PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 6th day of October, 2005
by and among Security Benefit Life Insurance Company (hereinafter the
"Company"), a life insurance company organized under the laws of Kansas, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), and ROYCE CAPITAL FUND (hereinafter
the "Fund"), a Delaware business trust, and ROYCE & ASSOCIATES, LLC, a Delaware
limited liability company (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an older from the Securities and Exchange
Commission, dated July 24,1996 (File No. 812-9988), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules
6e-2(b)(l5) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Insurance Products
separate accounts of both affiliated and unaffiliated life insurance companies
and Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment
Advisers Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Adviser manages the Portfolios of the Fund set forth on
Schedule A; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act, unless such Variable Insurance Products
are properly exempt under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act, unless the Account is properly exempt
under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and Adviser agree as follows:
ARTICLE I. Fund Shares
1.1. The Fund agrees to make available for purchase by the Company
shares of the Portfolios set forth on Schedule A and shall execute orders placed
for each Account on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of such order. For purposes of this Section
1.1, the Company shall be the designee of the Fund for receipt of such orders
from each Account and receipt by such designee of orders prior to the close of
regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
time) shall constitute receipt by the Fund; provided that the Fund receives
notice of such order by 10:00 a.m. Eastern time on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 9:00 a.m. Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the rules of the SEC, as set, forth in the Fund's
Prospectus and Statement of Additional Information. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company OR separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund, are listed on Schedule B
attached hereto and incorporated herein by reference, as such Schedule B may be
amended from time to time by mutual written agreement of all of the parties
hereto.
1.6. The Company will place separate orders to purchase or redeem
shares of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall use its best
efforts to pay the redemption proceeds in federal funds transmitted by wire on
the next Business Day, in any event redemption proceeds shall be wired to the
Company within three Business Days or such longer period permitted by the 1940
Act, after an order to redeem a Portfolio's shares is made in accordance with
the provision of section 1.4 hereof. Notwithstanding the foregoing, if the
payment of redemption proceeds on the next Business Day would require the
Portfolio to dispose of securities or otherwise incur substantial additional
costs, and if the Portfolio has determined to settle redemption transactions for
all shareholders on a delayed basis, it reserves the right to suspend the right
of redemption or postpone the date of payment or satisfaction upon redemption
consistent with Section 22(e) of the 1940 Act and the Portfolio shall notify in
writing the person designated by the Company as the recipient for such notice of
such delay promptly.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
per share payable on the
Fund's shares available to the Company as soon as reasonably practical after the
dividends or capital gains are declared (normally by 6:30 p.m. Eastern time) and
shall use its best efforts to furnish same day notice by 7:00 p.m. Eastern time
(by wire or telephone, followed by written confirmation) to the Company of any
dividends or capital gain distributions per share payable on the Fund's shares,
but in no event no later than 6:30 p.m. Eastern Time on the ex-dividend date.
The Company hereby elects to receive all such dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such dividends and capital gain distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.9. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to make such net asset value
per share available by 7:00 p.m. Eastern time. In the event that the Fund is
unable to meet the 7:00 p.m. time stated immediately above, then the Fund shall
provide the Company with additional time to notify the Fund of purchase or
redemption orders pursuant to Sections 1.1 and 1.4, respectively, above. Such
additional time shall be equal to the additional time that the Fund takes to
make the net asset values available to the Company. If the Fund provides the
Company with materially incorrect share net asset value information, the
Account(s) shall be entitled to any adjustment to the number of shares purchased
or redeemed necessary to make the Account(s) whole. Any material error in the
calculation of the net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company. If such
material error results in an overpayment to the Account(s), the Company will use
its best efforts to collect such overpayment. If, after such efforts, the
Company is not able to recover all such overpayment, the Company will cooperate
with the attempts of the Fund and/or Adviser to recover the overpayment.
Furthermore, the Adviser shall be liable for the reasonable administrative costs
incurred by the Company in relation to the correction of any material error,
provided such error is attributable to the Fund or the Adviser (or their
designee for calculating the NAV). Administrative costs shall include reasonable
allocation of staff time, costs of outside service providers, printing and
postage. Non-material errors will be corrected in the next Business Day's net
asset value per share.
1.10 The parties may agree, in lieu of the procedures set forth above
in this Article I. to place and settle trades for Fund shares through a clearing
corporation. In the event that such a clearing corporation is used, the parties
agree to abide by the rules of the clearing corporation.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder, or are properly
exempt from registration under the 1933 Act or will be offered exclusively in
transactions that are properly exempt from registration under the 1933 Act; that
the Contracts will be issued in compliance in all material respects with all
applicable federal securities and state securities laws and regulations and
insurance laws and regulations. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the Kansas insurance laws and the regulations
thereunder and has registered or, prior to any issuance or sale of the
Contracts, will register and will maintain the registration of each Account as a
unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts, or such Accounts are properly
exempt from registration under the 1940 Act or will be offered exclusively in
transactions that are properly exempt from registration under the 1940 Act. The
Company shall amend its registration statement for its contracts under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Delaware and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 0000 Xxx. The Fund shall amend the
registration statement for its shares under the 1913 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3. The Fund and the Adviser represent and warrant that the Fund is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and that the Fund and
the Adviser will maintain such qualification (under Subchapter M or any
successor or similar provision) and that the Fund or the Adviser will notify the
Company immediately upon having a reasonable basis for believing that a
Portfolio has ceased to so qualify or that a Portfolio might not so qualify in
the future.
2.4. The Company represents and warrants that each Account is and will
continue to be a "segregated account" under applicable provisions of the Code
and that each Contract is and will be treated as a "variable contract" under
applicable provisions of the Code and that it will maintain such treatments and
that it will notify the Fund immediately upon having a reasonable basis for
believing that the Account or Contract has ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of Delaware and that the Fund does
and will comply in all material respects with the 1940 Act.
2.8. The Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal securities
laws and that it will perform its obligations for the Fund and the Company in
compliance in all material respects with the laws and regulations of its state
of domicile and any applicable state and federal securities laws and
regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund in the event that such coverage no longer applies.
2.10 The Fund and the Adviser each represent and warrant that all of
its trustees, officers, employees, and other individuals/entities dealing with
the money and/or securities of the Fund are covered by a blanket fidelity bond
or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus (the "Fund Prospectus") as the
Company may reasonably request. If requested by the Company, in addition to
providing printed copies of the Fund Prospectus, the Fund shall provide
camera-ready film or computer diskettes containing the Fund Prospectus, or shall
provide the same electronically in .pdf format, and such other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the Fund Prospectus is amended during the year) to have the prospectus for
the Contracts (the "Contract Prospectus") and the Fund Prospectus printed
together in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably
request. If requested by the Company in addition to providing printed copies of
the Fund SAI, the Fund shall provide camera-ready film or computer diskettes
containing the Fund SAI, or shall provide the same electronically in .pdf
format, and such other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the Fund SAI is amended during the
year) to have the statement of additional information for the Contracts (the
"Contract SAI") and the Fund SAI printed together or separately. The Company may
also elect to print the Fund SAI in combination with other fund companies'
statements of additional information. For purposes hereof, any combined
statement of additional information including the Fund SAI along with the
Contract SAI or statement of additional information of other fund companies
shall be referred to as a "Combined SAI." For purposes hereof, the term "Fund
Portion of the Combined SAI shall refer to the percentage of the number of Fund
SAI pages in the Combined SAI in relation to the total number of pages of the
Combined SAI.
3.l(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, or shall
provide the same electronically in .pdf format, and such other assistance as is
reasonably necessary in order for the Company once each year to have the annual
report and semi-annual report for the Contracts (collectively, the "Contract
Reports") and the Fund Reports printed together or separately. The Company may
also elect to print the Fund Reports in combination with other fund companies'
annual reports and semi-annual reports. For purposes hereof; any combined annual
reports and semi-annual reports including the Fund Reports along with the
Contract Reports or annual reports and semi-annual reports of other fund
companies shall be referred to as "Combined Reports." For purposes hereof; the
term "Fund Portion of the Combined Reports" shall refer to the percentage of the
number of Fund Reports pages in the Combined Reports in relation to the total
number or pages of the Combined Reports.
3.2 EXPENSES
3.2(a) EXPENSES BORNE BY COMPANY. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, and Combined Prospectuses; (ii) Contract
SAIs, and Combined SAIs; (iii) Contract Reports, and Combined Reports, and (iv)
Contract proxy material that the Company may require in sufficient quantity to
be sent to Contract owners, annuitants, or participants under Contracts
(collectively, the "Participants"), shall be the expense of the Company
3.2(b) EXPENSES BORNE BY FUND
FUND PROSPECTUSES
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund Prospectuses made available by the Company to
such existing Participants in order to update disclosure as required by the 1933
Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type and printing the Fund Portion of
the Combined Prospectus made available by the Company to its existing
Participants in order to update disclosure as required by the 1933 Act and/or
the 1940 Act. In such event, the Fund shall bear the cost of typesetting to
provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting the prospectus. Notwithstanding the foregoing, in no
event shall the Fund pay for any such costs that exceed by more than five (5)
percent what the Fund would have paid to print such documents. The Fund shall
not pay any costs of typesetting and printing the Fund Prospectus (or Combined
Prospectus, if applicable) to prospective Participants.
FUND SAIs. FUND REPORTS AND PROXY MATERIAL
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, made
available by the Company to its existing Participants. In such event, the Fund
shall bear the cost of typesetting to provide the Fund SAI or Fund Reports to
the Company in the format in which the Fund is accustomed to formatting
statements of additional information and annual and semi-annual reports.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than as described above.
3.3. The Fund's prospectus shall state that the current SAI for the
Fund is available. The Fund SAI shall be obtainable from the Fund, the Company
or such other person as the Fund may designate.
3.4. So long as, and to the extent the SEC continues to interpret the
1940 Act to require pass-through voting privileges for Participants, or to the
extent otherwise required by law, the Company shall, at the Company's option,
follow one of the two methods described below to provide pass-through voting
privileges to Participants:
(a) Provide a list of Participants with value allocated to a
Portfolio as of the record date to the Fund or its agent in order to permit the
Fund to send solicitation material and gather voting instructions from
Participants on behalf of the Company. The Company shall also provide such other
information to the Fund as is reasonably necessary in order for the Fund to
properly tabulate votes for Fund initiated proxies. In the event that the
Company chooses this option, the Fund shall be responsible for properly "echo
voting" shares of a Portfolio for which no voting instructions have been
received.
(b) Solicit voting instructions from Participants itself and
vote shares of the
Portfolio in accordance with instructions received from Contract holders. The
Company shall vote the shares of the Portfolio for which no instructions have
been received in the same proportion as shares of the Portfolio for which
instructions have been received.
Regardless of which method above is elected by the Company, the Fund will
pay or cause to be paid the expenses associated with printing, mailing,
distributing, solicitation and tabulation of proxy materials to Participants
with respect to proxies related to the Fund.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company or any person contracting with the Company in
which the Fund or the Adviser is named, at least five Business Days prior to its
use. No such material shall be used if the Fund, the Adviser, or their designee
reasonably objects to such use within five Business Days after receipt of such
material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement, the Fund Prospectus, or
the Fund SAI, as such registration statement, Fund Prospectus, or Fund SAI may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or its designee, except with the written permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within five Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement, prospectus, or SAI for the
Contracts, as such registration statement, prospectus, or SAI may be amended or
supplemented from time to time, or in published reports which are in the public
domain or approved by the Company for distribution to Participants, or in sales
literature or other promotional material approved by the Company or its
designee, except with the written permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract promptly after the filing of such document with the
SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. [Reserved]
ARTICLE VI. Diversification
6.1. The Adviser represents and warrants that each Portfolio has
complied and will continue to comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations. In the event a Portfo1io
ceases to so qualify, the Adviser will take all reasonable steps (a) to notify
the Company of such breach and (b) to adequately diversify the Portfolio so as
to achieve compliance within the grace period afforded by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of Contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. if it is determined by a majority of the Board, or a majority of
its disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a
majority of the disinterested members of the Board. No charge or penalty will be
imposed as a result of such withdrawal. The Company agrees that it bears the
responsibility to take remedial action in the event of a Board determination of
an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(I) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(I), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable
7.7. The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. Indemnification
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of its Board and officers, and the Adviser and each director and
officer of the Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the registration statement, prospectus, or SAI for
the Contracts or contained in the Contracts or sales literature
for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Company by or on
behalf of the Fund for use in the registration statement,
prospectus, or SAI for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of any statements
or representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Fund not supplied by the Company or persons
under its control and other than statements or representations
authorized by the Fund or the Adviser) or unlawful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact contained
in a registration statement, prospectus, SAI or sales literature
of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon and in conformity with information furnished in
writing to the Fund by or on behalf of the Company for use in the
registration statement, prospectus or SAI of the Fund or in sales
literature; or
(iv) arise as a result of any material failure by
the Company to provide the services and furnish the materials
under the terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by or on behalf
of the Company in this Agreement or arise out of or result from
any other material breach of this Agreement by the Company.
8.1(b). Notwithstanding Section 8.1(a) above, the Company shall not be
liable under this indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
8.1(c). Notwithstanding Section 8.1(a) above, the Company shall not be
liable under this indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify
the Company of any such claim shall not relieve the Company from any liability
which it may have to the Indemnified Party against whom such action is brought
unless the Company is materially prejudiced by failure to notify. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such Party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement, prospectus, or SAI or
sales literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity
with information furnished to the Adviser or the Fund by or on
behalf of the Company for use in the registration statement,
prospectus, or SAI for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Portfolio shares: or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or sales
literature for the Contracts not supplied by the Adviser or Fund
or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of
the Adviser, Fund, or persons under its control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact contained
in a registration statement, prospectus, SAI, or sales literature
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the Adviser
or the Fund for use in the registration statement, prospectus or
SAI for the Contracts or in sales literature for the Contracts; or
(iv) arise as a result of any material failure by
the Adviser or Fund to provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by or on behalf
of the Adviser or the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the
Fund or the Adviser; including without limitation any failure by
the Fund or the Adviser, whether unintentional or in good faith or
otherwise, to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other fist legal process giving information
of the nature of the claim shall have been served upon such Indemnified Party
(or after such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Adviser of any such claim shall
not relieve the Adviser from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Adviser will be entitled
to participate, at its own expense, in the defense thereof. The Adviser also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Adviser to such Party of
the Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Adviser will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
8.2(e). It is understood that these indemnities shall have no effect on
any other agreement or arrangement between the Fund and/or its series and the
Adviser.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon
six-months advance written notice delivered to the other parties;
or
(b) termination by the Company by written notice to the
Fund and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company by written notice to the
Fund and the Adviser with respect to any Portfolio in the event
any of the Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
medium of the Contracts issued or to be issued by the Company. The
terminating party shall give prompt notice to the other parties of
its decision to terminate; or
(d) termination by the Company by written notice to the
Fund and the Adviser with respect to any or all of the Portfolios
in the event that any Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably
believes that a Portfolio may fail to so qualify; or
(e) termination by the Company by written notice to the
Fund and the Adviser with respect to any or all of the Portfolios
in the event that any Portfolio fails to meet the diversification
requirements specified in Article VI hereof, or if the Company
reasonably believes that a Portfolio may fail to meet such
diversification requirements; or
(f) termination by either the Fund or the Adviser by
written notice to the Company if the Adviser or the Fund shall
determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity and as a result ability to perform
obligations under this Agreement is materially impaired, provided
that the Fund or the Adviser will give the Company sixty (60)
days' advance written notice of such determination of its intent
to terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Fund or the Adviser shall continue to apply
on the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination: or
(g) termination by the Company by written notice to the
Fund and the Adviser, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Adviser (with respect to the appropriate Portfolio) has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; provided that the Company
will give the Fund and the Adviser sixty (60) days' advance
written notice of such determination of its intent to terminate
this Agreement, and provided further that after consideration of
the actions taken by the Fund and/or Adviser and any other changes
in circumstances since the giving of such notice, the
determination of the Company shall continue to apply on the 60th
day
since giving of such notice, then such 60th day shall be the
effective date of termination; or
(h) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Adviser by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body in respect of the sale of
shares of the Fund to the Company, provided, however, that the
Company determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a material
adverse effect upon the ability of the Fund or the Adviser to
perform its obligations under this Agreement; or
(i) termination by any party upon the other party's breach
of any representation in Section 2 or any material provision of
this Agreement, which breach has not been cured to the
satisfaction of the terminating party within ten (10) days after
written notice of such breach is delivered to the Fund and Adviser
or the Company, as the case may be; or
(j) termination by the Fund or the Adviser by written
notice to the Company in the event an Account or Contract is not
registered or sold in accordance with applicable federal or state
law or regulation, or the Company fails to provide pass-through
voting privileges as specified in Section 3.4; provided that the
Fund or the Adviser will give the Company sixty (60) days' advance
written notice of such intent.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Adviser) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 45 days prior written notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement pursuant to
Article X hereof, all rights and obligations arising under Article VIII of this
Agreement shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Royce Capital Fund
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
If to the Adviser:
Royce & Associates, LLC
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
If to the Company:
Security Benefit Life Insurance Company
One Security Benefit Place
Topeka, Kansas 66636
Attention: General Counsel
ARTICLE XII. Foreign Tax Credits
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ART1CLE XIII. Miscellaneous
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, the Fund and the Adviser hereto shall treat as confidential the
names, addresses and other personal financial information of the owners of the
Contracts. Subject to the requirements of legal process and regulatory
authority, each party shall treat as confidential all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
information until such time as it may come into the public domain without the
express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
SCHEDULE A
PORTFOLIOS OF ROYCE CAPITAL FUND
FUNDS AVAILABLE FOR
PURCHASE
Royce Capital Fund - Micro-Cap Portfolio, CUSIP #00000X000
Royce Capital Fund - Small-Cap Portfolio, CUSIP #00000X000
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
SEPARATE ACCOUNT
Variable Annuity Account XIV
Variable Annuity Account XVII
Variflex Separate Account
Variable Annuity Account VIII
CONTRACTS
V6029 - Classic Strategies, SecureDesigns, AdvanceDesigns, AdvisorDesigns
V6023, V6016, V6019, V2500 - Variflex
V6028 - Variflex Extra Credit
V6025 - Variflex Signature
V6022 - Variflex LS
V6320 - Variflex LS Group
