PARTICIPATION AGREEMENT
as of March 1, 2001
Franklin Xxxxxxxxx Variable Insurance Products Trust
Franklin Xxxxxxxxx Distributors, Inc.
Security Benefit Life Insurance Company
CONTENTS
SECTION SUBJECT MATTER
1. Parties and Purpose
2. Representations and Warranties
3. Purchase and Redemption of Trust Portfolio Shares
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
5. Voting
6. Sales Material, Information and Trademarks
7. Indemnification
8. Notices
9. Termination
10. Miscellaneous
SCHEDULES TO THIS AGREEMENT
A. The Company
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust;
Investment Advisers
D. Contracts of the Company
E. Other Portfolios Available under the Contracts
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
1. PARTIES AND PURPOSE
This agreement (the "Agreement") is between certain portfolios,
specified below and in Schedule C, of Franklin Xxxxxxxxx Variable Insurance
Products Trust, an open-end management investment company organized as a
business trust under Massachusetts law (the "Trust"), Franklin Xxxxxxxxx
Distributors, Inc., a California corporation which is the principal underwriter
for the Trust (the "Underwriter," and together with the Trust, "we" or "us") and
the insurance company identified on Schedule A ("you"), on your own behalf and
on behalf of each segregated asset account maintained by you that is listed on
Schedule B, as that schedule may be amended from time to time ("Account" or
"Accounts").
The purpose of this Agreement is to entitle you, on behalf of the
Accounts, to purchase and redeem the shares, and classes of shares, of
portfolios of the Trust ("Portfolios") that are identified on Schedule C, solely
for the purpose of funding benefits of your variable life insurance policies or
variable annuity contracts ("Contracts") that are identified on Schedule D. This
Agreement does not authorize any other purchases or redemptions of shares of the
Trust.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES BY YOU
You represent and warrant that:
2.1.1 You are an insurance company duly organized and in good
standing under the laws of your state of incorporation.
2.1.2 All of your directors, officers, employees, and other
individuals or entities dealing with the money and/or securities of the
Trust are and shall be at all times covered by a blanket fidelity bond
or similar coverage for the benefit of the Trust, in an amount not less
than $5 million. Such bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company. You
agree to make all reasonable efforts to see that this bond or another
bond containing such provisions is always in effect, and you agree to
notify us in the event that such coverage no longer applies.
2.1.3 Each Account is a duly organized, validly existing
segregated asset account under applicable insurance law and interests
in each Account are offered exclusively through the purchase of or
transfer into a "variable contract" within the meaning of such terms
under Section 817 of the Internal Revenue Code of 1986, as amended
("Code") and the regulations thereunder. You will continue to meet such
definitional requirements, and will notify us immediately upon having a
reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
2.1.4 Each Account either: (i) has been registered or, prior
to any issuance or sale of the Contracts, will be registered as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act");
or (ii) has not been so registered in proper reliance upon an exemption
from registration under Section 3(c) of the 1940 Act; if the Account is
exempt from registration as an investment company under Section 3(c) of
the 1940 Act, you will use your best efforts to maintain such exemption
and will notify us immediately upon having a reasonable basis for
believing that such exemption no longer applies or might not apply in
the future.
2.1.5 The Contracts or interests in the Accounts: (i) are or,
prior to any issuance or sale will be, registered as securities under
the Securities Act of 1933, as amended (the "1933 Act"); or (ii) are
not registered because they are properly exempt from registration under
Section 3(a)(2) of the 1933 Act or will be offered exclusively in
transactions that are properly exempt from registration under Section
4(2) or Regulation D of the 1933 Act, in which case you will make every
effort to maintain such exemption and will notify us immediately upon
having a reasonable basis for believing that such exemption no longer
applies or might not apply in the future.
2.1.6 The Contracts: (i) will be sold by broker-dealers, or
their registered representatives, who are registered with the
Securities and Exchange Commission ("SEC") under the Securities and
Exchange Act of 1934, as amended (the "1934 Act") and who are members
in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); (ii) will be issued and sold in compliance in all
material respects with all applicable federal and state laws; and (iii)
will be sold in compliance in all material respects with state
insurance suitability requirements and NASD suitability guidelines.
2.1.7 The Contracts currently are and will be treated as
annuity contracts or life insurance contracts under applicable
provisions of the Code and you will maintain such treatment; you will
notify us immediately upon having a reasonable basis for believing that
any of the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.1.8 The fees and charges deducted under each Contract, in
the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by you.
2.1.9 You will use shares of the Trust only for the purpose of
funding benefits of the Contracts through the Accounts.
2.1.10 Contracts will not be sold outside of the United
States and its territories.
2.1.11 With respect to any Accounts which are exempt from
registration under the 1940 Act in reliance on 3(c)(1) or Section
3(c)(7) thereof:
2.1.11.1 the principal underwriter for each such
Account and any subaccounts thereof is a registered
broker-dealer with the SEC under the 1934 Act;
2.1.11.2 the shares of the Portfolios of the Trust
are and will continue to be the only investment securities
held by the corresponding subaccounts; and
2.1.11.3 with regard to each Portfolio, you, on
behalf of the corresponding subaccount, will:
(a) vote such shares held by it in the
same proportion as the vote of all other holders of
such shares; and
(b) refrain from substituting shares of
another security for such shares unless the SEC has
approved such substitution in the manner provided in
Section 26 of the 1940 Act, if required.
2.2 REPRESENTATIONS AND WARRANTIES BY THE TRUST
The Trust represents and warrants that:
2.2.1 It is duly organized and in good standing under the laws
of the State of Massachusetts.
2.2.2 All of its directors, officers, employees and others
dealing with the money and/or securities of a Portfolio are and shall
be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940
Act. Such bond shall include coverage for larceny and embezzlement and
be issued by a reputable bonding company.
2.2.3 It is registered as an open-end management investment
company under the 0000 Xxx.
2.2.4 Each class of shares of the Portfolios of the Trust is
registered under the 0000 Xxx.
2.2.5 It will amend its registration statement under the 1933
Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares.
2.2.6 It will comply, in all material respects, with the 1933
and 1940 Acts and the rules and regulations thereunder.
2.2.7 The Trust and, to the extent applicable, each Portfolio
is currently qualified as a "regulated investment company" under
Subchapter M of the Code (or any successor provisions), it will
maintain such qualification, and will notify you immediately upon
having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.2.8 Each Portfolio has complied and will comply with the
diversification requirements for variable annuity, endowment or life
insurance contracts set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5. Upon having a reasonable basis for believing any
Portfolio has ceased to comply and will not be able to comply within
the grace period afforded by Regulation 1.817-5, the Trust will notify
you immediately and will take all reasonable steps to adequately
diversify the Portfolio to achieve compliance.
2.2.9 It currently intends for one or more classes of shares
(each, a "Class") to make payments to finance its distribution
expenses, including service fees, pursuant to a plan ("Plan") adopted
under rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent
that any Class of the Trust finances its distribution expenses pursuant
to a Plan adopted under rule 12b-1, the Trust undertakes to comply with
any then current SEC interpretations concerning rule 12b-1 or any
successor provisions.
2.3 REPRESENTATIONS AND WARRANTIES BY THE UNDERWRITER
The Underwriter represents and warrants that:
2.3.1 It is registered as a broker dealer with the SEC under
the 1934 Act, and is a member in good standing of the NASD.
2.3.2 Each investment adviser listed on Schedule C (each, an
"Adviser") is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities law.
2.3.3 It will perform its obligations under this Agreement in
accordance with the 1933 and 1940 Acts.
2.4 WARRANTY AND AGREEMENT BY BOTH YOU AND US
We received an order from the SEC dated November 16, 1993 (file no.
812-8546), which was amended by a notice and an order we received on September
17, 1999 and October 13, 1999, respectively (file no. 812-11698) (collectively,
the "Shared Funding Order," attached to this Agreement as Schedule H). The
Shared Funding Order grants exemptions from certain provisions of the 1940 Act
and the regulations thereunder to the extent necessary to permit shares of the
Trust to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
and qualified pension and retirement plans outside the separate account context.
You and we both warrant and agree that both you and we will comply with the
"Applicants' Conditions" prescribed in the Shared Funding Order as though such
conditions were set forth verbatim in this Agreement, including, without
limitation, the provisions regarding potential conflicts of interest between the
separate accounts which invest in the Trust and regarding contract owner voting
privileges. In order for the Trust's Board of Trustees to perform its duty to
monitor for conflicts of interest, you agree to inform us of the occurrence of
any of the events specified in condition 2 of the Shared Funding Order to the
extent that such event may or does result in a material conflict of interest as
defined in that order.
3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
3.1 We will make shares of the Portfolios available to the Accounts for
the benefit of the Contracts. The shares will be available for purchase at the
net asset value per share next computed after we (or our agent) receive a
purchase order, as established in accordance with the provisions of the then
current prospectus of the Trust. Notwithstanding the foregoing, the Trust's
Board of Trustees ("Trustees") may refuse to sell shares of any Portfolio to any
person, or may suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or if, in the sole discretion of the Trustees, they deem such action to be in
the best interests of the shareholders of such Portfolio. Without limiting the
foregoing, the Trustees have determined that there is a significant risk that
the Trust and its shareholders may be adversely affected by investors whose
purchase and redemption activity follows a market timing pattern, and have
authorized the Trust, the Underwriter and the Trust's transfer agent to adopt
procedures and take other action (including, without limitation, rejecting
specific purchase orders) as they deem necessary to reduce, discourage or
eliminate market timing activity. You agree to cooperate with us to assist us in
implementing the Trust's restrictions on purchase and redemption activity that
follows a market timing pattern.
3.2 We agree that shares of the Trust will be sold only to life
insurance companies which have entered into fund participation agreements with
the Trust ("Participating Insurance Companies") and their separate accounts or
to qualified pension and retirement plans in accordance with the terms of the
Shared Funding Order and the requirements of Section 817(h) of the Code and
Treasury regulation 1.817-5(f), and any successor provisions. No shares of any
Portfolio will be sold to the general public.
3.3 You agree that all net amounts available under the Contracts shall
be invested in: (i) the Company's general account; (ii) investment companies
currently available as funding vehicles for the Contracts and appearing on
Schedule E of this Agreement; or (iii) other investment companies, provided that
the Company shall have given the Trust and the Underwriter thirty (30) days'
advance written notice of your intention to add such other investment companies.
3.4 You shall be the designee for us for receipt of purchase orders and
requests for redemption resulting from investment in and payments under the
Contracts ("Instructions"). The Business Day on which such Instructions are
received in proper form by you and time stamped by the close of trading will be
the date as of which Portfolio shares shall be deemed purchased, exchanged, or
redeemed as a result of such Instructions. Instructions received in proper form
by you and time stamped after the close of trading on any given Business Day
shall be treated as if received on the next following Business Day. You warrant
that all orders, Instructions and confirmations received by you which will be
transmitted to us for processing on a Business Day will have been received and
time stamped prior to the Close of Trading on that Business Day. Instructions we
receive after 9:30 a.m. Eastern Time shall be processed on the next Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Trust calculates its net asset value pursuant
to the rules of the SEC and its current prospectus.
3.5 We shall calculate the net asset value per share of each Portfolio
on each Business Day, and shall communicate these net asset values to you or
your designated agent on a daily basis as soon as reasonably practical after the
calculation is completed (normally by 6:30 p.m. Eastern time).
3.6 You shall submit payment for the purchase of shares of a Portfolio
on behalf of an Account no later than the close of business on the next Business
Day after we receive the purchase order. Payment shall be made in federal funds
transmitted by wire to the Trust or to its designated custodian.
3.7 We will redeem any full or fractional shares of any Portfolio, when
requested by you on behalf of an Account, at the net asset value next computed
after receipt by us (or our agent) of the request for redemption, as established
in accordance with the provisions of the then current prospectus of the Trust.
We shall make payment for such shares in the manner we establish from time to
time, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act. Payments for the purchase or redemption of shares by
you may be netted against one another on any Business Day for the purpose of
determining the amount of any wire transfer on that Business Day.
3.8 Issuance and transfer of the Portfolio shares will be by book entry
only. Stock certificates will not be issued to you or the Accounts. Portfolio
shares purchased from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.
3.9 We shall furnish, on or before the ex-dividend date, but in no
event later than 6:30 p.m. Eastern time on the date the payment is made, notice
to you that there will be or have been that day income dividends or capital gain
distributions payable on the shares of any Portfolio. You hereby elect to
receive all such income dividends and capital gain distributions as are payable
on shares of a Portfolio in additional shares of that Portfolio, and you reserve
the right to change this election in the future. We will notify you of the
number of shares so issued as payment of such dividends and distributions.
4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS
4.1 We shall pay no fee or other compensation to you under this
Agreement except as provided on Schedule F, if attached.
4.2 We shall prepare and be responsible for filing with the SEC, and
any state regulators requiring such filing, all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
We shall bear the costs of preparation and filing of the documents listed in the
preceding sentence, registration and qualification of the Trust's shares of the
Portfolios.
4.3 We shall use reasonable efforts to provide you, on a timely basis,
with such information about the Trust, the Portfolios and each Adviser, in such
form as you may reasonably require, as you shall reasonably request in
connection with the preparation of disclosure documents and annual and
semi-annual reports pertaining to the Contracts.
4.4 At your option, we shall provide you, at our expense, with either:
(i) for each Contract owner who is invested through the Account in a subaccount
corresponding to a Portfolio ("designated subaccount"), one copy of each of the
following documents on each occasion that such document is required by law or
regulation to be delivered to such Contract owner who is invested in a
designated subaccount: the Trust's current prospectus, annual report,
semi-annual report and other shareholder communications, including any
amendments or supplements to any of the foregoing, pertaining specifically to
the Portfolios ("Designated Portfolio Documents"); or (ii) a camera ready copy
of such Designated Portfolio Documents in a form suitable for printing and from
which information relating to series of the Trust other than the Portfolios has
been deleted to the extent practicable. In connection with clause (ii) of this
paragraph, we will pay for proportional printing costs for such Designated
Portfolio Documents in order to provide one copy for each Contract owner who is
invested in a designated subaccount on each occasion that such document is
required by law or regulation to be delivered to such Contract owner, and
provided the appropriate documentation is provided and approved by us. We shall
provide you with a copy of the Trust's current statement of additional
information, including any amendments or supplements, in a form suitable for you
to duplicate. The expenses of furnishing, including mailing, to Contract owners
the documents referred to in this paragraph shall be borne by you. For each of
the documents provided to you in accordance with clause (i) of this paragraph
4.4, we shall provide you, upon your request and at your expense, additional
copies. In no event shall we be responsible for the costs of printing or
delivery of Designated Portfolio Documents to potential or new Contract owners
or the delivery of Designated Portfolio Documents to existing contract owners.
4.5 We shall provide you, at our expense, with copies of any
Trust-sponsored proxy materials in such quantity as you shall reasonably require
for distribution to Contract owners who are invested in a designated subaccount.
You shall bear the costs of distributing proxy materials (or similar materials
such as voting solicitation instructions) to Contract owners.
4.6 You assume sole responsibility for ensuring that the Trust's
prospectuses, shareholder reports and communications, and proxy materials are
delivered to Contract owners in accordance with applicable federal and state
securities laws.
5. VOTING
5.1 All Participating Insurance Companies shall have the obligations
and responsibilities regarding pass-through voting and conflicts of interest
corresponding to those contained in the Shared Funding Order.
5.2 If and to the extent required by law, you shall: (i) solicit voting
instructions from Contract owners; (ii) vote the Trust shares in accordance with
the instructions received from Contract owners; and (iii) vote Trust shares for
which no instructions have been received in the same proportion as Trust shares
of such Portfolio for which instructions have been received; so long as and to
the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. You reserve the
right to vote Trust shares held in any Account in your own right, to the extent
permitted by law.
5.3 So long as, and to the extent that, the SEC interprets the 1940 Act
to require pass-through voting privileges for Contract owners, you shall provide
pass-through voting privileges to Contract owners whose Contract values are
invested, through the Accounts, in shares of one or more Portfolios of the
Trust. We shall require all Participating Insurance Companies to calculate
voting privileges in the same manner and you shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by us.
With respect to each Account, you will vote shares of each Portfolio of the
Trust held by an Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
Account for which voting instructions are received. You and your agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without our prior written consent,
which consent may be withheld in our sole discretion.
6. SALES MATERIAL, INFORMATION AND TRADEMARKS
6.1 For purposes of this Section 6, "Sales literature or other
Promotional material" includes, but is not limited to, portions of the following
that use any logo or other trademark related to the Trust, or Underwriter or its
affiliates, or refer to the Trust: 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, electronic communication 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 or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees in
any media, and disclosure documents, shareholder reports and proxy materials.
6.2 You shall furnish, or cause to be furnished to us or our designee,
at least one complete copy of each registration statement, prospectus, statement
of additional information, private placement memorandum, retirement plan
disclosure information or other disclosure documents or similar information, as
applicable (collectively "Disclosure Documents"), as well as any report,
solicitation for voting instructions, Sales literature or other Promotional
materials, and all amendments to any of the above that relate to the Contracts
or the Accounts and also refer to a Portfolio, the Trust, the Underwriter or an
Adviser, prior to its first use. You shall furnish, or shall cause to be
furnished, to us or our designee each piece of Sales literature or other
Promotional material in which the Trust or an Adviser is named, at least ten
(10) Business Days prior to its proposed use. No such material shall be used
unless we or our designee approve such material and its proposed use.
6.3 You and your agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser, other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and prospectus
may be amended or supplemented from time to time), annual and semi-annual
reports of the Trust, Trust-sponsored proxy statements, or in Sales literature
or other Promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee. You shall send us a complete copy of
each Disclosure Document and item of Sales literature or other Promotional
materials in its final form within twenty (20) days of its first use.
6.4 We shall not give any information or make any representations or
statements on behalf of you or concerning you, the Accounts or the Contracts
other than information or representations, including naming you as a Trust
shareholder, contained in and accurately derived from Disclosure Documents for
the Contracts (as such Disclosure Documents may be amended or supplemented from
time to time), or in materials approved by you for distribution, including Sales
literature or other Promotional materials, except as required by legal process
or regulatory authorities or with your written permission.
6.5 Except as provided in Section 6.2, you shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Xxxxxxxxx" or any logo or other trademark relating to the Trust or the
Underwriter without prior written consent, and upon termination of this
Agreement for any reason, you shall cease all use of any such name or xxxx as
soon as reasonably practicable.
6.6 You shall furnish to us ten (10) Business Days prior to its first
submission to the SEC or its staff, any request or filing for no-action
assurance or exemptive relief naming, pertaining to, or affecting, the Trust,
the Underwriter or any of the Portfolios.
7. INDEMNIFICATION
7.1 INDEMNIFICATION BY YOU
7.1.1 You agree to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees
and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually the "Indemnified Party" for purposes of this
Section 7) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with your written consent, which
consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation,
or at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of shares of the Trust or the Contracts and
7.1.1.1 arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in a Disclosure Document for the Contracts or in the
Contracts themselves or in sales literature generated or
approved by you on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this
Section 7), 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 indemnity 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 was accurately derived from written
information furnished to you by or on behalf of the Trust for
use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
7.1.1.2 arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined below in Section 7.2) or wrongful conduct of you or
persons under your control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
7.1.1.3 arise out of or result from any untrue
statement or alleged untrue statement of a material fact
contained in Trust Documents as defined below in Section 7.2
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 statement
or omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on
behalf of you; or
7.1.1.4 arise out of or result from any failure by
you to provide the services or furnish the materials required
under the terms of this Agreement;
7.1.1.5 arise out of or result from any material
breach of any representation and/or warranty made by you in
this Agreement or arise out of or result from any other
material breach of this Agreement by you; or
7.1.1.6 arise out of or result from a Contract
failing to be considered a life insurance policy or an annuity
Contract, whichever is appropriate, under applicable
provisions of the Code thereby depriving the Trust of its
compliance with Section 817(h) of the Code.
7.1.2 You shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party
would otherwise be subject by reason of 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 or to the Trust or Underwriter, whichever is applicable. You
shall also not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified you 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
you of any such claim shall not relieve you 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, you shall
be entitled to participate, at your own expense, in the defense of such
action. Unless the Indemnified Party releases you from any further
obligations under this Section 7.1, you also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from you to such party of the your
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and you 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.
7.1.3 The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
7.2 INDEMNIFICATION BY THE UNDERWRITER
7.2.1 The Underwriter agrees to indemnify and hold harmless
you, and each of your directors and officers and each person, if any,
who controls you within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 7.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Underwriter, which consent
shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses") to which the
Indemnified Parties may become subject under any statute, at common law
or otherwise, insofar as such Losses are related to the sale or
acquisition of the shares of the Trust or the Contracts and:
7.2.1.1 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 sales
literature of the Trust (or any amendment or supplement to any
of the foregoing) (collectively, the "Trust Documents") 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 of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
us by or on behalf of you for use in the Registration
Statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
7.2.1.2 arise out of or as a result of statements or
representations (other than statements or representations
contained in the Disclosure Documents or sales literature for
the Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the Trust, Adviser or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Trust shares; or
7.2.1.3 arise out of any untrue statement or alleged
untrue statement of a material fact contained in a Disclosure
Document 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 to
you by or on behalf of the Trust; or
7.2.1.4 arise as a result of any failure by us to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification representation specified above in Section 2.2.7
and the diversification requirements specified above in
Section 2.2.8; or
7.2.1.5 arise out of or result from any material
breach of any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the
provisions of Sections 7.2.2 and 7.2.3 hereof.
7.2.2 The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of 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 or to you or the Accounts, whichever is
applicable.
7.2.3 The Underwriter 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
Underwriter 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 Underwriter of any such
claim shall not relieve the Underwriter 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
Underwriter will be entitled to participate, at its own expense, in the
defense thereof. Unless the Indemnified Party releases the Underwriter
from any further obligations under this Section 7.2, the Underwriter
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the
defense thereof, the Indemnified Party shall bear the expenses of any
additional counsel retained by it, and the Underwriter 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.
7.2.4 You agree promptly to notify the Underwriter of the
commencement of any litigation or proceedings against you or the
Indemnified Parties in connection with the issuance or sale of the
Contracts or the operation of each Account.
7.3 INDEMNIFICATION BY THE TRUST
7.3.1 The Trust agrees to indemnify and hold harmless you, and
each of your directors and officers and each person, if any, who
controls you within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
7.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Trust, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and arise out of
or result from any material breach of any representation and/or
warranty made by the Trust in this Agreement or arise out of or result
from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Sections 7.3.2 and
7.3.3 hereof. It is understood and expressly stipulated that neither
the holders of shares of the Trust nor any Trustee, officer, agent or
employee of the Trust shall be personally liable hereunder, nor shall
any resort be had to other private property for the satisfaction of any
claim or obligation hereunder, but the Trust only shall be liable.
7.3.2 The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against any 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 and duties under this Agreement or to you, the Trust, the
Underwriter or each Account, whichever is applicable.
7.3.3 The Trust 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 Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claims 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 Trust of any such claim shall not relieve the Trust 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 Trust will be entitled to participate, at
its own expense, in the defense thereof. Unless the Indemnified Party
releases the Trust from any further obligations under this Section 7.3,
the Trust also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice
from the Trust to such party of the Trust'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 Trust 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.
7.3.4 You agree promptly to notify the Trust of the
commencement of any litigation or proceedings against you or the
Indemnified Parties in connection with this Agreement, the issuance or
sale of the Contracts, with respect to the operation of the Account, or
the sale or acquisition of shares of the Trust.
8. 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 in
Schedule G below or at such other address as such party may from time to time
specify in writing to the other party.
9. TERMINATION
9.1 This Agreement may be terminated by any party in its entirety or
with respect to one, some or all Portfolios for any reason by ninety (90) days
advance written notice delivered to all other parties.
9.2 This Agreement shall terminate immediately:
9.2.1 by written agreement of all of the parties.
9.2.2 in the event of its assignment by any party without the prior
written approval of the other parties, or as otherwise required by law.
9.2.3 by written notice from you to the Trust and the Underwriter
if any Portfolio:
9.2.3.1 ceases to qualify as Regulated Investment Company
under Subchapter M of the Code, or under any successor or similar
provision; or
9.2.3.2 fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations
thereunder or any successor or similar provision.
9.2.4 by written notice from either the Trust or the Underwriter to
you if:
9.2.4.1 any Contract: (i) ceases to be treated as an annuity
contract or life insurance contract under applicable provisions of
the Code or under any successor or similar provisions; or (ii)
fails to qualify as a "variable contract" within the meaning of
such term under Section 817 of the Code, as amended, or any
regulations thereunder;
9.2.4.2 you give us the written notice specified above in
Section 3.3 and at the same time you give us such notice there was
no notice of termination outstanding under any other provision of
this Agreement; provided, however, that any termination under this
Section 9.2.4.2 shall be effective sixty (60) days after the notice
specified in Section 3.3 was given; or
9.2.4.3 you notify the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no
longer applies, or might not apply in the future, to the
unregistered Accounts, or that the exemption from registration
under Section 4(2) or Regulation D promulgated under the 1933 Act
no longer applies or might not apply in the future, to interests
under the unregistered Contracts.
9.3 This Agreement may be terminated immediately by any party upon
written notice to all other parties upon the material breach of any provision of
this Agreement, but no termination shall be effective under this Section 9.3
until the terminating party has specified the nature of the material breach in
writing to the other parties to this Agreement and such other parties have been
afforded a reasonable opportunity (and no less than 30 days) to cure the
material breach
9.4 If this Agreement is terminated for any reason, except as required
by the Shared Funding Order or pursuant to Section 9.2.4.1, above, we shall, at
your option, continue to make available additional shares of any Portfolio and
redeem shares of any Portfolio pursuant to all of the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement. If this Agreement is terminated as required by the Shared
Funding Order, its provisions shall govern.
9.5 The provisions of Sections 2 (Representations and Warranties) and 7
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 9.4, except that we shall have no further obligation
to sell Trust shares with respect to Contracts issued after termination.
9.6 You shall not redeem Trust shares attributable to the Contracts (as
opposed to Trust shares attributable to your assets held in the Account) except:
(i) as necessary to implement Contract owner initiated or approved transactions;
(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"); (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act; or (iv) or as permitted by a Contract
if such Contract is not, and is not required to be, registered pursuant to the
federal securities laws. Upon request, you shall promptly furnish to us the
opinion of your counsel (which counsel shall be reasonably satisfactory to us)
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, you shall not prevent Contract owners from allocating
payments to a Portfolio that was otherwise available under the Contracts without
first giving us ninety (90) days notice of your intention to do so.
10. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions of this
Agreement or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.4 This Agreement shall be construed and its provisions interpreted
under and in accordance with the laws of the State of California. It shall also
be subject to the provisions of the federal securities laws and the rules and
regulations thereunder, to any orders of the SEC on behalf of the Trust granting
it exemptive relief, and to the conditions of such orders. We shall promptly
forward copies of any such orders to you.
10.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
10.6 The parties to this Agreement agree that the assets and
liabilities of each Portfolio of the Trust are separate and distinct from the
assets and liabilities of each other Portfolio. No Portfolio shall be liable or
shall be charged for any debt, obligation or liability of any other Portfolio.
10.7 Each party to this Agreement 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.
10.8 Each party to this Agreement shall treat as confidential all
information reasonably identified as confidential in writing by any other party
to this Agreement, and, except as permitted by this Agreement or as required by
legal process or regulatory authorities, shall not disclose, disseminate, or use
such names and addresses and other confidential information until such time as
they may come into the public domain, without the express written consent of the
affected party to this Agreement. Without limiting the foregoing, no party to
this Agreement shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
10.9 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties to this Agreement are
entitled to under state and federal laws.
10.10 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided above in
Section 3.3.
10.11 Neither this Agreement nor any rights or obligations created by
it may be assigned by any party without the prior written approval of the other
parties.
10.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, each of the parties have caused their duly
authorized officers to execute this Agreement.
The Company: SECURITY BENEFIT LIFE INSURANCE COMPANY
By: XXXXXXX XXXXXXX
---------------------------
Name: Xxxxxxx Xxxxxxx
Title: Vice President
The Trust: FRANKLIN XXXXXXXXX VARIABLE INSURANCE
ONLY ON BEHALF OF EACH PRODUCTS TRUST
PORTFOLIO LISTED ON SCHEDULE
C HEREOF.
By: XXXXX X. XXXXXXXX
---------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Assistant Vice President
The Underwriter: FRANKLIN XXXXXXXXX DISTRIBUTORS, INC.
By: XXXXXX X. XXXXXX
---------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
SCHEDULE A
THE COMPANY
Security Benefit Life Insurance Company
000 XX Xxxxxxxx
Xxxxxx, Xxxxxx 00000
A life insurance company incorporated under Kansas law.
SCHEDULE B
ACCOUNTS OF THE COMPANY
1. Name: SBL Variable Annuity Account XIV
Date Established: June 26, 2000
SEC Registration Number: 811-10011
SCHEDULE C
AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS
FRANKLIN XXXXXXXXX VARIABLE INSURANCE
PRODUCTS TRUST INVESTMENT ADVISER
Franklin Small Cap Fund, Class 2 Franklin Advisers, Inc.
Templeton Developing Markets Securities Xxxxxxxxx Asset Management Ltd.
Fund, Class 2
Xxxxxxxxx International Securities Fund, Xxxxxxxxx Investment Counsel, LLC
Class 2
SCHEDULE D
CONTRACTS OF THE COMPANY
-----------------------------------------------------------
CONTRACT 1
-----------------------------------------------------------
CONTRACT/PRODUCT NAME Secure Design
-----------------------------------------------------------
REGISTERED (Y/N) Yes
-----------------------------------------------------------
SEC REGISTRATION NUMBER 333-52114
-----------------------------------------------------------
REPRESENTATIVE FORM V6029
NUMBERS
-----------------------------------------------------------
SEPARATE ACCOUNT SBL Variable Annuity Account
NAME/DATE ESTABLISHED XIV/June 26, 2000
-----------------------------------------------------------
SEC REGISTRATION NUMBER 811-10011
-----------------------------------------------------------
PORTFOLIOS AND CLASSES Templeton Developing Markets
-ADVISER Securities Fund,
Class 2--Xxxxxxxxx Asset
Management, Ltd.
Xxxxxxxxx International
Securities Fund,
Class 2--Xxxxxxxxx Investment
Counsel, Inc.
Franklin Small Cap Fund,
Class 2--Franklin Advisers, Inc.
-----------------------------------------------------------
SCHEDULE E
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
1. AIM V.I. Capital Appreciation Fund
2. Federated High Income Bond Fund II
3. Federated Fund for U.S. Government Securities II
4. Fidelity VIP Contrafund Portfolio Service Class II
5. Fidelity VIP Index 500 Portfolio Service Class II
6. Fidelity VIP Investment Grade Bond Portfolio Service Class II
7. Fidelity VIP Growth Opportunities Portfolio Service Class II
8. Xxxxxxxxx Xxxxxx Advisers Management Trust Guardian Portfolio
9. Xxxxxxxxx Xxxxxx Advisers Management Trust Partners Portfolio
10. SBL Fund Series D
11. Rydex U.S. Government Money Market
12. Rydex Arktos
13. Rydex Nova
14. Rydex OTC
15. Rydex Ursa
16. Rydex Large Cap Europe
17. Rydex Large Cap Japan
18. Rydex Banking
19. Rydex Basic Materials
20. Rydex Biotechnology
21. Rydex Consumer Products
22. Rydex Electronics
23. Rydex Energy
24. Rydex Energy Services
25. Rydex Financial Services
26. Rydex Health Care
27. Rydex Internet
28. Rydex Leisure
29. Rydex Precious Metals
30. Rydex Retailing
31. Rydex Technology
32. Rydex Telecommunications
33. Rydex Transportation
34. Rydex Utilities
35. Strong Opportunity Fund II
SCHEDULE F
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
PORTFOLIO NAME MAXIMUM ANNUAL PAYMENT RATE
Franklin Small Cap Fund 0.25%
Templeton Developing Markets Securities Fund 0.25%
Xxxxxxxxx International Securities Fund 0.25%
AGREEMENT PROVISIONS
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide any activity or service which is primarily intended
to assist in the promotion, distribution or account servicing of Eligible Shares
("Rule 12b-1 Services") or variable contracts offering Eligible Shares, the
Underwriter, the Trust or their affiliates (collectively, "we") may pay you a
Rule 12b-1 fee. "Rule 12b-1 Services" may include, but are not limited to,
printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education of
dealers and their representatives, and similar distribution-related expenses,
furnishing personal services to owners of Contracts which may invest in Eligible
Share ("Contract Owners"), education of Contract Owners, answering routine
inquiries regarding a Portfolio, coordinating responses to Contract Owner
inquiries regarding the Portfolios, maintaining such accounts or providing such
other enhanced services as a Trust Portfolio or Contract may require, or
providing other services eligible for service fees as defined under NASD rules.
Your acceptance of such compensation is your acknowledgment that eligible
services have been rendered. All Rule 12b-1 fees, shall be based on the value of
Eligible Shares owned by the Company on behalf of its Accounts, and shall be
calculated on the basis and at the rates set forth in the Compensation Schedule
stated above. The aggregate annual fees paid pursuant to each Plan shall not
exceed the amounts stated as the "annual maximums" in the Portfolio's
prospectus, unless an increase is approved by shareholders as provided in the
Plan. These maximums shall be a specified percent of the value of a Portfolio's
net assets attributable to Eligible Shares owned by the Company on behalf of its
Accounts (determined in the same manner as the Portfolio uses to compute its net
assets as set forth in its effective Prospectus). The Rule 12b-1 fee will be
paid to you within thirty (30) days after the end of the three-month periods
ending in January, April, July and October.
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement "(Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees; or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between the Underwriter and the Trust, and/or the management or administration
agreement between Franklin Advisers, Inc. and its affiliates and the Trust.
Continuation of the Plans is also conditioned on Disinterested Trustees being
ultimately responsible for selecting and nominating any new Disinterested
Trustees. Under Rule 12b-1, the Trustees have a duty to request and evaluate,
and persons who are party to any agreement related to a Plan have a duty to
furnish, such information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be implemented or
continued. Under Rule 12b-1, the Trust is permitted to implement or continue
Plans or the provisions of any agreement relating to such Plan from year-to-year
only if, based on certain legal considerations, the Trustees are able to
conclude that the Plans will benefit each affected Trust Portfolio and class.
Absent such yearly determination, the Plans must be terminated as set forth
above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule F relating to the Plans will also terminate. Because
the Rule 12b-1 fees paid to you pursuant to the Plans may be reduced or
terminated at any time and we are not liable for, and will not offset any
reduction or termination in such fees, you agree to consider whether or not your
selling agreements with persons or entities through whom you intend to
distribute the Contracts should provide that compensation paid to them may be
reduced if such Rules 12b-1 fees are reduced or terminated. Any obligation
assumed by the Trust pursuant to this Agreement shall be limited in all cases to
the assets of the Trust and no person shall seek satisfaction thereof from
shareholders of the Trust. You agree to waive payment of any amounts payable to
you by Underwriter under a Plan until such time as the Underwriter has received
such fee from the Trust.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule F, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the Contracts.
SCHEDULE G
ADDRESSES FOR NOTICES
To the Company: Security Benefit Life Insurance Company
000 XX Xxxxxxxx
Xxxxxx, Xxxxxx 00000
Attention: General Counsel
To the Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
To the Underwriter: Franklin Xxxxxxxxx Distributors, Inc.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
SCHEDULE H
SHARED FUNDING ORDER
Templeton Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24018
1999 SEC LEXIS 1887
September 17, 1999
ACTION: Notice of application for an amended order of exemption pursuant to
Section 6(c) of the Investment Company Act of 1940 (the "1940 Act") from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
TEXT: Summary of Application: Templeton Variable Products Series Fund (the
"Templeton Trust"), Franklin Xxxxxxxxx Variable Insurance Products Trust
(formerly Franklin Valuemark Funds) (the "VIP Trust," and together with the
Templeton Trust, the "Funds"), Xxxxxxxxx Funds Annuity Company ("TFAC") or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor ("Future Funds") seek an amended
order of the Commission to (1) add as parties to that order the VIP Trust and
any Future Funds and (2) permit shares of the Funds and Future Funds to be
issued to and held by qualified pension and retirement plans outside the
separate account context.
Applicants: Templeton Variable Products Series Fund, Franklin Xxxxxxxxx
Variable Insurance Products Trust, Xxxxxxxxx Funds Annuity Company or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor (collectively, the "Applicants").
Filing Date: The application was filed on July 14, 1999, and amended and
restated on September 17, 1999.
Hearing or Notification of Hearing: An order granting the application will be
issued unless the Commission orders a hearing. Interested persons may request a
hearing by writing to the Secretary of the Commission and serving Applicants
with a copy of the request, personally or by mail. Hearing requests should be
received by the Commission by 5:30 p.m., on October 12, 1999, and should be
accompanied by proof of service on the Applicants in the form of an affidavit
or, for lawyers, a certificate of service. Hearing requests should state the
nature of the writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request notification
by writing to the Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 000 Xxxxx Xxxxxx, XX,
Xxxxxxxxxx, X.X. 00000-0000.
Applicants: Templeton Variable Products Series Fund and Franklin Xxxxxxxxx
Variable Insurance Products Trust, 000 Xxxxxxxx Xxxxxx Xxxxxxxxx, Xxx Xxxxx,
Xxxxxxxxxx 00000, Attn: Xxxxx X. Xxxxxxxx, Esq.
For Further Information Contact: Xxxxx X. XxXxxxx, Senior Counsel, or Xxxxx X.
Xxxxx, Branch Chief, Office of Insurance Products, Division of Investment
Management, at (000) 000-0000.
Supplementary Information: The following is a summary of the application. The
complete application is available for a fee from the SEC's Public Reference
Branch, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000 (tel. (202)
000-0000).
Applicants' Representations:
1. Each of the Funds is registered under the 1940 Act as an open-end management
investment company and was organized as a Massachusetts business trust. The
Templeton Trust currently consists of eight separate series, and the VIP Trust
consists of twenty-five separate series. Each Fund's Declaration of Trust
permits the Trustees to create additional series of shares at any time. The
Funds currently serve as the underlying investment medium for variable annuity
contracts and variable life insurance policies issued by various insurance
companies. The Funds have entered into investment management agreements with
certain investment managers ("Investment Managers") directly or indirectly owned
by Franklin Resources, Inc. ("Resources"), a publicly owned company engaged in
the financial services industry through its subsidiaries.
2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is the sole
insurance company in the Franklin Xxxxxxxxx organization, and specializes in the
writing of variable annuity contracts. The Templeton Trust has entered into a
Fund Administration Agreement with Franklin Xxxxxxxxx Services, Inc. ("FT
Services"), which replaced TFAC in 1998 as administrator, and FT Services
subcontracts certain services to TFAC. FT Services also serves as administrator
to all series of the VIP Trust. TFAC and FT Services provide certain
administrative facilities and services for the VIP and Templeton Trusts.
3. On November 16, 1993, the Commission issued an order granting exemptive
relief to permit shares of the Templeton Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (Investment Company Act
Release No. 19879, File No. 812-8546) (the "Original Order"). Applicants
incorporate by reference into the application the Application for the Original
Order and each amendment thereto, the Notice of Application for the Original
Order, and the Original Order, to the extent necessary, to supplement the
representations made in the application in support of the requested relief.
Applicants represent that all of the facts asserted in the Application for the
Original Order and any amendments thereto remain true and accurate in all
material respects to the extent that such facts are relevant to any relief on
which Applicants continue to rely. The Original Order allows the Templeton Trust
to offer its shares to insurance companies as the investment vehicle for their
separate accounts supporting variable annuity contracts and variable life
insurance contracts (collectively, the "Variable Contracts"). Applicants state
that the Original Order does not (i) include the VIP Trust or Future Funds as
parties, nor (ii) expressly address the sale of shares of the Funds or any
Future Funds to qualified pension and retirement plans outside the separate
account context including, without limitation, those trusts, plans, accounts,
contracts or annuities described in Sections 401(a), 403(a), 403(b), 408(b),
408(k), 414(d), 457(b), 501(c)(18) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any other trust, plan, contract, account or annuity
that is determined to be within the scope of Treasury Regulation
1.817.5(f)(3)(iii) ("Qualified Plans").
4. Separate accounts owning shares of the Funds and their insurance company
depositors are referred to in the application as "Participating Separate
Accounts" and "Participating Insurance Companies," respectively. The use of a
common management investment company as the underlying investment medium for
both variable annuity and variable life insurance separate accounts of a single
insurance company (or of two or more affiliated insurance companies) is referred
to as "mixed funding." The use of a common management investment company as the
underlying investment medium for variable annuity and/or variable life insurance
separate accounts of unaffiliated insurance companies is referred to as "shared
funding."
Applicants' Legal Analysis:
1. Applicants request that the Commission issue an amended order pursuant to
Section 6(c) of the 1940 Act, adding the VIP Trust and Future Funds to the
Original Order and exempting scheduled premium variable life insurance separate
accounts and flexible premium variable life insurance separate accounts of
Participating Insurance Companies (and, to the extent necessary, any principal
underwriter and depositor of such an account) and the Applicants from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) (and any comparable rule) thereunder, respectively, to the extent
necessary to permit shares of the Funds and any Future Funds to be sold to and
held by Qualified Plans. Applicants submit that the exemptions requested are
appropriate in the public interest, consistent with the protection of investors,
and consistent with the purposes fairly intended by the policy and provisions of
the 1940 Act.
2. The Original Order does not include the VIP Trust or Future Funds as parties
nor expressly address the sale of shares of the Funds or any Future Funds to
Qualified Plans. Applicants propose that the VIP Trust and Future Funds be added
as parties to the Original Order and the Funds and any Future Funds be permitted
to offer and sell their shares to Qualified Plans.
3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by
order upon application, may conditionally or unconditionally exempt any person,
security or transaction, or any class or classes of persons, securities or
transactions from any provisions of the 1940 Act or the rules or regulations
thereunder, if and to the extent that such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
4. In connection with the funding of scheduled premium variable life insurance
contracts issued through a separate account registered under the 1940 Act as a
unit investment trust ("UIT"), Rule 6e-2(b)(15) provides partial exemptions from
various provisions of the 1940 Act, including the following: (1) Section 9(a),
which makes it unlawful for certain individuals to act in the capacity of
employee, officer, or director for a UIT, by limiting the application of the
eligibility restrictions in Section 9(a) to affiliated persons directly
participating in the management of a registered management investment company;
and (2) Sections 13(a), 15(a) and 15(b) of the 1940 Act to the extent that those
sections might be deemed to require "pass-through" voting with respect to an
underlying fund's shares, by allowing an insurance company to disregard the
voting instructions of contractowners in certain circumstances.
5. These exemptions are available, however, only where the management
investment company underlying the separate account (the "underlying fund")
offers its shares "exclusively to variable life insurance separate accounts of
the life insurer, or of any affiliated life insurance company." Therefore, Rule
6e-2 does not permit either mixed funding or shared funding because the relief
granted by Rule 6e-2(b)(15) is not available with respect to a scheduled premium
variable life insurance separate account that owns shares of an underlying fund
that also offers its shares to a variable annuity or a flexible premium variable
life insurance separate account of the same company or of any affiliated life
insurance company. Rule 6e-2(b)(15) also does not permit the sale of shares of
the underlying fund to Qualified Plans.
6. In connection with flexible premium variable life insurance contracts issued
through a separate account registered under the 1940 Act as a UIT, Rule
6e-3(T)(b)(15) also provides partial exemptions from Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act. These exemptions, however, are available only where
the separate account's underlying fund offers its shares "exclusively to
separate accounts of the life insurer, or of any affiliated life insurance
company, offering either scheduled contracts or flexible contracts, or both; or
which also offer their shares to variable annuity separate accounts of the life
insurer or of an affiliated life insurance company." Therefore, Rule 6e-3(T)
permits mixed funding but does not permit shared funding and also does not
permit the sale of shares of the underlying fund to Qualified Plans. As noted
above, the Original Order granted the Templeton Trust exemptive relief to permit
mixed and shared funding, but did not expressly address the sale of its shares
to Qualified Plans.
7. Applicants note that if the Funds were to sell their shares only to
Qualified Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be
necessary. Applicants state that the relief provided for under Rule 6e-2(b)(15)
and Rule 6e-3(T)(b)(15) does not relate to qualified pension and retirement
plans or to a registered investment company's ability to sell its shares to such
plans.
8. Applicants state that changes in the federal tax law have created the
opportunity for each of the Funds to increase its asset base through the sale of
its shares to Qualified Plans. Applicants state that Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
diversification standards on the assets underlying Variable Contracts. Treasury
Regulations generally require that, to meet the diversification requirements,
all of the beneficial interests in the underlying investment company must be
held by the segregated asset accounts of one or more life insurance companies.
Notwithstanding this, Applicants note that the Treasury Regulations also contain
an exception to this requirement that permits trustees of a Qualified Plan to
hold shares of an investment company, the shares of which are also held by
insurance company segregated asset accounts, without adversely affecting the
status of the investment company as an adequately diversified underlying
investment of Variable Contracts issued through such segregated asset accounts
(Treas. Reg. 1.817-5(f)(3)(iii)).
9. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) under the 1940 Act preceded the issuance of these Treasury
Regulations. Thus, Applicants assert that the sale of shares of the same
investment company to both separate accounts and Qualified Plans was not
contemplated at the time of the adoption of Rules 6e-2(b)(15) and
6e-3(T)(b)(15).
10. Section 9(a) provides that it is unlawful for any company to serve as
investment adviser or principal underwriter of any registered open-end
investment company if an affiliated person of that company is subject to a
disqualification enumerated in Section 9(a)(1) or (2). Rules 6e-2(b)(15) and
6e-3(T)(b)(15) provide exemptions from Section 9(a) under certain circumstances,
subject to the limitations on mixed and shared funding. These exemptions limit
the application of the eligibility restrictions to affiliated individuals or
companies that directly participate in the management of the underlying
portfolio investment company.
11. Applicants state that the relief granted in Rule 6e-2(b)(15) and
6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the amount
of monitoring of an insurer's personnel that would otherwise be necessary to
ensure compliance with Section 9 to that which is appropriate in light of the
policy and purposes of Section 9. Applicants submit that those Rules recognize
that it is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the provisions of
Section 9(a) to the many individuals involved in an insurance company complex,
most of whom typically will have no involvement in matters pertaining to
investment companies funding the separate accounts.
12. Applicants to the Original Order previously requested and received relief
from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the extent
necessary to permit mixed and shared funding. Applicants maintain that the
relief previously granted from Section 9(a) will in no way be affected by the
proposed sale of shares of the Funds to Qualified Plans. Those individuals who
participate in the management or administration of the Funds will remain the
same regardless of which Qualified Plans use such Funds. Applicants maintain
that more broadly applying the requirements of Section 9(a) because of
investment by Qualified Plans would not serve any regulatory purpose. Moreover,
Qualified Plans, unlike separate accounts, are not themselves investment
companies and therefore are not subject to Section 9 of the 1940 Act.
13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting instructions of its
contractowners with respect to the investments of an underlying fund or any
contract between a fund and its investment adviser, when required to do so by an
insurance regulatory authority (subject to the provisions of paragraphs
(b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules 6e-2(b)(15)(iii)(B) and
6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contractowners' voting instructions if the contractowners initiate any change in
such company's investment policies, principal underwriter, or any investment
adviser (provided that disregarding such voting instructions is reasonable and
subject to the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and
(C) of the Rules).
14. Applicants assert that Qualified Plans, which are not registered as
investment companies under the 1940 Act, have no requirement to pass-through the
voting rights to plan participants. Applicants state that applicable law
expressly reserves voting rights to certain specified persons. Under Section
403(a) of the Employment Retirement Income Security Act ("ERISA"), shares of a
fund sold to a Qualified Plan must be held by the trustees of the Qualified
Plan. Section 403(a) also provides that the trustee(s) must have exclusive
authority and discretion to manage and control the Qualified Plan with two
exceptions: (1) when the Qualified Plan expressly provides that the trustee(s)
are subject to the direction of a named fiduciary who is not a trustee, in which
case the trustees are subject to proper directions made in accordance with the
terms of the Qualified Plan and not contrary to ERISA; and (2) when the
authority to manage, acquire or dispose of assets of the Qualified Plan is
delegated to one or more investment managers pursuant to Section 402(c)(3) of
ERISA. Unless one of the two above exceptions stated in Section 403(a) applies,
Qualified Plan trustees have the exclusive authority and responsibility for
voting proxies. Where a named fiduciary to a Qualified Plan appoints an
investment manager, the investment manager has the responsibility to vote the
shares held unless the right to vote such shares is reserved to the trustees or
the named fiduciary. Where a Qualified Plan does not provide participants with
the right to give voting instructions, Applicants do not see any potential for
material irreconcilable conflicts of interest between or among variable contract
holders and Qualified Plan investors with respect to voting of the respective
Fund's shares. Accordingly, Applicants state that, unlike the case with
insurance company separate accounts, the issue of the resolution of material
irreconcilable conflicts with respect to voting is not present with respect to
such Qualified Plans since the Qualified Plans are not entitled to pass-through
voting privileges.
15. Even if a Qualified Plan were to hold a controlling interest in one of the
Funds, Applicants believe that such control would not disadvantage other
investors in such Fund to any greater extent than is the case when any
institutional shareholder holds a majority of the voting securities of any
open-end management investment company. In this regard, Applicants submit that
investment in a Fund by a Qualified Plan will not create any of the voting
complications occasioned by mixed funding or shared funding. Unlike mixed or
shared funding, Qualified Plan investor voting rights cannot be frustrated by
veto rights of insurers or state regulators.
16. Applicants state that some of the Qualified Plans, however, may provide for
the trustee(s), an investment adviser (or advisers), or another named fiduciary
to exercise voting rights in accordance with instructions from participants.
Where a Qualified Plan provides participants with the right to give voting
instructions, Applicants see no reason to believe that participants in Qualified
Plans generally or those in a particular Qualified Plan, either as a single
group or in combination with participants in other Qualified Plans, would vote
in a manner that would disadvantage Variable Contract holders. In sum,
Applicants maintain that the purchase of shares of the Funds by Qualified Plans
that provide voting rights does not present any complications not otherwise
occasioned by mixed or shared funding.
17. Applicants do not believe that the sale of the shares of the Funds to
Qualified Plans will increase the potential for material irreconcilable
conflicts of interest between or among different types of investors. In
particular, Applicants see very little potential for such conflicts beyond that
which would otherwise exist between variable annuity and variable life insurance
contractowners.
18. As noted above, Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable contracts held in an underlying
mutual fund. The Code provides that a variable contract shall not be treated as
an annuity contract or life insurance, as applicable, for any period (and any
subsequent period) for which the investments are not, in accordance with
regulations prescribed by the Treasury Department, adequately diversified.
19. Treasury Department Regulations issued under Section 817(h) provide that,
in order to meet the statutory diversification requirements, all of the
beneficial interests in the investment company must be held by the segregated
asset accounts of one or more insurance companies. However, the Regulations
contain certain exceptions to this requirement, one of which allows shares in an
underlying mutual fund to be held by the trustees of a qualified pension or
retirement plan without adversely affecting the ability of shares in the
underlying fund also to be held by separate accounts of insurance companies in
connection with their variable contracts (Treas. Reg. 1.817-5(f)(3)(iii)). Thus,
Applicants believe that the Treasury Regulations specifically permit "qualified
pension or retirement plans" and separate accounts to invest in the same
underlying fund. For this reason, Applicants have concluded that neither the
Code nor the Treasury Regulations or revenue rulings thereunder presents any
inherent conflict of interest.
20. Applicants note that while there are differences in the manner in which
distributions from Variable Contracts and Qualified Plans are taxed, these
differences will have no impact on the Funds. When distributions are to be made,
and a Separate Account or Qualified Plan is unable to net purchase payments to
make the distributions, the Separate Account and Qualified Plan will redeem
shares of the Funds at their respective net asset value in conformity with Rule
22c-1 under the 1940 Act (without the imposition of any sales charge) to provide
proceeds to meet distribution needs. A Qualified Plan will make distributions in
accordance with the terms of the Qualified Plan.
21. Applicants maintain that it is possible to provide an equitable means of
giving voting rights to Participating Separate Account contractowners and to
Qualified Plans. In connection with any meeting of shareholders, the Funds will
inform each shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the meeting, including their
respective share of ownership in the relevant Fund. Each Participating Insurance
Company will then solicit voting instructions in accordance with Rules 6e-2 and
6e-3(T), as applicable, and its participation agreement with the relevant Fund.
Shares held by Qualified Plans will be voted in accordance with applicable law.
The voting rights provided to Qualified Plans with respect to shares of the
Funds would be no different from the voting rights that are provided to
Qualified Plans with respect to shares of funds sold to the general public.
22. Applicants have concluded that even if there should arise issues with
respect to a state insurance commissioner's veto powers over investment
objectives where the interests of contractowners and the interests of Qualified
Plans are in conflict, the issues can be almost immediately resolved since the
trustees of (or participants in) the Qualified Plans can, on their own, redeem
the shares out of the Funds. Applicants note that state insurance commissioners
have been given the veto power in recognition of the fact that insurance
companies usually cannot simply redeem their separate accounts out of one fund
and invest in another. Generally, time-consuming, complex transactions must be
undertaken to accomplish such redemptions and transfers. Conversely, the
trustees of Qualified Plans or the participants in participant-directed
Qualified Plans can make the decision quickly and redeem their interest in the
Funds and reinvest in another funding vehicle without the same regulatory
impediments faced by separate accounts or, as is the case with most Qualified
Plans, even hold cash pending suitable investment.
23. Applicants also state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of participants
under Qualified Plans and contractowners of Participating Separate Accounts from
possible future changes in the federal tax laws than that which already exist
between variable annuity contractowners and variable life insurance
contractowners.
24. Applicants state that the sale of shares of the Funds to Qualified Plans in
addition to separate accounts of Participating Insurance Companies will result
in an increased amount of assets available for investment by the Funds. This may
benefit variable contractowners by promoting economies of scale, by permitting
increased safety of investments through greater diversification, and by making
the addition of new portfolios more feasible.
25. Applicants assert that, regardless of the type of shareholders in each
Fund, each Fund's Investment Manager is or would be contractually and otherwise
obligated to manage the Fund solely and exclusively in accordance with that
Fund's investment objectives, policies and restrictions as well as any
guidelines established by the Board of Trustees of such Fund (the "Board"). The
Investment Manager works with a pool of money and (except in a few instances
where this may be required in order to comply with state insurance laws) does
not take into account the identity of the shareholders. Thus, each Fund will be
managed in the same manner as any other mutual fund. Applicants therefore see no
significant legal impediment to permitting the sale of shares of the Funds to
Qualified Plans.
26. Applicants state that the Commission has permitted the amendment of a
substantially similar original order for the purpose of adding a party to the
original order and has permitted open-end management investment companies to
offer their shares directly to Qualified Plan in addition to separate accounts
of affiliated or unaffiliated insurance companies which issue either or both
variable annuity contracts or variable life insurance contracts. Applicants
state that the amended order sought in the application is identical to precedent
with respect to the conditions Applicants propose should be imposed on Qualified
Plans in connection with investment in the Funds.
Applicants' Conditions:
If the requested amended order is granted, Applicants consent to the following
conditions:
1. A majority of the Board of each Fund shall consist of persons who are not
"interested persons" thereof, as defined by Section 2(a)(19) of the 1940 Act,
and the rules thereunder and as modified by any applicable orders of the
Commission, except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any Board Member or Members, then
the operation of this condition shall be suspended: (a) for a period of 45 days
if the vacancy or vacancies may be filled by the remaining Board Members; (b)
for a period of 60 days if a vote of shareholders is required to fill the
vacancy or vacancies; or (c) for such longer period as the Commission may
prescribe by order upon application.
2. The Board will monitor their respective Fund for the existence of any
material irreconcilable conflict among the interests of the Variable Contract
owners of all Separate Accounts investing in the Funds and of the Qualified Plan
participants investing in the Funds. The Board will determine what action, if
any, shall be taken in response to such conflicts. A material irreconcilable
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 interpretive letter, or any similar action
by insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Funds are being managed; (e) a difference in voting
instructions given by variable annuity contract owners, variable life insurance
contract owners, and trustees of Qualified Plans; (f) a decision by an insurer
to disregard the voting instructions of Variable Contract owners; or (g) if
applicable, a decision by a Qualified Plan to disregard the voting instructions
of Qualified Plan participants.
3. Participating Insurance Companies, the Investment Managers, and any
Qualified Plan that executes a fund participation agreement upon becoming an
owner of 10 percent or more of the assets of an Fund (a "Participating Qualified
Plan"), will report any potential or existing conflicts of which it becomes
aware to the Board of any relevant Fund. Participating Insurance Companies, the
Investment Managers and the Participating Qualified Plans will be responsible
for assisting the Board in carrying out its responsibilities under these
conditions by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This responsibility includes, but is
not limited to, an obligation by each Participating Insurance Company to inform
the Board whenever voting instructions of Contract owners are disregarded and,
if pass-through voting is applicable, an obligation by each Participating
Qualified Plan to inform the Board whenever it has determined to disregard
Qualified Plan participant voting instructions. The responsibility to report
such information and conflicts, and to assist the Board, will be contractual
obligations of all Participating Insurance Companies investing in the Funds
under their agreements governing participation in the Funds, and such agreements
shall provide that these responsibilities will be carried out with a view only
to the interests of the Variable Contract owners. The responsibility to report
such information and conflicts, and to assist the Board, will be contractual
obligations of all Participating Qualified Plans under their agreements
governing participation in the Funds, and such agreements will provide that
their responsibilities will be carried out with a view only to the interests of
Qualified Plan participants.
4. If it is determined by a majority of the Board of a Fund, or by a majority
of the disinterested Board Members, that a material irreconcilable conflict
exists, the relevant Participating Insurance Companies and Participating
Qualified Plans will, at their own expense and to the extent reasonably
practicable as determined by a majority of the disinterested Board Members, take
whatever steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps could include: (a) in the case of Participating Insurance
Companies, withdrawing the assets allocable to some or all of the Separate
Account from the Fund or any portfolio thereof and reinvesting such assets in
a different investment medium, including another portfolio of an Fund or another
Fund, or submitting the question as to whether such segregation should be
implemented to a vote of all affected Variable Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contract owners or variable life insurance contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; (b) in the case of Participating Qualified Plans, withdrawing the assets
allocable to some or all of the Qualified Plans from the Fund and reinvesting
such assets in a different investment medium; and (c) establishing a new
registered management investment company or managed Separate Account. If a
material irreconcilable conflict arises because of a decision by a Participating
Insurance Company to disregard Variable Contract owner voting instructions, and
that decision represents a minority position or would preclude a majority vote,
then the insurer may be required, at the Fund's election, to withdraw the
insurer's Separate Account investment in such Fund, and no charge or penalty
will be imposed as a result of such withdrawal. If a material irreconcilable
conflict arises because of a Participating Qualified Plan's decision to
disregard Qualified Plan participant voting instructions, if applicable, and
that decision represents minority position or would preclude a majority vote,
the Participating Qualified Plan may be required, at the Fund's election, to
withdraw its investment in such Fund, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take remedial action in
the event of a determination by a Board of a material irreconcilable conflict
and to bear the cost of such remedial action will be a contractual obligation of
all Participating Insurance Companies and Participating Qualified Plans under
their agreements governing participation in the Funds, and these
responsibilities will be carried out with a view only to the interest of
Variable Contract owners and Qualified Plan participants.
5. For purposes of Condition 4, a majority of the disinterested Board Members
of the applicable Board will determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the relevant Fund or the Investment Managers be required to establish a new
funding medium for any Contract. No Participating Insurance Company shall be
required by Condition 4 to establish a new funding medium for any Variable
Contract if any offer to do so has been declined by vote of a majority of the
Variable Contract owners materially and adversely affected by the material
irreconcilable conflict. Further, no Participating Qualified Plan shall be
required by Condition 4 to establish a new funding medium for any Participating
Qualified Plan if (a) a majority of Qualified Plan participants materially and
adversely affected by the irreconcilable material conflict vote to decline such
offer, or (b) pursuant to governing Qualified Plan documents and applicable law,
the Participating Qualified Plan makes such decision without a Qualified Plan
participant vote.
6. The determination of the Board of the existence of a material irreconcilable
conflict and its implications will be made known in writing promptly to all
Participating Insurance Companies and Participating Qualified Plans.
7. Participating Insurance Companies will provide pass-through voting
privileges to Variable Contract owners who invest in registered Separate
Accounts so long as and to the extent that the Commission continues to interpret
the 1940 Act as requiring pass-through voting privileges for Variable Contract
owners. As to Variable Contracts issued by unregistered Separate Accounts,
pass-through voting privileges will be extended to participants to the extent
granted by issuing insurance companies. Each Participating Insurance Company
will also vote shares of the Funds held in its Separate Accounts for which no
voting instructions from Contract owners are timely received, as well as shares
of the Funds which the Participating Insurance Company itself owns, in the same
proportion as those shares of the Funds for which voting instructions from
contract owners are timely received. Participating Insurance Companies will be
responsible for assuring that each of their registered Separate Accounts
participating in the Funds calculates voting privileges in a manner consistent
with other Participating Insurance Companies. The obligation to calculate voting
privileges in a manner consistent with all other registered Separate Accounts
investing in the Funds will be a contractual obligation of all Participating
Insurance Companies under their agreements governing their participation in the
Funds. Each Participating Qualified Plan will vote as required by applicable law
and governing Qualified Plan documents.
8. All reports of potential or existing conflicts received by the Board of a
Fund and all action by such Board with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating
Qualified Plans of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
meetings of such Board or other appropriate records, and such minutes or other
records shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that separate
disclosure in their respective Separate Account prospectuses may be appropriate
to advise accounts regarding the potential risks of mixed and shared funding.
Each Fund shall disclose in its prospectus that (a) the Fund is intended to be a
funding vehicle for variable annuity and variable life insurance contracts
offered by various insurance companies and for qualified pension and retirement
plans; (b) due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Fund and/or the
interests of Qualified Plans investing in the Fund may at some time be in
conflict; and (c) the Board of such Fund will monitor events in order to
identify the existence of any material irreconcilable conflicts and to determine
what action, if any, should be taken in response to any such conflict.
10. Each Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders (which, for these purposes, will be the persons having a voting
interest in the shares of the Funds), and, in particular, the Funds will either
provide for annual shareholder meetings (except insofar as the Commission may
interpret Section 16 of the 1940 Act not to require such meetings) or comply
with Section 16(c) of the 1940 Act, although the Funds are not the type of trust
described in Section 16(c) of the 1940 Act, as well as with Section 16(a) of the
1940 Act and, if and when applicable, Section 16(b) of the 1940 Act. Further,
each Fund will act in accordance with the Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of Board
Members and with whatever rules the Commission may promulgate with respect
thereto.
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is amended,
or proposed Rule 6e-3 under the 1940 Act 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 on terms and conditions materially different
from any exemptions granted in the order requested in the application, then the
Funds and/or Participating Insurance Companies and Participating Qualified
Plans, as appropriate, shall take such steps as may be necessary to comply with
such Rules 6e-2 and 6e-3(T), as amended, or proposed Rule 6e-3, as adopted, to
the extent that such Rules are applicable.
12. The Participating Insurance Companies and Participating Qualified Plans
and/or the Investment Managers, at least annually, will submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out obligations imposed upon it by the conditions contained in
the application. Such reports, materials and data will be submitted more
frequently if deemed appropriate by the Board. The obligations of the
Participating Insurance Companies and Participating Qualified Plans to provide
these reports, materials and data to the Board, when the Board so reasonably
requests, shall be a contractual obligation of all Participating Insurance
Companies and Participating Qualified Plans under their agreements governing
participation in the Funds.
13. If a Qualified Plan should ever become a holder of ten percent or more of
the assets of a Fund, such Qualified Plan will execute a participation agreement
with the Fund that includes the conditions set forth herein to the extent
applicable. A Qualified Plan will execute an application containing an
acknowledgment of this condition upon such Qualified Plan's initial purchase of
the shares of any Fund.
Conclusion:
Applicants assert that, for the reasons summarized above, the requested
exemptions are appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy and
provisions of the 1940 Act.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
Xxxxxxxxx Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24079
1999 SEC LEXIS 2177
October 13, 1999
ACTION: Order Granting Exemptions
TEXT: Xxxxxxxxx Variable Products Series Fund ("Xxxxxxxxx Trust"), Franklin
Xxxxxxxxx Variable Insurance Products Trust ("VIP Trust"), Xxxxxxxxx Funds
Annuity Company ("TFAC") or any successor to TFAC, and any future open-end
investment company for which TFAC or any affiliate is the administrator,
sub-administrator, investment manager, adviser, principal underwriter, or
sponsor ("Future Funds") filed an application on July 14, 1999, and an amendment
on September 17, 1999 seeking an amended order of the Commission pursuant to
Section 6(c) of the Investment Company Act of 1940 ("1940 Act") exempting them
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15). The prior order (Rel. No. IC-19879)
granted exemptive relief to permit shares of the Xxxxxxxxx Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies. The proposed relief
would amend the prior order to add as parties to that order the VIP Trust and
any Future Funds and to permit shares of the Xxxxxxxxx Trust, the VIP Trust, and
Future Funds to be issued to and held by qualified pension and retirement plans
outside the separate account context.
A notice of the filing of the application was issued on September 17, 1999
(Rel. No. IC-24018). The notice gave interested persons an opportunity to
request a hearing and stated that an order granting the application would be
issued unless a hearing should be ordered. No request for a hearing has been
filed, and the Commission has not ordered a hearing.
The matter has been considered, and it is found that granting the requested
exemptions is appropriate in the public interest and consistent with the
protection of investors and the purposes intended by the policy and provisions
of the 1940 Act.
Accordingly,
IT IS ORDERED, pursuant to Section 6(c) of the 1940 Act, that the requested
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, be, and hereby are, granted,
effective forthwith.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
