[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
