[Federal Register Volume 62, Number 54 (Thursday, March 20, 1997)]
[Notices]
[Pages 13406-13409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7044]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22567; File No. 812-10454]


Citicorp Life Insurance Company, et al.

March 14, 1997.
AGENCY: The Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order pursuant to the Investment 
Company Act of 1940 (``1940 Act'').

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APPLICANTS: Citicorp Life Insurance Company (``Citicorp Life''), First 
Citicorp Life Insurance Company (``First Citicorp Life,'' together with 
Citicorp Life, the ``Companies''), Citicorp Life Variable Annuity 
Separate Account (``Citicorp Life Account'') and First Citicorp Life 
Variable Annuity Separate Account (``First Citicorp Life Account,'' 
together with the Citicorp Life Account, the ``Accounts'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 26(b).

SUMMARY OF THE APPLICATION: Applicants seek an order to permit the 
substitution of shares of certain portfolios of the Fidelity Variable 
Insurance Products Fund (``Fidelity VIP'') and the AIM Variable 
Insurance Funds, Inc. for shares of portfolios of the Landmark VIP 
Funds currently held by the Accounts to support individual flexible 
premium deferred variable annuity contracts (collectively, the 
``Contracts'') issued by the Companies.

FILING DATES: The application was filed on December 5, 1996, and 
amended on March 3, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on April 8, 1997, 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 requestor'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 Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549. Applicants, c/o Richard M. 
Zuckerman, Esq., Citicorp Life Insurance Company, 800 Silver Lake 
Boulevard, Dover, Delaware 19901.

FOR FURTHER INFORMATION CONTACT: Ethan D. Corey, Senior Counsel, or 
Kevin M. Kirchoff, Branch Chief, Office of Insurance Products (Division 
of Investment Management), at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application is available for a fee from the Public 
Reference Branch of the Commission.

Applicants' Representations

    1. Citicorp Life is a stock life insurance company organized under 
the laws of the State of Arizona in 1971. Citicorp Life is a wholly 
owned subsidiary of Citibank Delaware which is a wholly owned 
subsidiary of Citicorp Holdings, Inc. In turn, Citicorp Holdings, Inc. 
is a wholly owned subsidiary of Citicorp. Citicorp Life is the 
depositor and sponsor of the Citicorp Life Account.
    2. First Citicorp Life is a stock life insurance company organized 
under the laws of the State of New York in 1978. First Citicorp Life is 
a wholly owned subsidiary of Citicorp Life. First Citicorp Life is the 
depositor and sponsor of the First Citicorp Life Accounts.
    3. The board of directors of Citicorp Life established the Citicorp 
Life Account on July 6, 1994. The Citicorp Life Account is registered 
under the 1940 Act as a unit investment trust (File No. 811-8628). 
Initially, the Citicorp Life Account invested exclusively in shares of 
the following portfolios: (1) The U.S. Government, Equity, Balanced and 
International Equity Funds of the Landmark VIP Funds; (2) the Growth 
Portfolio of the Variable Insurance Products Fund; (3) the AIM V.I. 
Capital Appreciation Fund of AIM Variable Insurance Funds, Inc.; and 
(4) the World Government and Money Market Series of the MFS Variable 
Insurance Trust.
    4. The board of directors of First Citicorp Life established the 
First Citicorp Life Account on July 6, 1994. The First Citicorp Life 
Account is registered under the 1940 Act as a unit investment trust 
(File No. 811-8732). Since inception, the First Citicorp Life Account 
invested in the same investment portfolios as those initially available 
under the Citicorp Life Account.
    5. The Landmark VIP Funds was organized as a Massachusetts business 
trust on August 22, 1991. It is registered under the 1940 Act as an 
open-end management investment company (File No. 811-6401). The 
Landmark VIP Funds is a series investment company that is currently 
comprised of four investment portfolios: the Landmark VIP U.S. 
Government Fund, the Landmark VIP Balanced Fund, the Landmark VIP 
Equity Fund and the Landmark VIP International Equity Fund 
(collectively, the ``Removed Funds''). Citibank, N.A., a wholly-owned 
subsidiary of Citicorp, is the investment adviser to the Landmark VIP 
Funds.
    6. The Landmark VIP U.S. Government Fund seeks to earn current 
income and preserve capital by

[[Page 13407]]

investing primarily in U.S. government securities and repurchase 
agreements involving U.S. government securities. The Landmark VIP 
Balance Fund seeks to earn high current income by investing in a broad 
range of securities, to preserve capital, and to provide growth 
potential with reduced risk. The Landmark VIP Equity Fund seeks long-
term capital growth; dividend income, if any, is incidental to this 
investment objective. The fund seeks to achieve its objective by 
investing primarily in common stocks of domestic issuers, with emphasis 
on established companies. The Landmark VIP International Equity Fund 
seeks long-term capital growth; dividend income, if any, is incidental 
to this investment objective. The fund seeks to achieve its objective 
by investing primarily in common stocks of non-U.S. issuers, including 
issuers in developing countries, with an emphasis on established 
companies.
    7. Citibank, N.A. currently reimburses the expenses of each 
Landmark VIP Fund to maintain the following expense ratios: U.S. 
Government Fund, 0.60%; Equity Fund, 0.75%; Balanced Fund, 0.70%; and 
International Equity Fund, 1.20%. The expense reimbursement 
arrangements, however, are voluntary and may be discontinued by 
Citibank N.A. at any time.
    8. Applicants state that the Removed Funds as individual investment 
options have not generated substantial Contract owner interest since 
their inception. Each Removed Fund is relatively small when compared 
with many other similar investment portfolios of open-end management 
investment companies available as investment vehicles for variable 
annuity products. As a result, the annual expense ratios of these 
funds, absent any expense reimbursement, have been higher than the 
ratios of most similar but larger portfolios. Furthermore, the 
performance of the Removed Funds since their inception, although not 
poor, has been unremarkable given overall performance during that 
period. The following charts provide size, expense and performance 
information for the Landmark VIP Funds.

------------------------------------------------------------------------
                                                  Net assets            
                                                  at year-end   Expense 
               Landmark VIP funds                     (in      ratio \2\
                                                   millions)            
------------------------------------------------------\1\------(percent)
U.S. Government Fund:                                                   
  1995.........................................      $1.292         9.07
  1996.........................................       1,400         7.55
Equity Fund:                                                            
  1995.........................................       1.894         7.83
  1996.........................................       2.675         4.88
Balanced Fund:                                                          
  1995.........................................       1.827         7.32
  1996.........................................       2.488         4.76
International Equity Fund:                                              
  1995.........................................       4.515         4.84
  1996.........................................       5.057         4.83
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\1\ Net assets for 1996 are as of September 30, 1996.                   
\2\ Expense ratios for 1996 are for the nine-month period ended         
  September 30, 1996 and have been annualized.                          


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                                                               Standard total return \1\                        
                                      --------------------------------------------------------------------------
          Landmark VIP funds              Inception of funds                                                    
                                           through 9/30/96          1996  (percent)           1995 (percent)    
                                              (percent)                                                         
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U.S. Government Fund.................                     4.17                    -1.72                    10.51
Equity Fund..........................                    18.50                    12.08                    20.47
Balanced Fund........................                    12.12                     6.36                    15.53
International Equity Fund............                     4.96                     3.30                     5.47
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\1\ Total returns for 1995 are for the period from March 10, 1995 through December 31, 1995 and have been       
  annualized. Total returns for 1996 are for the nine-month period ended September 30, 1996 and have not been   
  annualized.                                                                                                   
Total returns for the period from inception through September 30, 1996 for the Landmark VIP Funds have been     
  annualized.                                                                                                   

    9. Fidelity VIP was organized as a Massachusetts business trust on 
November 13, 1981, and is registered under the 1940 Act as an open-end 
management investment company (File No. 811-3329). Fidelity VIP is a 
series investment company that is currently comprised of five 
investment portfolios: Money Market Portfolio, High Income Portfolio, 
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio. 
Fidelity Management & Research Company is the investment adviser of 
Fidelity VIP. The Fidelity VIP Growth Portfolio seeks capital 
appreciation by investing primarily in common stocks but may also 
invest in other types of securities, including bonds and preferred 
stocks. The Fidelity VIP Equity-Income Portfolio seeks reasonable 
income by investing, under normal circumstances, at least 65% of its 
assets in income producing equity securities. The fund may also invest 
in debt securities convertible into common stock.
    10. AIM Variable Insurance Funds, Inc. was organized as a Maryland 
corporation on January 22, 1993 and is registered under the 1940 Act as 
an open-end management investment company (File No. 811-07451). AIM 
Variable Insurance Funds, Inc. is a series investment company that is 
currently composed of nine investment portfolios: AIM V.I. Capital 
Appreciation Fund, AIM V.I. Diversified Income Fund, AIM V.I. Global 
Utilities Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth 
Fund, AIM V.I. Growth and Income Fund, AIM V.I. International Equity 
Fund, AIM V.I. Money Market Fund and AIM V.I. Value Fund. AIM Advisors, 
Inc. is the investment adviser of AIM Variable Insurance Funds, Inc.
    11. The AIM V.I. Government Securities Fund seeks a high level of 
current income consistent with reasonable concern for safety of 
principal by investing in debt securities issued, guaranteed or 
otherwise backed by the United States government. The AIM V.I. 
International Equity Fund seeks long-term growth of capital by 
investing in a diversified portfolio of international equity securities 
the issuers of which are considered by AIM Advisors, Inc. to have 
strong earnings momentum.
    12. The following charts provide size, expense and performance 
information for the AIM V.I. Government Securities Fund, the Fidelity 
VIP Growth Portfolio, the Fidelity VIP Equity-Income Portfolio and the 
AIM V.I. International Equity Fund (collectively, the ``Substitute 
Funds'').

------------------------------------------------------------------------
                                               Net assets               
                                               at year-end     Expense  
              Substitute funds                     (in          ratio   
                                                millions)     (percent) 
---------------------------------------------------\1\-----------\2\----
AIM V.I Government Securities Fund:                                     
  1995......................................      $19.50          1.19  

[[Page 13408]]

                                                                        
  1996......................................       22.90          0.90  
Fidelity VIP Growth Portfolio:                                          
  1995......................................    4,158.80          0.70  
  1996......................................    5,777.40          0.67  
Fidelity VIP Equity-Income Portfolio:                                   
  1995......................................    4,869.80          0.61  
  1996......................................       6,352          0.55  
AIM V.I. International Equity Fund:                                     
  1995......................................       82.30          1.15  
  1996......................................      143.30          0.97  
------------------------------------------------------------------------
\1\ Net assets for 1996 are as of September 30, 1996.                   
\2\ Expense ratios for 1996 are for the nine-month period ended         
  September 30, 1996 and have been annualized. The expense ratios for   
  1996 are unaudited.                                                   


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                                                                 Standard total return                          
                                      --------------------------------------------------------------------------
           Substitute funds               Inception of fund                                                     
                                          through 9/30/96\1\       1996\2\  (percent)       1995\3\  (percent)  
                                              (percent)                                                         
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AIM V.I. Government Securities Fund..                     4.18                    -0.20                    15.56
Fidelity VIP Growth Portfolio........                    14.98                     5.93                    35.36
Fidelity VIP Equity-Income Portfolio.                    13.05                     3.12                    35.09
AIM V.I. International Equity Fund...                    13.80                    13.25                    17.24
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\1\ Total returns for the period from inception through September 30, 1996 for the Substitute Funds have been   
  annualized.                                                                                                   
\2\ Total returns for 1996 are for the nine-month period ended September 30, 1996 and have not been annualized. 
\3\ Total returns for 1995 are for the twelve-month period ended December 31, 1995.                             

    13. Each Substitute Fund is substantially larger than its 
counterparts among the Removed Funds and also has lower expense ratios 
and has either outperformed or performed comparably relaitve to the 
corresponding Removed Fund.
    14. The management fees of each Substitute Fund are comparable to 
those of each Removed Fund. Each Removed Fund pays a monthly management 
fee based on its average daily net assets at the following annual 
rates: U.S. Government Fund, 0.40%; Equity Fund, 0.50%; Balanced Fund, 
0.40%; and International Equity Fund, 1.00%. By contrast, each 
Substitute Fund pays a monthly management fee based on its average 
daily net assets at the following annual rates as of December 31, 1995, 
as follows: AIM V.I. Government Securities Fund, 0.50%; Fidelity VIP 
Growth Portfolio, 0.61%; Fidelity VIP Equity-Income Portfolio, 0.51%; 
and AIM V.I. Internaitonal Equity Fund, 0.75%.\1\
---------------------------------------------------------------------------

    \1\ Fidelity VIP also pays a group fee rate based on the average 
net assets of all mutual funds advised by Fidelity Management & 
Research Company. The management fee rate presented for the Fidelity 
VIP Growth Portfolio and Fidelity VIP Equity-Income Portfolio 
includes the group fee rate.
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    15. Citicorp Life and First Citicorp Life have both determined that 
the small size and high expense ratio of the Removed Funds compared to 
the Substitute Funds cause the Removed Funds to be good candidates for 
consolidaiton with the Substitute Fudss.
    16. Applicants propose that Citicorp Life and First Citicorp Life 
substitute: (1) shares of the AIM V.I. Government Securities Fund for 
shares of the Landmark VIP U.S. Government Fund: (2) shares of the 
Fidelity VIP Growth Portfolio for shares of the Landmark VIP Equity 
Fund; (3) shares of the Fidelity VIP Equity-Income Portfolio for shares 
of the Landmark VIP Balanced Fund; and (4) shares of the AIM V.I. 
International Equity Fund for shares of the Landmark VIP International 
Equity Fund held by corresponding subaccounts of the Accounts (the 
``Proposed Substitution''). Applicants propose to have Citicorp Life 
and First Citicorp Life redeem shares of each Removed Fund in cash and 
purchase with the proceeds shares of the Substitute Fund identified 
above.
    17. The Proposed Substitution will take place at relative net asset 
value with no change in the amount of any Contract owner's cash value 
or death benefit or in the dollar value of his or her investment in any 
of the Accounts. Contract owners will not incur any fees or charges as 
a result of the Proposed Substitution nor will their rights or Citicorp 
Life's or First Citicorp Life's obligations under the Contracts be 
altered in any way. All expenses incurred in connection with the 
Proposed Substitution, including legal, accounting and other fees and 
expenses, will be paid by Citicorp Life or First Citicorp Life. In 
addition, the Proposed Substitution will not result in the impositions 
of any tax liability on Contract owners. The Proposed Substitution will 
not cause the Contract fees and charges currently being paid by 
existing Contract owners to be greater after the Proposed Substitution 
than before the Proposed Substitution. The Proposed Substitution will 
not be treated as a transfer for the purpose of assessing transfer 
charges or for determining the number of remaining permissible 
transfers in a Contract Year. Citicorp Life and First Citicorp Life 
will not exercise any right either may have under the Contracts to 
impose additional restrictions on transfers under any of the Contracts 
for a period of at least 30 days following the Proposed Substitution.
    18. By supplements to the prospectuses for the Contracts and the 
Accounts dated December 5, 1996, all owners and prospective owners of 
the Contracts were notified of Citicorp Life's and First Citicorp 
Life's intention to take the necessary actions, including seeking the 
order requested by the Applicants.
    19. In addition to the prospectus supplements distributed to owners 
and prospective owners of Contracts, within 5 days after the Proposed 
Substitution, any owners who were affected by the substitution will be 
sent a written notice informing them that the substitutions were 
carried out and that they may make one transfer of all cash value

[[Page 13409]]

under a Contract invested in any one of the affected subaccounts to 
another subaccount(s) until 30 days after the substitution without that 
transfer counting as one of a limited number of transfers permitted in 
a Contract year free of charge.

Applicants' Legal Analysis

    1. Section 26(b) of the 1940 Act requires the depositor of a 
registered unit investment trust holding the securities of a single 
issuer to obtain Commission approval before substituting the securities 
held by the trust. Specifically, Section 26(b) states:

    It shall be unlawful or any depositor or trustee of a registered 
unit investment trust holding the security of a single issuer to 
substitute another security for such security unless the Commission 
shall have approved such substitution. The Commission shall issue an 
order approving such substitution if the evidence establishes that 
it is consistent with the protection of investors and the purposes 
fairly intended by the policy and provisions of this title.

    2. Applicants state that the Proposed Substitution appears to 
involve a substitution of securities within the meaning of Section 
26(b) of the 1940 Act and request that the Commission issue an order 
pursuant to Section 26(b) of the 1940 Act approving the Proposed 
Substitution.
    3. The Contracts all provide to Citicorp Life or First Citicorp 
Life the right, subject to Commission approval, to substitute shares of 
another open-end management investment company for shares of an open-
end management investment company held by a subaccount of the relevant 
Account. Applicants assert that the prospectuses for the Contracts and 
the Accounts contain appropriate disclosure of this right.
    4. The Proposed Substitution would effectively consolidate the 
assets of each Substitute Fund with those of the corresponding Removed 
Fund resulting, in all cases, in a fund with lower future expense 
ratios than the past expense ratios of the Removed Fund.
    Each of the Substitute Funds is substantially larger than the 
Removed Fund that is would replace. Each Substitute Fund has also had 
more favorable expense ratios over the last two years than the Removed 
Fund it would replace. Moreover, as of January 31, 1997, the Removed 
Funds were no longer available or new investment, and most likely will 
experience the net redemption of their shares. Applicants assert that, 
therefore, it is highly likely that in the near future each Removed 
Fund's asset base will decrease and, accordingly, each Removed Fund's 
expense ratio will increase.
    5. Each Substitute Fund has performed favorably over the past two 
years and since its inception in comparison to the Removed Fund that it 
would replace. Applicants therefore anticipate that, after the Proposed 
Substitution, the Substitute Funds will provide Contract owners with 
more favorable or comparable overall investment results than would be 
the case if the Proposed Substitution do not take place.
    6. Each of the Substitute Funds is a suitable and appropriate 
investment vehicle for Contract owners. Each of the Substitute Funds 
has substantially identical investment objectives to the Removed Fund 
that it would replace.
    7. Applicants generally submit that the Proposed Substitution meet 
the standards that the Commission and its staff have applied to 
substitutions that have been approved in the past.

Conclusion

    Applicants submit that, for the reasons summarized above, the 
Proposed Substitution are 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. 97-7044 Filed 3-19-97; 8:45 am]
BILLING CODE 8010-01-M