<PAGE>
497(c) File Nos. 33-55050 and 811-6401
LANDMARK VIP FUNDS
(LANDMARK VIP U.S. GOVERNMENT FUND, LANDMARK VIP BALANCED FUND,
LANDMARK VIP EQUITY FUND AND LANDMARK VIP INTERNATIONAL EQUITY FUND)
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. N-1A ITEM LOCATION
- -------- --------- --------
PART A PROSPECTUS
- ------ ----------
<S> <C> <C>
Item 1. Cover Page............................................. Cover Page
Item 2. Synopsis............................................... Not Applicable
Item 3. Condensed Financial Information........................ Condensed Financial Information
Item 4. General Description of Registrant...................... Investment Information; General
Information; Appendix
Item 5. Management of the Fund................................. Management; Expenses
Item 5A. Management's Discussion of Fund Performance............ Not Applicable
Item 6. Capital Stock and Other Securities..................... General Information; Voting and Other
Rights; Purchase and Redemption of
Shares; Dividends and Distributions; Tax
Matters
Item 7. Purchase of Securities Being Offered................... Purchase and Redemption of Shares
Item 8. Redemption or Repurchase............................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings.............................. Not Applicable
STATEMENT OF
ADDITIONAL
PART B INFORMATION
- ------ -----------
Item 10. Cover Page............................................. Cover Page
Item 11. Table of Contents...................................... Cover Page
Item 12. General Information and History........................ The Trust
Item 13. Investment Objectives and Policies..................... Investment Objectives; Description of
Permitted Investments and Investment
Practices; Investment Restrictions
Item 14. Management of the Fund................................. Management
Item 15. Control Persons and Principal Holders of Securities.... Management
Item 16. Investment Advisory and Other Services................. Management
Item 17. Brokerage Allocation and Other Practices............... Portfolio Transactions
Item 18. Capital Stock and Other Securities..................... Description of Shares, Voting Rights and
Liabilities
Item 19. Purchase, Redemption and Pricing of Securities Description of Shares, Voting Rights and
Being Offered.......................................... Liabilities; Determination of Net Asset
Value; Valuation of Securities;
Additional Redemption Information
Item 20. Tax Status............................................. Certain Additional Tax Matters
Item 21. Underwriters........................................... Management
Item 22. Calculation of Performance Data........................ Performance Information
Item 23. Financial Statements................................... Financial Statements
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.
</TABLE>
<PAGE>
497(c) File Nos. 33-55050 and 811-6401
LandmarkSM VIP Funds
Landmark VIP U.S. Government Fund
Landmark VIP Balanced Fund
Landmark VIP Equity Fund
Landmark VIP International Equity Fund
PROSPECTUS
May 1, 1996
1
<PAGE>
PROSPECTUS
May 1, 1996
LandmarkSM VIP Funds
Landmark VIP U.S. Government Fund
Landmark VIP Balanced Fund
Landmark VIP Equity Fund
Landmark VIP International Equity Fund
Landmark VIP Funds (the "Trust") provides an investment vehicle for
variable annuity contract and variable life insurance policies offered by the
separate accounts ("Separate Accounts") of participating life insurance
companies ("Participating Insurance Companies").
The Trust offers shares of four diversified portfolios--Landmark VIP U.S.
Government Fund, Landmark VIP Balanced Fund, Landmark VIP Equity Fund and
Landmark VIP International Equity Fund (each, a "Fund" and collectively, the
"Funds"). Their investment objectives are described below. There is, of
course, no assurance that any Fund will achieve its investment objectives.
The Landmark VIP U.S. Government Fund's investment objectives are to earn
current income and to preserve capital. The Landmark VIP U.S. Government Fund
invests primarily in U.S. Government securities, i.e., obligations issued or
guaranteed by the U.S. Government or any of its agencies and
instrumentalities, and repurchase agreements involving U.S. Government
securities.
The Landmark VIP Balanced Fund's investment objectives are 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
Balanced Fund invests in a broadly diversified portfolio of income-producing
securities, including common and preferred stocks and bonds. In selecting
common stocks, the Fund emphasizes securities issued by established companies
with medium to large capitalizations and seasoned management teams
("Established Companies").
The Landmark VIP Equity Fund's investment objective is long-term capital
growth; dividend income, if any, is incidental to this investment objective.
The Landmark VIP Equity Fund invests primarily in common stocks of domestic
issuers, with an emphasis on Established Companies.
The Landmark VIP International Equity Fund's investment objective is
long-term capital growth; dividend income, if any, is incidental to this
investment objective. The Landmark VIP International Equity Fund invests
primarily in common stocks of non-U.S. issuers, including issuers in
developing countries, with an emphasis on Established Companies.
Citibank, N.A. ("Citibank" or the "Adviser") is the investment adviser for
each of the Funds. Prospective investors should be aware that shares of the
Funds are not deposits or obligations of, or guaranteed or endorsed by,
Citibank, or any of its affiliates, are not insured by the Federal Deposit
Insurance Corporation or any other agency, and involve investment risks,
including possible loss of principal amount invested.
Shares of the Funds are not offered to the general public but may only be
purchased by the Separate Accounts of Participating Insurance Companies for
the purpose of funding variable annuity contracts and variable life insurance
policies.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. A Statement of Additional
Information dated May 1, 1996 (and incorporated by reference in this
Prospectus) has been filed with the Securities and Exchange Commission.
Copies of the Statement of Additional Information may be obtained without
charge, and further inquiries about the Funds may be made, by contacting the
Trust's distributor at (617) 423-1679 or a Participating Insurance Company.
Investors should read this Prospectus and retain it for future reference.
<PAGE>
TABLE OF CONTENTS
Page
-------
Condensed Financial Information 3
Investment Information 4
Risk Considerations 6
Valuation of Shares 7
Purchase and Redemption of Shares 7
Dividends and Distributions 8
Management 8
Tax Matters 10
Performance Information 10
General Information 11
Appendix--Permitted Investments and Investment Practices A-1
<PAGE>
Condensed Financial Information
The following tables provide condensed financial information for Landmark
VIP U.S. Government Fund, Landmark VIP Balanced Fund, Landmark VIP Equity
Fund and Landmark VIP International Equity Fund for the periods indicated.
The financial statements and notes of the Funds, as well as the tables below,
have been audited by Price Waterhouse LLP, independent accountants. The
report of Price Waterhouse LLP is included in the Landmark VIP Funds' Annual
Report, which may be obtained without charge.
<TABLE>
Financial Highlights
<CAPTION>
Landmark VIP Landmark VIP
U.S. Government Landmark VIP Landmark VIP International
Fund Balanced Fund Equity Fund Equity Fund
------------------ ------------------ ------------------ ------------------
March 10, 1995 March 10, 1995 March 9, 1995 March 10, 1995
(Commencement (Commencement (Commencement (Commencement
of Operations) to of Operations) to of Operations) to of Operations) to
December 31, 1995 December 31, 1995 December 31, 1995 December 31, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period $10.00 $10.00 $10.00 $10.00
------------------ ------------------ ------------------ ------------------
Income From Operations:
Net investment income 0.36 0.22 0.12 0.10
Net realized and unrealized gain (loss)
on investments 0.48 1.02 1.51 0.34
------------------ ------------------ ------------------ ------------------
Total from operations 0.84 1.24 1.63 0.44
------------------ ------------------ ------------------ ------------------
Less Distributions From:
Net investment income (0.36) (0.22) (0.12) (0.09)
Net realized gain on investments -- -- -- (0.04)
------------------ ------------------ ------------------ ------------------
Total distributions (0.36) (0.22) (0.12) (0.13)
------------------ ------------------ ------------------ ------------------
Net Asset Value end of period $10.48 $11.02 $11.51 $10.31
================== ================== ================== ==================
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) $1,292 $1,826 $1,894 $4,515
Ratio of expenses to average
net assets 0% 0% 0% 0%
Ratio of net investment income to
average net assets 6.57%* 4.24%* 2.51%* 2.58%*
Portfolio turnover 0% 8% 8% 34%
Total return 8.45%+ 12.42%+ 16.36%+ 4.41%+
Note: If Agents of the Fund had not voluntarily agreed to waive a portion of
their fees and the administrator not assumed expenses for the periods
indicated, the net investment income per share and the ratios would have been
as follows:
Net investment income per share $0.22 $0.09 $0.00 $0.00
Ratios:
Expenses to average net assets 9.07%* 7.32%* 7.83%* 4.84%*
Net investment income to average net
assets 4.07%* 1.74%* 0.01%* 0.08%*
* Annualized
+ Not annualized
</TABLE>
<PAGE>
INVESTMENT INFORMATION
Investment Objectives
The investment objectives of the Landmark VIP U.S. Government Fund are to
earn current income and to preserve capital.
The investment objectives of the Landmark VIP Balanced Fund are 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 investment objective of the Landmark VIP Equity Fund and the Landmark
VIP International Equity Fund is long-term capital growth. Dividend income,
if any, is incidental to this investment objective.
The investment objective of each Fund may be changed without approval by
that Fund's shareholders, but shareholders will be given written notice at
least 30 days before any change is implemented. Of course, there can be no
assurance that any Fund will achieve its investment objective.
Investment Policies
The Landmark VIP U.S. Government Fund seeks its objectives by investing,
under normal circumstances, at least 65% of its total assets in U.S.
Government securities, i.e., obligations issued or guaranteed as to principal
and interest by the U.S. Government or any of its agencies and
instrumentalities, and repurchase agreements involving U.S. Government
securities. The Fund may invest in securities with varying maturities. In
selecting securities for the Fund, the Adviser will vary proportions among
maturities and types of securities depending upon its assessment of the
prospects for income relative to the outlook for the economy and the
securities markets, interest rates and other factors.
The U.S. Government securities in which the Fund invests include (1) U.S.
Treasury obligations, which differ only in their interest rates, maturities
and times of issuance: U.S. Treasury bills (maturities of one year or less),
U.S. Treasury notes (maturities of one to 10 years) and U.S. Treasury bonds
(generally original maturities of greater than 10 years), all of which are
backed by the full faith and credit of the United States; and (2) obligations
issued or guaranteed by U.S. Government agencies or instrumentalities, some
of which are backed by the full faith and credit of the U.S. Treasury, e.g.,
direct pass-through certificates of the Government National Mortgage
Association; some of which are supported by the right of the issuer to borrow
from the U.S. Government, e.g., obligations of Federal Home Loan Banks; and
some of which are backed only by the credit of the issuer itself, e.g.
obligations of the Student Loan Marketing Association.
The Fund may purchase mortgage-backed securities issued or guaranteed as to
payment of principal and interest by the U.S. Government or any of its
agencies or instrumentalities. Mortgage-backed securities may be backed or
collateralized by fixed, adjustable or floating rate mortgages.
Securities other than U.S. Government securities in which the Fund may
invest include U.S. dollar denominated securities issued or guaranteed by a
foreign government or any of its political subdivisions, agencies or
instrumentalities. The Fund will invest in foreign government securities of
issuers considered stable by the Adviser. The Adviser does not believe that
the credit risk inherent in the obligations of stable foreign governments is
significantly greater than that of U.S. Government securities. The Fund also
may invest in mortgage-backed securities issued by private issuers rated A or
better by Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("S&P") or of comparable quality at the time of purchase as
determined by the Adviser and backed by mortgage pass-through certificates
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
Although the Fund invests primarily in U.S. Government securities, shares
of the Fund are neither insured nor guaranteed by the U.S. Government or any
of its agencies or instrumentalities.
The Landmark VIP Balanced Fund seeks its objectives by investing, under
normal circumstances, in a broadly diversified portfolio of income-producing
securities, including equity and fixed income securities. Under normal
circumstances, at least 25% of the Fund's total assets is invested in fixed
income securities. Citibank determines the mix of investments among equity
and fixed income securities based on its analysis of current economic and
market conditions and underlying securities values.
<PAGE>
The Fund's equity investments include common stocks, preferred stocks,
warrants and securities convertible into common stocks, of companies that, in
the Adviser's judgment, offer the prospect for above-average growth. In
selecting common stocks for the Fund the Adviser emphasizes securities issued
by established companies with medium to large market capitalizations, i.e.,
$750 million or more, and seasoned management teams ("Established
Companies").
The Fund's fixed income investments include corporate bonds and notes,
preferred stock and government obligations. See "Investment Policies" for the
Landmark VIP U.S. Government Fund above for a discussion of U.S. Government
obligations. The Fund's long-term non-convertible debt investments are
investment grade securities (rated Baa or better by Moody's or BBB or better
by S&P) or unrated securities which the Adviser believes to be of comparable
quality. Securities rated Baa by Moody's or BBB by S&P and unrated securities
of comparable quality have speculative characteristics. Less than 5% of the
Fund's investments consist of securities rated Baa by Moody's or BBB by S&P.
While the Fund emphasizes U.S. equity and debt securities, it may invest a
portion of its assets in foreign equity and debt securities, including
depository receipts. The Fund does not intend to invest more than 25% of its
assets in foreign securities, including sponsored American Depositary
Receipts ("ADRs"), which represent interests in securities of foreign issuers
deposited in a domestic or correspondent bank. The Fund may invest up to 5%
of its assets in closed- end investment companies which primarily hold
foreign securities.
The Landmark VIP Equity Fund seeks its objective by investing in a broadly
diversified portfolio of equity securities consisting mainly of common stocks
of domestic issuers. Under normal circumstances, at least 65% of the Fund's
total assets is invested in equity securities.
In selecting common stocks for the Fund the Adviser emphasizes securities
issued by Established Companies which the Adviser believes possess above
average prospects for growth. The Adviser may also select other securities
for the Fund which it believes provide an opportunity for appreciation, such
as fixed income securities, convertible and non-convertible bonds, preferred
stock and warrants. The Fund's long-term non-convertible debt investments are
investment grade securities or unrated securities which the Adviser believes
to be of comparable quality. Less than 5% of the Fund's investments consist
of securities rated Baa by Moody's or BBB by S&P.
Like the Landmark VIP Balanced Fund, the Landmark VIP Equity Fund may
invest in foreign equity and debt securities. The Fund does not intend to
invest more than 25% of its assets in foreign securities, including ADRs, and
not more than 5% of its assets will be invested in closed-end investment
companies which primarily hold foreign securities.
The Landmark VIP International Equity Fund seeks its objective by investing
mainly in common stocks of companies organized in countries other than the
United States, including developing countries. Under normal circumstances, at
least 65% of the Fund's total assets is invested in equity securities, and at
least 65% of the Fund's total assets is invested in securities of issuers
organized in at least three countries other than the U.S. For purposes of
this policy, equity securities are defined as common stock, securities
convertible into common stock, and trust or limited partnership interests,
and include securities purchased directly or in the form of sponsored ADRs,
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or
other similar securities representing common stock of non-U.S. issuers.
In selecting common stocks for the Fund the Adviser emphasizes securities
issued by Established Companies which the Adviser believes possess above
average prospects for growth. The Adviser may also select other securities
which it believes provide an opportunity for appreciation, such as fixed
income securities, convertible and non- convertible bonds, preferred stock
and warrants. The Fund's assets usually consist of issues listed on
securities exchanges, and its long-term non-convertible debt investments are
investment grade securities.
Certain Additional Investment Policies
Temporary Investments. During periods of unusual economic or market
conditions, for temporary defensive purposes or liquidity, or to meet certain
asset diversification requirements, each Fund may invest without limit in
cash and in U.S. dollar-denominated high quality money market and short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
Other Permitted Investments. For more information regarding the Funds'
permitted investments and investment practices, see the Appendix - Permitted
Investments and Investment Practices. The Funds will not necessarily invest
or engage in each of the investments and investment practices in the Appendix
but reserve the right to do so.
Investment Restrictions. The Statement of Additional Information contains a
list of specific investment restrictions which govern the investment policies
of the Funds, including a limitation that each Fund may borrow money from
<PAGE>
banks in an amount not to exceed 33-1/3% of the Fund's total assets for
extraordinary or emergency purposes (e.g., to meet redemption requests).
Certain of these specific restrictions may not be changed without shareholder
approval. Except as otherwise indicated, the Funds' investment objectives and
policies may be changed without shareholder approval. If a percentage or
rating restriction (other than a restriction as to borrowing) is adhered to
at the time an investment is made, a later change in percentage or rating
resulting from changes in the Funds' securities will not be a violation of
policy.
State Insurance Regulation. Each Fund provides an investment vehicle for
variable annuity contracts and variable life insurance policies to be offered
by the Separate Accounts of Participating Insurance Companies. Certain states
have regulations concerning concentration of investments, purchase and sale
of futures contracts and short sales of securities, among other techniques.
If these regulations are applied to a Fund, the Fund may be limited in its
ability to engage in such techniques and to manage its investments with the
flexibility provided herein. It is each Fund's intention to operate in
material compliance with current insurance laws and regulations, as applied,
in each jurisdiction in which contracts or policies of Separate Accounts of
Participating Insurance Companies are offered.
Investment Structure. The Trust may, in the future, seek the investment
objectives of one or more Funds by investing all of that Fund's investable
assets in a diversified, open-end management investment company having the
same investment objectives and policies and substantially the same investment
restrictions as those of that Fund. Such investment would be made only if the
Trustees believe that the aggregate per share expenses of the Fund and such
other investment company will be less than or approximately equal to the
expenses which the Fund would incur if the assets of the Fund continued to be
invested directly in securities.
Portfolio Turnover. Securities of each Fund will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objectives, without regard to the length of time a particular security may
have been held. For the fiscal period ended December 31, 1995, the turnover
rates for the Landmark VIP U.S. Government Fund, the Landmark VIP Balanced
Fund, the Landmark VIP Equity Fund and the Landmark VIP International Equity
Fund were 0%, 8%, 8% and 34%, respectively. The amount of a Fund's brokerage
commissions and realization of taxable capital gains will tend to increase as
the level of portfolio activity increases.
Brokerage Transactions. The primary consideration in placing the Funds'
security transactions with broker-dealers for execution is to obtain and
maintain the availability of execution at the most favorable prices and in
the most effective manner possible.
RISK CONSIDERATIONS
The risks of investing in each Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf.
Certain of these risks are described below.
Changes in Net Asset Value. Each Fund's net asset value will fluctuate
based on changes in the values of the underlying securities. This means that
an investor's shares may be worth more or less at redemption than at the time
of purchase. During periods of rising interest rates the value of debt
securities generally declines, and during periods of falling interest rates
the value of these securities generally increases. While securities with
longer maturities tend to produce higher yields, the prices of longer
maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates. Debt securities with shorter maturities
will generally produce lower yields than longer term securities of comparable
quality and tend to be subject to less price movement. Changes by recognized
rating agencies in the rating of any debt security, and actual or perceived
changes in an issuer's ability to make principal or interest payments, also
affect the value of these investments. Equity securities also fluctuate in
response to general market and economic conditions and other factors,
including actual and anticipated earnings, changes in management, political
developments and the potential for takeovers and acquisitions.
Mortgage-backed securities and certain other securities in which the Funds
may invest are subject to prepayment risk and may not be an effective means
of locking in long-term interest rates.
Credit Risk of Debt Securities. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and comparable unrated
securities have speculative characteristics. Adverse economic or changing
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher grade
obligations.
Foreign Securities. Investments in foreign securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S.
and foreign issuers and markets are subject. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of Fund assets and political or 7
social instability. In addition, foreign com-
<PAGE>
panies may not be subject to accounting standards or governmental supervision
comparable to U.S. companies, and there may be less public information about
their operations. Foreign markets may be less liquid and more volatile than
U.S. markets, and may offer less protection to investors such as the Funds.
Because foreign securities often are denominated in currencies other than
the U.S. dollar, changes in foreign currency exchange rates will affect a
Fund's net asset value, the value of dividends and interest earned and gains
and losses realized on the sale of securities. In addition, some foreign
currency values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in currency
markets. Investing in ADRs has some of the same risks as investing directly
in securities of foreign issuers, but often to a lesser degree.
The Landmark VIP International Equity Fund may invest its assets in issuers
located in developing countries, which are generally defined as countries in
the initial stages of their industrialization cycles with low per capita
income. All of the risks of investing in foreign securities are heightened by
investing in issuers in developing countries.
The costs attributable to foreign investing, such as the costs of
maintaining custody of securities in foreign countries, frequently are higher
than those attributable to domestic investing. As a result, the operating
expense ratio of the Landmark VIP International Equity Fund is expected to be
higher than that of an investment company investing exclusively in U.S.
securities.
Investment Practices. Certain of the investment practices employed for the
Funds may entail additional risks. See the Appendix - Permitted Investments
and Investment Practices.
VALUATION OF SHARES
Net asset value per share of each Fund is determined each day the New York
Stock Exchange is open for trading (a "Business Day"). This determination is
made once each day as of the close of regular trading on the Exchange
(normally 4:00 p.m. Eastern time) by adding the market value of all
securities and other assets attributable to a Fund, then subtracting the
liabilities charged to the Fund, and then dividing the result by the number
of outstanding shares of the Fund.
Fund securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed
to accurately reflect fair value. Foreign securities are valued based on
quotations from the primary market in which they are traded which are
translated from the local currency into U.S. dollars using current exchange
rates.
PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Funds directly, but only
through variable annuity contracts and variable life insurance policies
offered through the Separate Accounts of Participating Insurance Companies.
Investors should refer to the prospectus of the Participating Insurance
Company's Separate Account for information on how to purchase a variable
annuity contract or variable life insurance policy, how to select specific
Funds of the Trust as investment options for the applicable contract or
policy and how to redeem monies from the applicable contract or policy.
The Separate Accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of the Funds based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable
annuity contracts and variable life insurance policies issued by the
Participating Insurance Companies) to be effected on that day pursuant to
variable annuity contracts and variable life insurance policies. Orders
received by the Trust are effected on Business Days only. Orders for the
purchase of shares of a Fund are effected at the net asset value per share
next calculated after an order is received in proper form by the Fund or its
designee so long as payment for the shares is received by the end of the next
Business Day. Redemptions are effected at the net asset value per share next
calculated after receipt in proper form of a redemption request by a Fund or
its designee. For purposes of the purchase and redemption of shares of the
Funds, the Separate Account of a Participating Insurance Company shall be a
designee of the Fund for receipt of requests for purchase and redemption, and
receipt by such designee shall constitute receipt by the Trust, provided that
the Fund receives notice of such requests in accordance with applicable
requirements on the next following Business Day. Separate Accounts must
transmit purchase and redemption orders promptly. Payment for redemptions
will be made by the Funds within seven days after the request is received.
The Trust may suspend the right of redemption under certain extraordinary
circumstances in accordance with the rules of the Securities and Exchange
Commission.
<PAGE>
The Funds do not assess any sales charges or redemption fees. Surrender
charges, mortality and expense risk fees and other charges may be assessed by
Participating Insurance Companies under the variable annuity contracts or
variable life insurance policies. The Participating Insurance Companies are
required to describe these fees in the prospectuses for the contracts or
policies.
Shares of the Funds may be sold to and held by Separate Accounts that fund
variable annuity and variable life insurance contracts issued by both
affiliated and unaffiliated Participating Insurance Companies. The Trust
currently does not foresee any disadvantages to the holders of variable
annuity contracts and variable life insurance policies of affiliated and
unaffiliated Participating Insurance Companies arising from the fact that
interests of the holders of variable annuity contracts and variable life
insurance policies may differ due to differences of tax treatment or other
considerations or due to conflicts between the affiliated or unaffiliated
Participating Insurance Companies. Nevertheless, the Trustees will monitor
events to seek to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in
response to such conflicts. Should a material irreconcilable conflict arise
between the holders of variable annuity contracts and variable life insurance
policies of affiliated or unaffiliated Participating Insurance Companies, the
Participating Insurance Companies may be required to withdraw the assets
allocable to some or all of the Separate Accounts from the Funds. Any such
withdrawal could disrupt orderly portfolio management to the potential
detriment of such holders. The variable annuity contracts and variable life
insurance policies are described in the separate prospectuses issued by the
Participating Insurance Companies. The Trust assumes no responsibility for
such prospectuses.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of each Fund's net income from dividends and interest is
distributed annually on or about the last day of December. Net realized
short-term and long-term capital gains, if any, will be distributed annually
in December. Each Fund may also make additional distributions to the extent
necessary to avoid the application of the 4% non-deductible excise tax on
certain undistributed income and net capital gains of mutual funds.
All dividends and distributions will be automatically reinvested in
additional shares of a Fund issued at the net asset value of such shares on
the payment date of such dividends and distributions.
MANAGEMENT
Trustees and Officers
The Trust is supervised by a Board of Trustees, a majority of whom are not
affiliated with the Adviser. More information on the Trustees and officers of
the Trust appears under "Management" in the Statement of Additional
Information.
Investment Adviser
Citibank. Each Fund draws on the strength and experience of Citibank.
Citibank offers a wide range of banking and investment services to customers
across the United States and throughout the world, and has been managing
money since 1822. Its portfolio managers are responsible for investing in
money market, equity and fixed income securities. Citibank and its affiliates
manage more than $83 billion in assets worldwide. Citibank is a wholly-owned
subsidiary of Citicorp.
Citibank manages the assets of each Fund pursuant to separate investment
advisory agreements ("Advisory Agreements"). Subject to policies set by the
Trustees, Citibank makes investment decisions for the Funds. The following
officers of Citibank manage the Funds:
Landmark VIP U.S. Government Fund. Leon Farhi is the manager of the
Landmark VIP U.S. Government Fund. Mr. Farhi, a Vice President of Citibank,
also manages other U.S. dollar, fixed income portfolios for institutional
clients of Citibank. Prior to joining Citibank in 1988, Mr. Farhi worked with
Metropolitan Life Insurance Company as a fixed income portfolio manager.
Landmark VIP Balanced Fund. Grant D. Hobson, Richard Goldman and Mark
Lindbloom are the managers of the Landmark VIP Balanced Fund. Mr. Hobson and
Mr. Goldman manage the equity portion of the portfolio. Mr. Hobson is
responsible for managing U.S. equity portfolios for trust and pension
accounts of Citibank Global Asset Management and currently manages more than
$1 billion of total assets at Citibank. Prior to joining Citibank in 1993,
Mr. Hobson was a Sector Portfolio Manager for Axe Houghton, formerly a
division of USF&G, where he was responsible
<PAGE>
for equity investments for pension accounts and mutual funds. Mr. Goldman is
responsible for managing approximately $600 million of total assets and for
quantitative equity research for the U.S. institutional business of Citibank
Global Asset Management. He joined Citicorp's Investment Management Division
in 1985. Mr. Lindbloom manages the fixed income portion of the portfolio. He
came to Citibank in 1986 from Brown Brothers Harriman & Co., where he managed
fixed income assets for discretionary corporate portfolios.
Landmark VIP Equity Fund. Mr. Hobson and Mr. Goldman serve as managers of
the Landmark VIP Equity Fund. Their respective investment management
experience is described above.
Landmark VIP International Equity Fund. Neil Robson and Trevor Forbes, who
are based in Citibank's London office, are the managers of the Landmark VIP
International Equity Fund. Mr. Robson is the Global Equity Strategist in the
London asset management group and is responsible for the management of $2.5
billion of global and international equity portfolios. Prior to this role Mr.
Robson was a senior European equity manager having joined Citibank from
County NatWest Investment Management in 1989. Mr. Forbes is Head of European
Equity Investment for Citibank, a major component of the investment universe
of the International Fund. Prior to joining Citibank in 1991, Mr. Forbes
managed the investment business of Abbey Life, a major UK based insurance
group. Mr. Robson and Mr. Forbes call on the extensive global network of
Citibank's investment business to select securities in the world markets.
Advisory Fees. For its services under the Advisory Agreements, the Adviser
receives the following investment advisory fees, which are accrued daily and
paid monthly, expressed as a percentage of the applicable Fund's average
daily net assets on an annualized basis for that Fund's then-current fiscal
year:
Landmark VIP U.S. Government Fund 0.40%
Landmark VIP Balanced Fund 0.40%
Landmark VIP Equity Fund 0.50%
Landmark VIP International Equity Fund 1.00%
The Adviser has voluntarily agreed to waive a portion of its investment
advisory fee from each Fund on a month- to-month basis. For the fiscal period
ended December 31, 1995, the investment advisory fees payable to the Adviser
for Landmark VIP U.S. Government Fund, Landmark VIP Balanced Fund, Landmark
VIP Equity Fund and Landmark VIP International Equity Fund were $2,598,
$3,331, $4,047 and $24,004, respectively, all of which were waived by the
Adviser. The Trustees have determined that the Landmark VIP International
Equity Fund's 1.00% investment advisory fee is reasonable in light of the
Fund's investment policy of investing primarily in foreign issuers. Although
this investment advisory fee is similar to those paid by other investment
companies which also invest primarily in foreign issuers, it is higher than
the investment advisory fees currently being paid by most investment
companies in general.
Banking Relationships. Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities purchased on behalf of
the Funds, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Citibank has
informed the Funds that, in making its investment decisions, it does not
obtain or use material inside information in the possession of any division
or department of Citibank or in the possession of any affiliate of Citibank.
Bank Regulatory Matters. The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting securities of open-end
investment companies, such as the Funds. Citibank believes that its services
under the Advisory Agreements and the activities performed by it as
sub-administrator are not underwriting and are consistent with the
Glass-Steagall Act and other relevant federal and state laws. However, there
is no controlling precedent regarding the performance of the combination of
investment advisory and sub-administrative activities by banks. State laws on
this issue may differ from applicable federal law and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Changes in either federal or state statutes or regulations,
or in their interpretations, could prevent Citibank or its affiliates from
continuing to perform these services. If Citibank or its affiliates were to
be prevented from acting as the Adviser or sub-administrator, the Funds would
seek alternative means for obtaining these services. The Funds do not expect
that shareholders would suffer any adverse financial consequences as a result
of any such occurrence.
Administrator
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") provides certain
administrative services to the Funds under an administrative services
agreement ("Administrative Services Agreement"). These administrative
services include providing general office facilities, supervising the overall
administration of the Trust, and providing persons satisfactory to the
Trustees to serve as Trustees and officers of the Trust. Such Trustees and
officers may be directors, officers or employees of LFBDS or its affiliates.
<PAGE>
For these services, LFBDS receives fees accrued daily and paid monthly of
0.20% of the average daily net assets of each Fund on an annualized basis for
the Fund's then-current fiscal year. However, LFBDS has voluntarily agreed to
waive a portion of the fees payable to it on a month-to-month basis.
LFBDS also serves as administrator to the funds in the Landmark Family of
Funds. LFBDS is a wholly-owned subsidiary of Signature Financial Group, Inc.
"Landmark" is a service mark of LFBDS.
Sub-Administrator
Pursuant to a sub-administrative services agreement, Citibank performs such
sub-administrative duties for the Trust as from time to time are agreed upon
by Citibank and LFBDS. Citibank's compensation as sub-administrator is paid
by LFBDS.
Distributor
LFBDS is the distributor of shares of each Fund and also serves as
distributor for the funds in the Landmark Family of Funds. In those states
where LFBDS is not a registered broker-dealer, shares of the Funds are sold
through Signature Broker-Dealer Services, Inc., as dealer. The Trust has
adopted a distribution plan ("Distribution Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"). Under this plan,
the Trust will pay the distributor a fee, not to exceed 0.05% of the average
daily net assets of the Funds, to reimburse the distributor for its expenses
incurred in connection with distribution of shares of the Funds.
Custodian, Transfer Agent and Fund Accountant
Investors Bank & Trust Company acts as dividend disbursing agent for each
Fund and as the custodian of each Fund's assets. Securities held for a Fund
may be held by a sub-custodian bank approved by the Trustees. Signature
Financial Services, Inc. provides transfer agency and fund accounting
services to the Funds and calculates the daily net asset value for the Funds.
TAX MATTERS
This discussion of the federal income taxation of the Funds and their
distributions is for general information only. Purchasers of variable annuity
contracts or variable life insurance policies issued by Participating
Insurance Companies should refer to the prospectuses for those contracts or
policies for additional tax information and should consult their own tax
advisers about their particular situations.
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), which would relieve a Fund of liability for federal income and
excise taxes to the extent the Fund's earnings are distributed in accordance
with the timing requirements of the Code. In order to so qualify, a Fund must
comply with certain distribution, diversification, source of income, holding
period, and other applicable requirements. If for any taxable year a Fund
does not qualify for the special federal tax treatment afforded regulated
investment companies, all of the Fund's taxable income would be subject to
tax at regular corporate rates without any deduction for distributions to
shareholders. In such event, a Fund's distributions to segregated asset
accounts holding shares of the Fund would be taxable as ordinary income to
the extent of the Fund's current and accumulated earnings and profits. A
failure of a Fund to qualify as a regulated investment company also could
have the adverse effects on investors noted below.
A segregated asset account upon which a variable annuity contract or
variable life insurance policy is based must meet certain diversification
tests set forth in U.S. Treasury regulations. If, as is intended, each Fund
meets these tests and complies with certain other conditions, a segregated
asset account investing solely in shares of a Fund will also be deemed to
meet these diversification requirements. However, a failure of the Fund to
qualify as a regulated investment company or to meet such conditions and to
comply with such tests could cause the owners of variable annuity contracts
and variable life insurance policies based on such accounts to recognize
ordinary income each year in the amount of any net appreciation of such
contract or policy during the year (including the annual costs of life
insurance, if any, provided under such policy).
Provided that a Fund and a segregated asset account investing in the Fund
satisfy the above requirements, any distributions from the Fund will be
exempt from current federal income taxation to the extent that such
distributions accumulate in a variable annuity contract or a variable life
insurance contract.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action.
<PAGE>
PERFORMANCE INFORMATION
Each Fund's performance may be quoted in advertising, shareholder reports
and other communications in terms of yield or total rate of return. All
performance information is historical and is not intended to indicate future
performance. Yield and total rates of return fluctuate in response to market
conditions and other factors, and the value of an investor's shares when
redeemed may be more or less than their original cost.
Each Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period which was made at the maximum
public offering price and reflects any change in net asset value per share
and is compounded to include the value of any shares purchased with any
dividends or capital gains declared during such period. Period total rates of
return may be "annualized." An "annualized" total rate of return assumes that
the period total rate of return is generated over a one-year period.
Each Fund may provide annualized "yield" quotations. The "yield" of a Fund
refers to the income generated by an investment in the Fund over a 30-day or
one-month period (which period is stated in any such advertisement or
communication). This income is then annualized; that is, the amount of income
generated by the investment over that period is assumed to be generated each
month over a one-year period and is shown as a percentage of the maximum
public offering price on the last day of that period. A "yield" quotation,
unlike a total rate of return quotation, does not reflect changes in net
asset value.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, a prospective
purchaser should carefully review the prospectus of the variable annuity
contract or variable life insurance policy he or she has chosen for
information on relevant charges and expenses. Including these charges in the
quotations of the Funds' yield and total return would have the effect of
decreasing performance. Performance information for the Funds must always be
accompanied by, and be reviewed with, performance information for the
insurance product which invests in the Funds. See the Statement of Additional
Information for more information concerning the calculation of yield and
total rate of return quotations for the Funds.
--------------------
GENERAL INFORMATION
Organization
Each Fund is a diversified series of Landmark VIP Funds, an open-end
investment company organized as a Massachusetts business trust on August 22,
1991. Landmark VIP Funds was known as Landmark Institutional Funds I until
its name was changed effective September 19, 1994.
Under the 1940 Act, a diversified series or diversified investment company
must invest at least 75% of its assets in cash and cash items, U.S.
Government securities, investment company securities and other securities
limited as to any one issuer to not more than 5% of the total assets of the
investment company and not more than 10% of the voting securities of the
issuer.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
Voting and Other Rights
The Trust may issue an unlimited number of shares (par value $0.00001 per
share), may create new series of shares and may divide shares in each series
into classes. Each share of each Fund gives the shareholder one vote in
Trustee elections and other matters submitted to shareholders for vote. All
shares of each series of the Trust have equal voting rights except that, in
matters affecting only a particular Fund, only shares of that particular Fund
are entitled to vote.
The Trust's activities are supervised by its Board of Trustees. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will usually be sought only for
changes in a Fund's fundamental investment restrictions and for the election
of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of each Fund is entitled
to participate equally in dividends and other distributions and the proceeds
of any liquidation of that Fund.
<PAGE>
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations
thereof, Participating Insurance Companies will vote shares held in the
Separate Accounts in a manner consistent with timely voting instructions
received from the holders of variable annuity contracts and variable life
insurance policies. Each Participating Insurance Company will vote Fund
shares held in Separate Accounts for which no timely instructions are
received from the holders of variable annuity contracts and variable life
insurance policies, as well as shares it owns, in the same proportion as
those shares for which voting instructions are received. For a further
discussion, please refer to the insurance company's Separate Account
prospectus.
Certificates
The Funds' Transfer Agent maintains a share register for shareholders of
record, i.e., the Separate Accounts of the Participating Insurance Companies.
Share certificates are not issued.
Expenses
In addition to amounts payable as described above under the Advisory
Agreements, the Administrative Services Agreement and the Distribution Plan,
each Fund is responsible for its own expenses, including, among other things,
the costs of securities transactions, the compensation of Trustees that are
not affiliated with the Adviser, government fees, taxes, accounting, auditing
and legal fees, expenses of communicating with shareholders, interest
expense, and insurance premiums.
The Statement of Additional Information dated the date hereof contains more
detailed information about the Funds and the Trust, including information
related to (i) the investment policies and restrictions of the Funds, (ii)
the Trustees, officers, Adviser and Administrator, (iii) securities
transactions, (iv) the Funds' shares, including rights and liabilities of
shareholders, (v) the method used to calculate performance information, and
(vi) the determination of net asset value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Funds or their distributor. This Prospectus does not constitute an offering
of shares of the Funds in any jurisdiction in which such offering may not
lawfully be made.
<PAGE>
APPENDIX-PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
Repurchase Agreements. Each Fund may enter into repurchase agreements in
order to earn a return on temporarily available cash. Repurchase agreements
are transactions in which an institution sells the Fund a security at one
price, subject to that Fund's obligation to resell and the selling
institution's obligation to repurchase that security at a higher price
normally within a seven day period. There may be delays and risks of loss if
the seller is unable to meet its obligation to repurchase.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held
by a Fund and the agreement by that Fund to repurchase the securities at an
agreed-upon price, date and interest payment. When a Fund enters into reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained in a segregated
account with that Fund's custodian. The segregation of assets could impair a
Fund's ability to meet its current obligations or impede investment
management if a large portion of the Fund's assets are involved. Reverse
repurchase agreements are considered to be a form of borrowing.
Lending of Securities. Consistent with applicable regulatory requirements
and in order to generate additional income, each Fund may lend its securities
to broker-dealers and other institutional borrowers. Such loans must be
callable at any time and continuously secured by collateral (cash or U.S.
Government securities) in an amount not less than the market value,
determined daily, of the securities loaned. It is intended that the value of
securities loaned by a Fund would not exceed 33-1/3% of that Fund's total
assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, the Fund could
experience delays in recovering either the securities lent or cash. To the
extent that, in the meantime, the value of the securities lent have increased
or the value of the securities purchased have decreased, that Fund could
experience a loss.
Mortgage-Backed Securities. Each of the Funds may invest in mortgage-backed
securities, which are securities representing interests in pools of mortgage
loans These securities provide holders with payments consisting of both
interest and principal as the mortgages in the underlying mortgage pools are
paid off. In general, mortgage-backed securities are subject to prepayment of
the underlying mortgages. During periods of declining interest rates,
prepayment of mortgages underlying these securities can be expected to
accelerate. When the mortgage-backed securities held by a Fund are prepaid,
that Fund must reinvest the proceeds in securities the yield of which
reflects then-prevailing interest rates, which may be lower. Thus,
mortgage-backed securities may not be an effective means of locking in
long-term interest rates for the Funds.
Collateralized Mortgage Obligations. Each of the Funds may invest in
collateralized mortgage obligations ("CMOs"). The mortgages backing these
securities include conventional thirty-year fixed rate mortgages, graduated
payment mortgages, and adjustable rate mortgages. The Funds will purchase
only CMOs that are backed by mortgage pass-through certificates issued or
guaranteed by the U.S. Government or its agencies and instrumentalities.
However, the guarantees do not extend to the mortgage-backed securities'
value, which is likely to vary inversely with fluctuations in interest rates.
Zero Coupon Securities. Each Fund may purchase zero coupon securities. A
zero coupon security pays no interest or principal to its holder during its
life. A zero coupon security is sold at a discount, frequently substantial,
and redeemed at face value at its maturity date. The amount of the discount
is accrued over the life of the security and constitutes the income earned on
the security for both accounting and tax purposes. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities of similar maturity that pay interest periodically, and are likely
to respond to a greater degree to interest rate changes than the market
prices of non-zero coupon securities with similar maturity and credit
qualities.
Receipts. Each Fund may purchase interests in separately traded interest
and principal component parts of U.S. Treasury obligations that are issued by
banks or brokerage firms and are created by depositing U.S. Treasury
obligations into a special account at a custodian bank. The custodian bank
holds the interest and principal payments for the benefit of the registered
owners of the certificates or receipts. The custodian bank arranges for the
issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include "Treasury Receipts" ("TRs"), "Treasury
Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual on
Treasury Securities" ("CATS"). TRs, TIGRs, and CATS are sold as zero coupon
securities. See "Zero Coupon Securities" above for more information on these
securities.
Asset-Backed Securities. Each Fund may purchase asset-backed securities,
which consist of securities secured by company receivables, truck and auto
loans, leases, and credit card receivables. These issues are normally traded
over-
<PAGE>
the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
Interest Rate Swaps. The Landmark VIP U.S. Government Fund and the Landmark
VIP Balanced Fund may enter into interest rate swaps for hedging purposes. An
interest rate swap is a transaction in which the parties involved exchange a
sequence of cash payments based on a floating rate index for a sequence of
cash payments based on a fixed rate. A Fund would undertake a swap if it
believed that interest rates were moving in a manner that made receiving or
making one type of payment more advantageous than the other. Thus, the
success of a swap depends on the Adviser's ability to predict correctly the
movement of interest rates.
Securities of Issuers in Developing Countries. Investors in the Landmark
VIP International Equity Fund should be aware that investing in the equity
and fixed income markets of developing countries involves exposure to
economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries with more mature economies; developing country markets often have
provided higher rates of return and greater risks to investors. These
heightened risks include (i) greater risks of expropriation, confiscatory
taxation and nationalization, and less social, political and economic
stability; (ii) the small current size of markets for securities of issuers
based in developing countries and the currently low or non-existent volume of
trading, resulting in a lack of liquidity and in price volatility; (iii)
certain national policies which may restrict the Fund's investment
opportunities, including restriction on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures.
Private Placements and Illiquid Investments. Each Fund may invest up to 15%
of its net assets in securities for which there is no readily available
market. These illiquid securities may include privately placed restricted
securities for which no institutional market exists. The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a
Fund to sell them promptly at an acceptable price.
Restricted Securities. Each Fund may purchase restricted securities that
are not registered for sale to the general public. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a Fund's
investment limitations. Institutional trading in restricted securities is
relatively new, and the liquidity of a Fund's investments could be impaired
if trading does not develop or declines.
"When-Issued" Securities. In order to ensure the availability of suitable
securities, each Fund may purchase securities on a "when-issued" or "forward
delivery" basis, which means that the securities would be delivered to a Fund
at a future date beyond customary settlement time. Under normal
circumstances, the Fund takes delivery of the securities. In general, the
Fund does not pay for the securities until received and does not start
earning interest until the contractual settlement date. While awaiting
delivery of the securities, the Fund establishes a segregated account
consisting of cash, cash equivalents or high quality debt securities equal to
the amount of the Fund's commitments to purchase "when-issued" securities. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net
asset value.
Currency Exchange Contracts. Forward foreign currency exchange contracts
may be entered into for each Fund (other than the Landmark VIP U.S.
Government Fund), for the purchase or sale of non-U.S. currency for hedging
purposes against adverse rate changes or otherwise to achieve a Fund's
investment objective. A currency exchange contract allows a definite price in
dollars to be fixed for securities of non-U.S. issuers that have been
purchased or sold (but not settled) for the Fund. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange
rates. In addition, entering into such contracts means incurring certain
transaction costs and bearing the risk of incurring losses if rates do not
move in the direction anticipated.
Futures Contracts and Options on Futures Contracts. To protect against the
effects of adverse changes in interest rates (sometimes known as "hedging"),
the Landmark VIP U.S. Government Fund and the Landmark VIP Balanced Fund may
enter into futures contracts on debt securities. Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a security at a specified future time and price. The Landmark VIP
U.S. Government Fund and the Landmark VIP Balanced Fund may also purchase and
write put and call options on such futures contracts. An option on a futures
contract gives the purchaser the right, in exchange for a premium, to assume
a position in a futures contract at a specified exercise price during the
term of the option. This type of option must be traded on a national futures
exchange.
<PAGE>
Options and futures can be volatile investments, and involve certain risks. If
a Fund applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. A
<PAGE>
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments or if it could
not close out its positions because of an illiquid secondary market.
Short Sales "Against the Box." In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. A Fund may engage in short sales only if at the time of
the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." A Fund may make a short sale as a
hedge, when it believes that the value of a security owned by the Fund (or a
security convertible or exchangeable for such security) may decline, or when
the Fund wants to sell the security at an attractive current price but wishes
to defer recognition of gain or loss for tax purposes. Not more than 40% of a
Fund's total assets would be involved in short sales "against the box."
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge
President*
John R. Hartman
John J. Murphy
Jon R. Peisinger
SECRETARY
Thomas M. Lenz*
TREASURER
John R. Elder*
*Affiliated Person of Administrator and Distributor
INVESTMENT ADVISER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
ADMINISTRATOR AND DISTRIBUTOR
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue, Boston, MA 02116
(617) 423-1679
TRANSFER AGENT
Signature Financial Services, Inc.
6 St. James Avenue, Boston, MA 02116
CUSTODIAN
Investors Bank & Trust Company
One Lincoln Plaza, Boston, MA 02111
AUDITORS
Price Waterhouse LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham, Dana & Gould LLP
150 Federal Street, Boston, MA 02110
<PAGE>
497(c) File Nos. 33-55050 and 811-6401
Statement of
Additional Information
May 1, 1996
LANDMARK(SM) VIP FUNDS
LANDMARK VIP U.S. GOVERNMENT FUND
LANDMARK VIP BALANCED FUND
LANDMARK VIP EQUITY FUND
LANDMARK VIP INTERNATIONAL EQUITY FUND
Landmark VIP Funds (the "Trust") is an investment company which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on August 22, 1991. The Trust offers shares of four investment
portfolios -- Landmark VIP U.S. Government Fund, Landmark VIP Balanced Fund,
Landmark VIP Equity Fund and Landmark VIP International Equity Fund
(collectively, the "Funds") -- only to separate accounts ("Separate Accounts")
of participating life insurance companies ("Participating Insurance Companies")
for the purpose of funding variable annuity contracts and variable life
insurance policies. The address and telephone number of the Trust are 6 St.
James Avenue, Boston, Massachusetts 02116, (617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Table of Contents
Page
The Trust B-2
Investment Objectives B-2
Description of Permitted Investments and
Investment Practices B-3
Investment Restrictions B-16
Performance Information B-19
Determination of Net Asset Value; Valuation of
Securities; Additional Redemption Information B-21
Management B-22
Portfolio Transactions B-28
Description of Shares, Voting Rights and Liabilities B-29
Certain Additional Tax Matters B-30
Financial Statements B-31
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Trust's Prospectus, dated May 1, 1996. This Statement of Additional Information
should be read in conjunction with the Prospectus, a copy of which may be
obtained by an investor without charge by contacting the Trust's distributor at
(617) 423-1679 or a Participating Insurance Company.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
1. THE TRUST
Landmark VIP Funds (the "Trust") is an investment company organized as
a business trust under the laws of the Commonwealth of Massachusetts on August
22, 1991. The Trust provides an investment vehicle for variable annuity
contracts and variable life insurance policies offered by the separate accounts
("Separate Accounts") of participating life insurance companies ("Participating
Insurance Companies"). This Statement of Additional Information relates to the
four portfolios offered by the Trust-- Landmark VIP U.S. Government Fund,
Landmark VIP Balanced Fund, Landmark VIP Equity Fund and Landmark VIP
International Equity Fund (collectively, the "Funds").
Citibank, N.A. ("Citibank" or the "Adviser") is investment adviser to
each of the Funds. The Adviser manages the investments of the Funds from day to
day in accordance with each Fund's investment objectives and policies. The
selection of investments for the Funds and the way they are managed depend on
the conditions and trends in the economy and the financial marketplaces.
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS" or the
"Administrator"), the administrator of the Funds, supervises the overall
administration of each Fund. The Board of Trustees of the Trust provides broad
supervision over the affairs of the Funds. Shares of the Funds are continuously
sold by LFBDS, the Funds' distributor (the "Distributor"), only to Separate
Accounts.
2. INVESTMENT OBJECTIVES
The investment objectives of the LANDMARK VIP U.S. GOVERNMENT FUND are
to earn current income and to preserve capital. The Landmark VIP U.S. Government
Fund invests primarily in U.S. Government securities, i.e., obligations issued
or guaranteed as to principal and interest by the U.S. Government or any of its
agencies and instrumentalities, and repurchase agreements involving U.S.
Government securities.
The investment objectives of the LANDMARK VIP BALANCED FUND are 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 investment objective of the LANDMARK VIP EQUITY FUND and the
LANDMARK VIP INTERNATIONAL EQUITY FUND is long-term capital growth. Dividend
income, if any, is incidental to the Fund's investment objective of increasing
the long-term value of its shareholders' investment.
There can, of course, be no assurance that any Fund will achieve its
investment objectives. Investor approval is not required to change the
investment objectives of any of the Funds.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
BANK OBLIGATIONS
Each of the Funds may invest in bank obligations, i.e., certificates of
deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates of
deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market prior to
maturity. A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
Each of the Funds may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in pools
of mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price of
a GNMA certificate originally purchased at a premium to decline in price to its
par value, which may result in loss.
Each Fund may also invest a portion of its assets in collateralized
mortgage obligations or "CMOs," a type of mortgage-backed security. CMOs are
securities collateralized by mortgages, mortgage pass-through certificates,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations of
the issuers payable out of the issuers' general funds and additionally secured
by a first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities and
are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
STRIPS
Each of the Funds may invest in Separately Traded Interest and
Principal Securities ("STRIPS"), which are component parts of U.S. Treasury
Securities traded through the Federal Reserve Book-Entry System. The Adviser
will purchase only those STRIPS that it determines are liquid or, if illiquid,
do not violate the applicable Fund's investment policy concerning investments in
illiquid securities.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the Funds
may purchase securities that are not registered ("restricted securities") under
the Securities Act of 1933, as amended (the "Securities Act"), but can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. However, none of the Funds invests more than 15% of its net
assets in illiquid investments, which include securities for which there is no
readily available market, securities subject to contractual restrictions on
resale and restricted securities, unless the Board of Trustees of the Trust
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Trustees may adopt guidelines and delegate to the Adviser
the daily function of determining and monitoring liquidity of restricted
securities. The Trustees, however, retain oversight and are ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how the
market for restricted securities sold and offered under Rule 144A will develop,
the Trust's Trustees will carefully monitor each Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information.
SECURITIES OF NON-U.S. ISSUERS
Each of the Funds may, subject to certain limitations as set forth in
the Prospectus, invest in securities of non-U.S. issuers. Investing in
securities of foreign issuers may involve significant risks not present in
domestic investments. For example, the value of such securities fluctuates based
on the relative strength on the U.S. dollar. In addition, there is generally
less publicly available information about foreign issuers, particularly those
not subject to the disclosure and reporting requirements of the U.S. securities
laws. Non-U.S. issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to domestic
issuers. Investments in securities of non-U.S. issuers also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of the Fund, political or financial instability or diplomatic and
other developments which would affect such investments. Further, economies of
other countries or areas of the world may differ favorably or unfavorably from
the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. stock markets, while growing in volume
and sophistication, are generally not as developed as those in the U.S., and
securities of some non-U.S. issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Non-U.S. security trading practices, including those involving
securities settlement where the Fund's assets may be released prior to receipt
of payments, may expose the Fund to increased risk in the event of a failed
trade or the insolvency of a non-U.S. broker-dealer. In addition, foreign
brokerage commissions are generally higher than commissions on securities traded
in the U.S. and may be non-negotiable. In general, there is less overall
governmental supervision and regulation of non-U.S. securities exchanges,
brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of such
investments may be substantially less than their net asset value and that there
would be duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Funds to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
The Funds may invest in securities of non-U.S. issuers that impose
restriction on transfer within the United States or to United States persons.
Although securities subject to such transfer restriction may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the same
class that are not subject to such restrictions.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund purchases a security and simultaneously commits to
resell that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security, usually
U.S. Government or Government agency issues. Under the Investment Company Act of
1940, as amended (the "1940 Act"), repurchase agreements may be considered to be
loans by the buyer. A Fund's risk is limited to the ability of the seller to pay
the agreed-upon amount on the delivery date. If the seller defaults, the
underlying security constitutes collateral for the seller's obligation to pay
although that Fund may incur certain costs in liquidating this collateral and in
certain cases may not be permitted to liquidate this collateral. All repurchase
agreements entered into by the Funds are fully collateralized, with such
collateral being marked to market daily.
SHORT SALES "AGAINST THE BOX"
In a short sale, a Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. Each of
the Funds, in accordance with applicable investment restrictions, may engage in
short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold short.
This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Fund engages in a short sale, the collateral for the short position
is maintained for the Fund by the custodian or qualified sub-custodian. While
the short sale is open, an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities are maintained in a segregated account for the Fund. These
securities constitute the Fund's long position.
The Funds do not engage in short sales against the box for investment
purposes. A Fund may, however, make a short sale against the box as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund (or a security convertible or
exchangeable for such security), or when the Fund wants to sell the security at
an attractive current price, but also wishes to defer recognition of gain or
loss for federal income tax purposes or for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code. In
such case, any future losses in the Fund's long position should be reduced by a
gain in the short position. Conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced depends upon the amount of the security sold short relative
to the amount the respective Fund owns. There are certain additional transaction
costs associated with short sales against the box, but the Funds endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Funds may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. A Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will not usually exceed three business days). During the existence
of a loan, a Fund would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive
compensation based on either investment of cash collateral or a fee from the
borrower in the event the collateral consists of securities. The Fund, would
not, however, have the right to vote any securities having voting rights during
the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower fail financially. However,
the loans would be made only to entities deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the consideration which can
be earned currently from loans of this type justifies the attendant risk. If the
Adviser determines to make loans, it is not intended that the value of the
securities loaned would exceed 33 1/3% of the value of the respective Fund's
total assets.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Fund would take delivery of such securities. When a Fund commits to
purchase a security on a "when-issued" or on a "forward delivery" basis, it sets
up procedures consistent with Securities and Exchange Commission policies. Since
those policies currently require that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, the respective Fund will always have cash, cash equivalents, or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, even though the Funds do not intend to make such
purchases for speculative purposes and intend to adhere to the provisions of
Securities and Exchange Commission policies, purchases of securities on such
bases may involve more risk than other types of purchases. For example, a Fund
may have to sell assets which have been set aside in order to meet redemptions.
Also, if the Adviser determines it is advisable as a matter of investment
strategy to sell the "when-issued" or "forward delivery" securities, the Fund
would be required to meet its obligations from the then available cash flow or
the sale of securities, or, although it would not normally expect to do so, from
the sale of the "when-issued" or "forward delivery" securities themselves (which
may have a value greater or less than the Fund's payment obligation).
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. The Funds may also enter into foreign currency hedging
transactions in an attempt to protect the value of the assets of the respective
Fund as measured in U.S. dollars from unfavorable changes in currency exchange
rates and control regulations. (Although each Fund's assets are valued daily in
terms of U.S. dollars, the Trust does not intend to convert a Fund's holdings of
other currencies into U.S. dollars on a daily basis.) The Funds do not currently
intend to speculate in currency exchange rates or forward contracts.
The Funds may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although currency
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract, agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no fees
or commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Fund will be able
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
When the Adviser believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, a Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of the Fund's
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date it
matures. The projection of a short-term hedging strategy is highly uncertain.
The Funds do not enter into such forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts obligates a Fund to
deliver an amount of non-U.S. currency in excess of the value of the Fund's
securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in the investment decisions made with regard to overall
diversification strategies. However, the Adviser believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of the Fund will be served.
The Funds generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, a Fund will either
sell the security and make delivery of the non-U.S. currency, or retain the
security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the non-U.S. currency. Should forward prices decline
during the period between the date a Fund enters into a forward contract for the
sale of the non-U.S. currency and the date it enters into an offsetting contract
for the purchase of such currency, the Fund will realize a gain to the extent
the selling price of the currency exceeds the purchase price of the currency.
Should forward prices increase, the Fund will suffer a loss to the extent that
the purchase price of the currency exceeds the selling price of the currency.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for a Fund to purchase additional non-U.S. currency on the spot market if the
market value of the security is less than the amount of non-U.S. currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of such currency. Conversely, it may be necessary to sell on the
spot market some of the non-U.S. currency received upon the sale of the security
if its market value exceeds the amount of such currency the Fund is obligated to
deliver.
Each of the Funds may also purchase put options on a non-U.S. currency
in order to protect against currency rate fluctuations. If a Fund purchases a
put option on a non-U.S. currency and the value of the U.S. currency declines,
the Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect on
the Fund which otherwise would have resulted. Conversely, where a rise in the
U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. However, the benefit to the
Fund from purchases of foreign currency options will be reduced by the amount of
the premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options which would require
it to forgo a portion or all of the benefits of advantageous changes in such
rates.
The Funds may write options on non-U.S. currencies for hedging purposes
or otherwise to achieve their investment objectives. For example, where a Fund
anticipates a decline in the value of the U.S. dollar value of a foreign
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because of
an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the premium.
However, the writing of a currency option will constitute only a partial hedge
up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on currencies, a Fund also may be required to forgo all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
Put and call options on non-U.S. currencies written by a Fund will be
covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount sufficient
to discharge the Fund's obligations with respect to the option, by acquisition
of the non-U.S. currency or of a right to acquire such currency (in the case of
a call option) or the acquisition of a right to dispose of the currency (in the
case of a put option), or in such other manner as may be in accordance with the
requirements of any exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the
same risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For example,
decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other non-U.S. currency remains constant, and thus will
reduce the value of the ADRs covering such securities. A Fund may employ any of
the above described foreign currency hedging techniques to protect the value of
its assets invested in depositary receipts.
The Funds' dealings in foreign currency contracts are limited to the
transactions described above. Of course, a Fund is not required to enter into
such transactions and does not do so unless deemed appropriate by the Adviser.
It should also be realized that this method of protecting the value of a Fund's
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the value
of the hedged currency, they also tend to limit any potential gain which might
result should the value of such currency increase.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission concerning forward contracts. Since those
policies currently recommend that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, each Fund expects to always have cash, cash equivalents or high
quality debt securities available sufficient to cover any commitments under
these contracts or to limit any potential risk.
FUTURES CONTRACTS
To protect from the effects of adverse changes in interest rates, the
Landmark VIP U.S. Government Fund and the Landmark VIP Balanced Fund may engage
in futures contracts on debt securities. A futures contract is an agreement
between two parties for the purchase or sale for future delivery of securities
or for the payment or acceptance of a cash settlement based upon changes in the
value of an index of securities. A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. A "purchase" of a futures
contract means the acquisition of a contractual obligation to acquire the
securities called for by the contract at a specified price, or to make or accept
the cash settlement called for by the contract, on a specified date. Futures
contracts have been designed by exchanges which have been designated "contract
markets" by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on these
markets, and the exchanges, through their clearing organizations, guarantee that
the contracts will be performed as between the clearing members of the exchange.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Fund purchases or
sells a futures contract. At the same time such a purchase or sale is made, the
Fund must provide cash or securities as a deposit ("initial deposit") known as
"margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant to
such a contract, adjustments are made to recognize differences in value arising
from the delivery of securities with a different interest rate than the specific
security that provides the standard for the contract. In some (but not many)
cases, securities called for by a futures contract may not have been issued when
the contract was entered into.
The purpose of the acquisition or sale of a futures contract, in the
case such as that of the Funds, which hold or will acquire long term debt
securities, is to attempt to protect a Fund from fluctuations in interest rates
without actually buying or selling long-term debt securities. For example, if
interest rates were expected to increase, the Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have much the same
effect as if the Fund sold bonds that it owned, or as if the Fund sold
longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Fund's debt securities would decline, but the value
of the futures contracts would increase thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with long maturities
and investing in bonds with short maturities. However, the use of futures
contracts as an investment technique allows the Fund to maintain a hedging
position without having to sell its securities.
Similarly, when it is expected that interest rates may decline, a Fund
might enter into futures contracts for the purchase of debt securities. Such a
transaction would be intended to have much the same effect as if the Fund
purchased bonds, or as if the Fund sold shorter-term bonds and purchased
longer-term bonds. If interest rates did decline, the value of the futures
contracts could increase.
Although the use of futures for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position (e.g., if the
Fund sells a futures contract to protect against losses in the debt securities
held by the Fund), at the same time the futures contracts limit any potential
gain which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of a
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the debt securities underlying such
contracts correlate with movements in the value of the Fund's securities. If the
security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by gains
on the Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, the
effectiveness of its strategy may be affected by lack of correlation between
changes in the value of the futures contracts and changes in value of the
securities which the Fund would otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a futures contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the futures contract
was originally entered into. While a Fund will establish a futures position only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures contract at
any specific time. In that event, it may not be possible to close out a position
held by the Fund, which could require the Fund to purchase or sell the
instrument underlying the futures contract or to meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the ability effectively to hedge the Fund's securities.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times make
it difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates is
incorrect, the Fund's overall performance may be poorer than if any such
contract had not been entered into. For example, if a Fund hedged against the
possibility of an increase in interest rates which would adversely affect the
price of the Fund's bonds and interest rates decrease instead, part or all of
the benefit of the increased value of the Fund's bonds which were hedged will be
lost because the Fund will have offsetting losses in its futures positions.
Similarly, if a Fund purchases futures contracts expecting a decrease in
interest rates and interest rates instead increased, the Fund will have losses
in its futures positions as well as losses on the securities in its portfolio
which will also decline in value because of the increase in interest rates. In
addition, in such situations, if the Fund has insufficient cash, the Fund may
have to sell bonds from its investments to meet daily variation margin
requirements, possibly at a time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Adviser does not believe that these trading and position limits would have
an adverse impact on a Fund's strategies involving futures.
CFTC regulations require compliance with certain limitations in order
to assure that a Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Fund from purchasing or
selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish the Fund's non-hedging futures positions would exceed 5% of the Fund's
net assets.
The Landmark VIP U.S. Government Fund and the Landmark VIP Balanced
Fund will comply with this CFTC requirement, and each such Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by a Fund in a segregated account
with the Trust's custodian, Investors Bank & Trust Company, so that the amount
so segregated, plus the initial margin held on deposit, will be approximately
equal to the amount necessary to satisfy the Fund's obligations under the
futures contract. The second is that a Fund will not enter into a futures
contract if immediately thereafter the amount of initial margin deposits on all
the futures contracts held by the Fund would exceed 5% of the net assets of the
Fund. The third is that the aggregate market value of the futures contracts held
by a Fund not exceed 50% of the market value of the Fund's total assets other
than its futures contracts. For purposes of this third policy, "market value" of
a futures contract is deemed to be the amount obtained by multiplying the number
of units covered by the futures contract times the per unit price of the
securities covered by that contract.
The ability of a Fund to engage in futures transactions may be limited
by the current federal income tax requirement that less than 30% of a Fund's
gross income be derived from the sale or other disposition of stock or
securities held for less than three months. In addition, the use of futures
contracts may increase the amount of taxable income of a Fund and may affect the
amount, timing and character of a Fund's income for tax purposes, as more fully
described herein in the section entitled "Certain Additional Tax Matters."
OPTIONS ON FUTURES CONTRACTS
The Landmark VIP U.S. Government Fund and the Landmark VIP Balanced
Fund may also, subject to any applicable laws, purchase and write options on
futures contracts of the types described above for hedging purposes only. The
holder of a call option on a futures contract has the right to purchase the
futures contract, and the holder of a put option on a futures contract has the
right to sell the futures contract, in either case at a fixed exercise price up
to a stated expiration date or, in the case of certain options, on a stated
date. Options on futures contracts, like futures contracts, are traded on
contract markets.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities deliverable on exercise
of the futures contract. A Fund will receive an option premium when it writes
the call, and, if the price of the futures contract at expiration of the option
is below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's security holdings. Similarly, the writing of a put option
on a futures contract constitutes a partial hedge against increasing prices of
the securities deliverable upon exercise of the futures contract. If a Fund
writes an option on a futures contract and that option is exercised, the Fund
may incur a loss, which loss will be reduced by the amount of the option premium
received, less related transaction costs. A Fund's ability to hedge effectively
through transactions in options on futures contracts depends on, among other
factors, the degree of correlation between changes in the value of securities
held by the Fund and changes in the value of its futures positions. This
correlation cannot be expected to be exact, and the Fund bears a risk that the
value of the futures contract being hedged will not move in the same amount, or
even in the same direction, as the hedging instrument. Thus it may be possible
for a Fund to incur a loss on both the hedging instrument and the futures
contract being hedged.
The ability of a Fund to engage in options and futures strategies
depends also upon the availability of a liquid market for such instruments;
there can be no assurance that such a liquid market will exist for such
instruments.
4. INVESTMENT RESTRICTIONS
The Trust has adopted the following policies which may not be changed
with respect to a particular Fund without approval by holders of a majority of
the outstanding securities of such Fund, which as used in this Registration
Statement means the vote of the lesser of (i) 67% or more of the outstanding
voting securities of the Fund present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy, or (ii) more than 50% of the outstanding voting securities of the
Fund. The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act.
Each Fund may not:
(1) Borrow money, except that as a temporary measure for extraordinary
or emergency purposes a Fund may borrow in an amount not to exceed 1/3 of the
value of the Fund's net assets, including the amount borrowed (a Fund may not
purchase any securities at any time at which borrowings exceed 5% of the total
assets of the Fund, taken at market value). It is intended that a Fund would
borrow money only from banks and only to accommodate requests for the repurchase
of shares of the Fund while effecting an orderly liquidation of Fund securities.
(For additional related restrictions, see clause (i) under the caption "State
and Federal Restrictions" below.)
(2) Make loans to other persons except (a) through the lending of the
Fund's securities, but not in excess of 33 1/3% of the Fund's total assets
(taken at market value), (b) through the use of repurchase agreements or the
purchase of short-term obligations provided that not more than 15% of the Fund's
net assets will be invested in repurchase agreements maturing in more than seven
days or (c) by purchasing all or a portion of an issue of debt securities of
types commonly distributed privately to financial institutions; for purposes of
this restriction, the purchase of short-term commercial paper or all or a
portion of an issue of debt securities which is part of an issue to the public
shall not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund more
than 10% of the voting securities of such issuer to be held by the Fund, except
that the Fund may invest all or substantially all of its investable assets in
another registered investment company or series thereof having the same
investment objectives and policies and substantially the same investment
restrictions as those of the Fund (a "Qualifying Investment Company").
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the total assets of the Fund more than 5% of
the Fund's assets (taken at market value) to be invested in the securities of
such issuer (other than securities or obligations issued or guaranteed by the
United States, any state or political subdivision thereof, or any political
subdivision of any such state, or any agency or instrumentality of the United
States or of any state or of any political subdivision of any state); provided
that for purposes of this restriction the issue of a futures contract shall not
be deemed to be the issuer of the security or securities underlying such
contract; and provided further that the Fund may invest all or substantially all
of its investable assets in a Qualifying Investment Company.
(5) Concentrate its investments in any particular industry (including
the securities of foreign governments or multilateral lending institutions), but
if it is deemed appropriate for the achievement of the Fund's investment
objectives, up to 25% of its assets, taken at market value at the time of each
investment, may be invested in any one industry (except that positions in
futures or options contracts shall not be subject to this restriction).
(6) Underwrite securities issued by other persons, except insofar as
the Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a security and except that the Fund may invest all or
substantially all of its investable assets in a Qualifying Investment Company.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures contracts) in the ordinary course of business (the Trust
reserves the freedom of action to hold and to sell real estate acquired as a
result of the ownership of securities by the Fund).
(8) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating Investment Restriction (1) above and provided that
collateral arrangements with respect to futures contracts, including deposits of
initial and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
(9) Purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained for each Fund as may be
necessary for the clearance of purchases and sales of securities and except that
deposits of initial and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures contracts.
NON-FUNDAMENTAL RESTRICTIONS
Each Fund does not as a matter of operating policy:
(i) sell any security which the Fund does not own unless by virtue of
the ownership of other securities there is at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions,
(ii) invest for the purpose of exercising control or management,
(iii) purchase securities issued by any registered investment company
except by purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market, is
part of a plan of merger or consolidation; provided, however, that a Fund will
not purchase the securities of any registered investment company if such
purchase at the time thereof would cause more than 10% of the Fund's total
assets (taken at the greater of cost or market value) to be invested in the
securities of such issuers or would cause more than 3% of the outstanding voting
securities of any such issuer to be held by the Fund (for purposes of this
clause (iii) securities of non-U.S. banks shall be treated as investment company
securities, except that debt securities and non-voting preferred stock of
non-U.S. banks are not subject to the 10% limitation described herein); and
provided, further, that a Fund may invest all or substantially all of its
investable assets in a Qualifying Investment Company,
(iv) taken together with any investments described in clause (v) below,
invest more than 15% of the net assets of the Fund in securities that are not
readily marketable, including debt securities for which there is no established
market and fixed time deposits and repurchase agreements maturing in more than
seven days; provided, however, that a Fund may invest all or substantially all
of its investable assets in a Qualifying Investment Company,
(v) taken together with any investments described in clause (iv) above,
invest in securities which are subject to legal or contractual restrictions on
resale (other than fixed time deposits and repurchase agreements maturing in not
more than seven days and securities which may be resold pursuant to Rule 144A
under the Securities Act if the Board of Trustees determines that a liquid
market exists for such securities) if, as a result thereof, more than 15% of the
net assets of the Fund (taken at market value) would be so invested (including
fixed time deposits and repurchase agreements maturing in more than seven days);
provided, however, that a Fund may invest all or substantially all of its
investable assets in a Qualifying Investment Company,
(vi) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of the net
assets of the Fund (taken at market value) is held as collateral for such sales
at any one time (the Trust does not presently intend to make such short sales
for investment purposes),
(vii) acquire the securities of any issuer if, as a result of such
investment, more than 10% of the Fund's total assets would be invested in the
securities of any one issuer (except that this restriction shall not apply to
U.S. Government securities or foreign government securities), or invest in a
security if, as a result of such investment, the Fund would hold more than 10%
of the outstanding voting securities of any one issuer; provided, however, that
a Fund may invest all or substantially all of its investable assets in a
Qualifying Investment Company, or
(viii) purchase warrants in an amount exceeding 5% of a Fund's net
assets.; included within that amount, but not exceeding 2% of the Fund's net
assets, may be warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange; any such warrants will be valued at their market
value except that warrants which are attached to securities at the time such
securities are acquired will be deemed to be without value for the purpose of
this restriction.
These restrictions are not fundamental and may be changed by the
Trustees without shareholder approval.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in this Registration Statement is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund will not be considered
a violation of policy.
5. PERFORMANCE INFORMATION
A total rate of return quotation for a Fund is calculated for any
period by (a) dividing (i) the sum of the net asset per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result. Total rates of return may also be calculated on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a reduced sales charge or net asset value would be reduced if the
maximum sales charge were taken into account.
Any current yield quotation for a Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the last
day of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
Yields and total returns quoted for a Fund include the effect of
deducting the Fund's expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, a purchaser of such
contract or policy should carefully review the prospectus for the applicable
variable annuity contract or variable life insurance policy for information on
relevant charges and expenses. Including these charges in the quotations of a
Fund's yield and total return would have the effect of decreasing performance.
Performance information for the Funds must always be accompanied by, and be
reviewed with, performance information for the insurance product which invests
in the Funds.
Set forth below is total rate of return information for the shares of
each of the Funds for the periods indicated, assuming that dividends and capital
gains distributions, if any, were reinvested.
Redeemable Value of a
Total Rate of Return Hypothetical $1,000
for the Period from Investment at the end
March 10, 1995, March of the Period from
9, 1995 for Landmark March 10, 1995, March
VIP Equity Fund, to 9, 1995 for Landmark
December 31, 1995 VIP Equity Fund, to
(Not Annualized) December 31, 1995
Landmark VIP U.S.
Government Fund 8.45% $1,084
Landmark VIP Balanced Fund 12.42% $1,124
Landmark VIP Equity Fund 16.36% $1,164
Landmark VIP International
Equity Fund 4.41% $1,044
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL REDEMPTION INFORMATION
The net asset value of each share of each Fund is determined each day
during which the New York Stock Exchange is open for trading. As of the date of
this Statement of Additional Information, such Exchange is open for trading
every weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. This
determination of net asset value of shares of a Fund is made once each day as of
the close of regular trading on such Exchange by dividing the value of the
Fund's net assets (i.e., the value of its assets less its liabilities, including
expenses payable or accrued) by the number of shares of the Fund outstanding at
the time the determination is made. A share's net asset value is effective for
orders received by the Trust prior to its calculation and received by the
Distributor prior to the close of the business day on which such net asset value
is determined.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ system. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time when net assets are valued. Bonds and other fixed income
securities (other than short-term obligations) are valued on the basis of
valuations furnished by a pricing service, use of which has been approved by the
Board of Trustees of the Trust. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations (maturing
in 60 days or less) are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees of the Trust. Futures contracts are
normally valued at the settlement price on the exchange on which they are
traded. Securities for which there are no such valuations are valued at fair
value as determined in good faith by or at the direction of the Board of
Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when a
Fund's net asset value is calculated, such securities will be valued at fair
value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for a Fund is determined
on the basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued plus amortization of premium.
Subject to compliance with applicable regulations, the Trust has
reserved the right to pay the redemption or repurchase price of shares of the
Funds, either totally or partially, by a distribution in kind of readily
marketable securities (instead of cash). The securities so distributed would be
valued at the same amount as that assigned to them in calculating the net asset
value for the shares or beneficial interests being sold. If a holder of shares
or beneficial interests received a distribution in kind, such holder could incur
brokerage or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of a Fund more than seven days during any period when (a)
trading in the markets a Fund normally utilizes is restricted, or an emergency,
as defined by the rules and regulations of the Securities and Exchange
Commission (the "SEC"), exists making disposal of a Fund's investments or
determination of its net asset value not reasonably practicable; (b) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings); or (c) the SEC has by order permitted such suspension.
7. MANAGEMENT
The Trustees and officers of the Trust, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the Trust.
Unless otherwise indicated below, the address of each Trustee and officer is 6
St. James Avenue, Boston, Massachusetts.
TRUSTEES
PHILIP W. COOLIDGE* (age 44) - President of the Trust; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
JOHN RICHARD HARTMAN (age 45) - Regional Vice President, Commercial Union
Insurance Company (since November, 1995); Chief Executive Officer, N.A. Retail
Division, Minet Inc. (Insurance and Risk Advisory Services) (January, 1992 to
October, 1995); Chief Operating Officer, Switt & Crawford (Intermediary
Insurance Broker) (January, 1987 to January, 1992). His address is 12855
Flushing Meadow, St. Louis, Missouri.
JOHN J. MURPHY (age 52) - President and Principal, Murphy Capital Management
(Investment Advisor) (since September, 1983). His address is 84 Pinney Road, New
Canaan, Connecticut.
JON R. PEISINGER (age 48) - President, Capital Cities/ABC Video Publishing Inc.
(producer and distributor of home video programming) (since November, 1992);
President, Sony Video Music Video Inc. (producer and distributor of home video
programming) (October, 1990 to July, 1992). His address is 1200 High Ridge Road,
Stamford, Connecticut.
OFFICERS
PHILIP W. COOLIDGE* (age 44) - President of the Trust; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
DAVID G. DANIELSON* (age 31) - Assistant Treasurer of the Trust; Assistant
Manager, Signature Financial Group, Inc. (since May, 1991).
JOHN R. ELDER* (age 47) - Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer of the Phoenix Family of
Mutual Funds, Phoenix Home Life Mutual Insurance Company (1983 to March, 1995).
LINDA T. GIBSON* (age 30) - Assistant Secretary of the Trust; Legal Counsel,
Signature Financial Group, Inc. (since June, 1991); Law Student, Boston
University School of Law (September, 1989 to May, 1992); Product Manager,
Signature Financial Group, Inc. (January, 1989 to September, 1989).
THOMAS M. LENZ* (age 37) - Secretary of the Trust; Vice President and Associate
General Counsel, Signature Financial Group, Inc. (since November, 1989);
Assistant Secretary, Signature Broker-Dealer Services, Inc. (since February,
1991); Attorney, Ropes & Gray (September, 1984 to November, 1989).
MOLLY S. MUGLER* (age 44) - Assistant Secretary of the Trust; Legal Counsel and
Assistant Secretary, Signature Financial Group, Inc. (since December, 1988);
Assistant Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since
December, 1988).
BARBARA M. O'DETTE* (age 36) - Assistant Treasurer of the Trust; Assistant
Treasurer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer
Services, Inc. (since December, 1988).
ANDRES E. SALDANA* (age 33) - Assistant Secretary of the Trust; Legal Counsel
and Assistant Secretary, Signature Financial Group, Inc. (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992).
DANIEL E. SHEA* (age 33) - Assistant Treasurer of the Trust; Assistant Manager
of Fund Administration, Signature Financial Group, Inc. (since November, 1993);
Supervisor and Senior Technical Advisor, Putnam Investments (prior to November,
1993).
The officers of the Trust also hold comparable positions with certain
other Funds for which LFBDS or an affiliate serves as the administrator.
As of April 15, 1996, the Trustees and officers as a group owned less
than 1% of the outstanding shares of the Funds. As of the same date,
Participating Insurance Companies or their separate accounts were the record
owners of all of the shares of each Fund.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
The Trustees of the Trust (with the exception of Mr. Coolidge, who
received no remuneration from the Trust) received the following remuneration
from the Trust during its fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
NAME OF PERSON, FROM AS PART OF BENEFITS UPON COMPLEX PAID
POSITION REGISTRANT(1) FUND EXPENSES RETIREMENT TO TRUSTEES (1)
<S> <C> <C> <C> <C>
JOHN RICHARD HARTMAN $5,000 NONE NONE $5,000
(TRUSTEE)
JOHN J. MURPHY (TRUSTEE) $5,000 NONE NONE $5,000
JON R. PEISINGER $5,000 NONE NONE $5,000
(TRUSTEE)
</TABLE>
(1) Information relates to the period from March 9, 1995 to December 31,
1995. Messrs. Coolidge, Hartman, Murphy and Peisinger are trustees of
32, 1, 1 and 1 fund(s), respectively, of the Landmark Family of Funds.
ADVISER
Citibank manages the assets of each Fund pursuant to separate
investment advisory agreements (the "Advisory Agreements"). Subject to such
policies as the Board of Trustees may determine, the Adviser manages the
respective Fund's securities and makes investment decisions for the Fund. The
Adviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
securities transactions for such Fund. Each of the Advisory Agreements will
continue in effect until September 19, 1996 and thereafter as long as such
continuance is specifically approved at least annually by the Board of Trustees
or by a vote of a majority of the outstanding voting securities of the
applicable Fund, and, in either case, by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Advisory Agreement.
Each of the Advisory Agreements provides that the Adviser may render
services to others. Each Advisory Agreement is terminable without penalty on not
more than 60 days' nor less than 30 days' written notice by the Trust when
authorized either by a vote of a majority of the outstanding voting securities
of the applicable Fund or by a vote of a majority of the Board of Trustees, or
by the Adviser on not more than 60 days' nor less than 30 days' written notice,
and will automatically terminate in the event of its assignment. Each Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for the applicable Fund, except for willful misfeasance, bad faith or gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement.
The Prospectus contains a description of the fees payable to the
Adviser for services under the Advisory Agreements. For the period from March
10, 1995 (March 9, 1995 for the Landmark VIP Equity Fund) to December 31, 1995,
the fees payable to the Adviser from the Landmark VIP U.S. Government Fund,
Landmark VIP Balanced Fund, Landmark VIP Equity Fund and Landmark VIP
International Equity Fund were, $2,598, $3,331, $4,047 and $24,004,
respectively, all of which were voluntarily waived by the Adviser.
ADMINISTRATOR
Pursuant to an administrative services agreement (the "Administrative
Services Agreement"), LFBDS provides the Trust with general office facilities
and supervises the overall administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the Trust's independent contractors and agents;
preparation and filing of all documents required for compliance by the Trust
with applicable laws and regulations; and arranging for the maintenance of books
and records of the Trust.
The Administrative Services Agreement acknowledges that the name
"Landmark" is the property of the Administrator and provides that if LFBDS
ceases to serve as the Administrator of the Trust, the Trust would change its
names so as to delete the word "Landmark." The Administrative Services Agreement
also provides that LFBDS may render administrative services to others and may
permit other investment companies to use the word "Landmark" in their names. The
Administrator provides persons satisfactory to the Board of Trustees to serve as
Trustees and officers of the Trust. Such Trustees and officers, as well as
certain other employees and Trustees of the Trust, may be directors, officers or
employees of the Administrator or its affiliates.
The Prospectus contains a description of the fees payable to the
Administrator under the Administrative Services Agreement. For the period from
March 10, 1995 (March 9, 1995 for the Landmark VIP Equity Fund) to December 31,
1995, the fees payable under a prior Administrative Services Agreement to the
Administrator with respect to Landmark VIP U.S. Government Fund, Landmark VIP
Balanced Fund, Landmark VIP Equity Fund and Landmark VIP International Equity
Fund were, $1,299, $1,665, $1,704 and $4,801, respectively, all of which were
voluntarily waived by the Administrator.
The Administrative Services Agreement continues in effect if such
continuance is specifically approved at least annually by the Board of Trustees
or by a vote of a majority of the outstanding voting securities of the Trust
and, in either case, by a majority of the Trustees who are not parties to the
Administrative Services Agreement or interested persons of any such party. The
Administrative Services Agreement provides that LFBDS may render administrative
services to others. The Administrative Services Agreement terminates
automatically if it is assigned and may be terminated with respect to the Trust
without penalty by vote of a majority of the outstanding voting securities of
the Trust or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Services Agreement also provides that neither
LFBDS, as the Administrator, nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administrative
Services Agreement.
LFBDS is a wholly-owned subsidiary of Signature Financial Group, Inc.
Pursuant to a sub-administrative services agreement, Citibank performs
such sub-administrative duties for the Trust as from time to time are agreed
upon by Citibank and LFBDS. Citibank's sub-administrative duties may include
providing equipment and clerical personnel necessary for maintaining the Trust's
organization, participation in the preparation of documents required for
compliance by the Trust with applicable laws and regulations, the preparation of
certain documents in connection with meetings of Trustees and shareholders, and
other functions which would otherwise be performed by the Administrator. For
performing such sub-administrative services Citibank receives such compensation
as from time to time is agreed upon by LFBDS and Citibank, not in excess of the
amount paid to the Administrator for its services under the Administrative
Services Agreement. All such compensation is paid by LFBDS.
DISTRIBUTOR
LFBDS serves as the Distributor of the Trust's shares pursuant to a
Distribution Agreement with the Trust. Unless otherwise terminated, the
Distribution Agreement continues in effect from year to year upon annual
approval by the Trust's Board of Trustees, or by the vote of a majority of the
outstanding shares of the Trust and by the vote of a majority of the Board of
Trustees of the Trust who are not parties to the Agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The agreement will terminate in the event of its assignment,
as defined in the 1940 Act.
The Trust has adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act after concluding that there is a
reasonable likelihood that the Distribution Plan will benefit each Fund and its
shareholders. The Distribution Plan provides that each Fund shall pay a
distribution fee to the Distributor at an annual rate not to exceed 0.05% of the
Fund's average daily net assets as reimbursement of the Distributor's expenses
incurred in connection with performing its services under the Distribution
Agreement. For the period from March 10, 1995 (March 9, 1995 for the Landmark
VIP Equity Fund) to December 31, 1995, the fees payable under the Distribution
Plan to the Distributor with respect to Landmark VIP U.S. Government Fund,
Landmark VIP Balanced Fund, Landmark VIP Equity Fund and Landmark VIP
International Equity Fund were $325, $416, $405 and $1,200, respectively, all of
which were voluntarily waived by the Distributor.
The Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trustees who are not "interested persons"
of the Trust and who have no direct or indirect financial interest in the
operation of the Distribution Plan or in any agreement related to the Plan
("Qualified Trustees"). The Distribution Plan requires that the Trust and the
Distributor provide to the Board of Trustees, and the Board of Trustees review,
at least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Distribution Plan. The Distribution Plan further provides
that the selection and nomination of the Qualified Trustees is committed to the
discretion of the disinterested Trustees (as defined in the 1940 Act) then in
office. The Distribution Plan may be terminated with respect to any Fund at any
time by a vote of a majority of the Trust's Qualified Trustees or by a vote of
the majority of the outstanding voting securities of the Fund. The Distribution
Plan may not be amended to increase materially the amount of a Fund's permitted
expenses thereunder without the approval of a majority of the outstanding
securities of that Fund and may not be materially amended in any case without a
vote of the majority of both the Trustees and Qualified Trustees. The
Distributor will preserve copies of any plan, agreement or report made pursuant
to the Distribution Plan for a period of not less than six years from the date
of the Plan, and for the first two years the Distributor will preserve such
copies in an easily accessible place.
CUSTODIAN
The Trust has entered into a Custodian Agreement with Investors Bank &
Trust Company ("IBT") pursuant to which IBT acts as custodian for each Fund. The
principal business address of IBT is One Lincoln Plaza, Boston, Massachusetts
02111.
FUND ACCOUNTANT
The Trust has entered into a Fund Accounting Agreement with Signature
Financial Services, Inc. ("SFSI") pursuant to which SFSI provides fund
accounting services to each Fund. Pursuant to a separate Transfer Agency and
Service Agreement with the Trust, SFSI provides transfer agency services to each
Fund. The address of SFSI is 6 St. James Avenue, Boston, Massachusetts 02116.
AUDITORS
Price Waterhouse LLP is the independent accountant for the Trust,
providing audit services, and assistance and consultation with respect to the
preparation of filings with the Securities and Exchange Commission. The address
of Price Waterhouse LLP is 160 Federal Street, Boston, Massachusetts 02110.
8. PORTFOLIO TRANSACTIONS
The primary consideration in placing portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of each Fund and other clients
of the Adviser on the basis of their professional capability, the value and
quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Adviser on the tender of a
Fund's securities in so-called tender or exchange offers. Such soliciting dealer
fees are in effect recaptured for the Fund by the Adviser. At present no other
recapture arrangements are in effect.
Under the Advisory Agreements, in connection with the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed to
seek for each Fund in its best judgment, prompt execution in an effective manner
at the most favorable price. Subject to this requirement of seeking the most
favorable price, securities may be bought from or sold to broker-dealers who
have furnished statistical, research and other information or services to the
Adviser or the Fund, subject to any applicable laws, rules and regulations.
The investment advisory fee that each Fund pays to the Adviser will not
be reduced as a consequence of the Adviser's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff.
In certain instances there may be securities which are suitable as an
investment for a Fund as well as for one or more of the Adviser's other clients.
Investment decisions for a Fund and for the Adviser's other clients are made
with a view to achieving their respective investment objectives. It may develop
that a particular security is bought or sold for only one client even though the
purchase or sale of the security would be suitable for the investment objectives
of several clients. Likewise, a particular security may be bought for one or
more clients when one or more clients are selling the same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable for the security for a Fund.
When purchases or sales of the same security for a Fund and for other portfolios
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large volume
purchases or sales.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest ($0.00001
par value per share) of each series and to divide or combine the shares of any
series into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series. The Funds are
the only current series of shares of the Trust and the Trust has reserved the
right to create and issue additional series of shares. Each share of each Fund
represents an equal proportionate interest in the Fund with each other share.
Shares of each series participate equally in the earnings, dividends and
distribution of net assets of the particular series upon liquidation or
dissolution. Shares of each series are entitled to vote separately to approve
advisory agreements or changes in investment policy, but shares of all series
may vote together in the election or selection of Trustees and accountants for
the Trust.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required and has no present
intention to hold annual meetings of shareholders but the Trust will hold
special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have, under certain circumstances (e.g., upon the application and submission of
certain specified documents to the Trustees by a specified number of
shareholders), the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of each series affected by the amendment.
(See "Investment Restrictions.")
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by a vote of a majority, as defined
in the 1940 Act, of the holders of the Trust's outstanding voting securities
voting as a single class, or of the affected series of the Trust, as the case
may be, or if authorized by an instrument in writing without a meeting,
consented to by holders of not less than a majority of the interests of the
affected series. However, if the Trust or the affected series is the surviving
entity of the merger, consolidation or sale of assets, no vote of interest
holders is required. Any series of the Trust may be dissolved (i) by the
affirmative vote of not less than two-thirds of the outstanding beneficial
interests in such series at any meeting of holders of beneficial interests or by
an instrument in writing signed by a majority of the Trustees and consented to
by not less than two-thirds of the outstanding beneficial interests, (ii) by the
Trustees by written notice to holders of the beneficial interests in the series
or (iii) upon the bankruptcy or expulsion of a holder of a beneficial interest
in the series, unless the remaining holders of beneficial interests, by majority
vote, agree to continue the series. The Trust may be dissolved by action of the
Trustees upon the dissolution of the last remaining series.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its investors, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of an investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
10. CERTAIN ADDITIONAL TAX MATTERS
Any investment in zero coupon bonds, certain stripped securities, and
certain securities purchased at a market discount will cause a Fund to recognize
income prior to the receipt of cash payments with respect to those securities.
In order to distribute this income and avoid a tax on the Fund, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, potentially resulting in additional taxable gain or loss to
the Fund. A Fund's transactions in options, futures contracts, and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of Fund income and distributions to shareholders. Certain
positions held by a Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of
short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. Each Fund will limit its
activities in options, future contracts, and forward contracts to the extent
necessary to meet the requirements of Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments.
Use of foreign currencies for non-hedging purposes may be limited in order to
avoid a tax on the Fund. Investment by a Fund in certain "passive foreign
investments companies" may also be limited in order to avoid a tax on the Fund.
Investment income received by a Fund from foreign securities may be subject to
foreign income taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that may entitle a Fund to a reduced
rate of tax or an exemption from tax on such income; the Fund intends to qualify
for treaty reduced rates where available. It is not possible, however, to
determine the Fund's effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries is not known.
11. FINANCIAL STATEMENTS
The financial statements contained in the Annual Report of the Funds
for the period ended December 31, 1995 (Accession Number 950156-96-000228) are
incorporated by reference into this Statement of Additional Information.
A copy of the Annual Report of the Funds accompanies this Statement of
Additional Information.
