the 1940 Act or the rules thereunder with respect to mixed and shared 
funding on terms and conditions materially different from any 
exemptions granted in the order requested, then each Portfolio and 
Other Portfolio and the Participating Insurance Companies, as 
appropriate, shall take such steps as may be necessary to comply with 
Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 63-3, as 

[[Page 42200]]
adopted, to the extent such rules are applicable.
    10. The Trust will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of the Trust), and 
in particular the Trust either will provide for annual meetings (except 
insofar as the Commission may interpret Section 16 of the 1940 Act not 
to require such meetings) or comply with Section 16(c) (although 
Applicants assert that the Trust is not one of the trusts described in 
this section) as well as with Sections 16(a) and, if and when 
applicable, Section 16(b). Further, the Trust will act in accordance 
with the Commission's interpretation of the requirements of Section 
16(a) with respect to periodic elections of directors (or trustees) and 
with whatever rules the Commission may promulgate with respect thereto.
    11. The Participating Insurance Companies and Citibank, at least 
annually shall submit to the Board such reports, materials or data as 
the Board may reasonably request so that it may fully carry out the 
obligations imposed upon it by these stated conditions, and said 
reports, materials, and data shall be submitted more frequently if 
deemed appropriate by the Board. The obligations of the Participating 
Insurance Companies to provide these reports, materials, and data to 
the Board when it so reasonably requests, shall be a contractual 
obligation of all Participating Insurance Companies under their 
agreements governing participation in each Portfolio or Other 
Portfolio.

Conclusion

    For the reasons stated above, Applicants believe that the requested 
exemptions, in accordance with the standards of Section 6(c), are 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-20048 Filed 8-14-95; 8:45 am]
BILLING CODE 8010-01-M