PARTICIPATION AGREEMENT
AMONG
SECURITY BENEFIT LIFE INSURANCE COMPANY,
RYDEX SERIES FUNDS
AND
RYDEX DISTRIBUTORS, INC.
THIS AGREEMENT, dated as of the 1st day of July, 2003, by and among
Security Benefit Life Insurance Company, (the "Company"), a stock life insurance
company organized under the laws of the State of Kansas, on its own behalf and
on behalf of each segregated asset account of the Company set forth on Schedule
A hereto, as may be amended from time to time (each an "Account"), _Rydex Series
Funds(the "Trust"), a Delaware Business Trust, and Rydex Distributors, Inc. (the
"Underwriter"), a Maryland corporation.
WHEREAS, the shares of beneficial interest/common stock of the Trust are
divided into several series of shares, each representing the interest in a
particular managed portfolio of securities and other assets, any one or more of
which may be made available under this Agreement, as may be amended from time to
time by mutual agreement of the parties hereto (each such series is hereinafter
referred to as a "Portfolio"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and shares of
the Portfolios are registered under the Securities Act of 1933, as amended (the
"1933 Act"); and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Trust; and
WHEREAS, the Company has issued or will issue certain variable annuity
contracts supported wholly or partially by the Account (the "Contracts"), and
said Contracts are listed in Schedule A hereto, as it may be amended from time
to time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts; and
WHEREAS, the Company intends to purchase shares in the Portfolios listed
in Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios"), on behalf of the Account to fund the
aforesaid Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Underwriter agree as follows:
ARTICLE I. SALE OF TRUSTTRUST SHARES
1.1. Subject to Article IX hereof, the Trust agrees to make
available to the Company for purchase on behalf of the Account, shares of the
Designated Portfolios, such purchases to be effected at net asset value in
accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing,
(i) the Portfolios (other than those listed on Schedule A) in existence now or
that may be established in the future will be made available to the Company only
as the Trust may so provide, and (ii) the Board of Trustees of the Trust (the
"Board") may suspend or terminate the offering of shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary and in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Trust shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding the foregoing, the Trust may
delay redemption of Trust shares of any Designated Portfolio to the extent
permitted by the 1940 Act, and any rules, regulations or orders thereunder.
1.3. PURCHASE AND REDEMPTION PROCEDURES
(a) The Trust hereby appoints the Company as an agent of the
Trust for the limited purpose of receiving and accepting purchase and redemption
requests on behalf of the Account (but not with respect to any Trust shares that
may be held in the general account of the Company) for shares of those
Designated Portfolios made available hereunder, based on allocations of amounts
to the Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt and acceptance of any such
request (or relevant transactional information therefor) on any day the New York
Stock Exchange is open for trading and on which a Designated Portfolio
calculates its net asset value (a "Business Day") pursuant to the rules of the
Securities and Exchange Commission ("SEC"), by the Company as such limited agent
of the Trust prior to the time that the Trust ordinarily calculates its net
asset value as described from time to time in the Trust's prospectus shall
constitute receipt and acceptance by the Designated Portfolio on that same
Business Day, provided that the Trust receives notice of such request by 9:30
a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated
Portfolio on the same Business Day that it notifies the Trust of a purchase
request for such shares. Payment for Designated Portfolio shares shall be made
in federal funds transmitted to the Trust or other designated person by wire to
be received by 3:00 p.m. Eastern Time on the Business Day the Trust is notified
of the purchase request for Designated Portfolio shares (unless the Trust
determines and so advises the Company that sufficient proceeds are available
from redemption of shares of other Designated Portfolios effected pursuant to
redemption requests tendered by the Company on behalf of the Account, or unless
the Trust otherwise determines and so advises the Company to delay the date of
payment, to the extent the Trust may do so under the 1940 Act). If federal funds
are not received on time, such funds will be invested, and Designated Portfolio
shares purchased thereby will be issued, as soon as practicable and the Company
shall promptly, upon the Trust's request, reimburse the Trust for any charges,
costs, fees, interest or other expenses incurred by the Trust in connection with
any advances to, or borrowing or overdrafts by, the Trust, or any similar
expenses incurred by the Trust, as a result of portfolio transactions effected
by the Trust based upon such purchase request. Upon receipt of federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust.
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(c) Payment for Designated Portfolio shares redeemed by the
Account or the Company shall be made by the Trust in federal funds transmitted
by wire to the Company or any other designated person by 3 p.m. Eastern Time on
the same Business Day the Trust is properly notified of the redemption order of
such shares (unless redemption proceeds are to be applied to the purchase of
shares of other Designated Portfolios in accordance with Section 1.3(b) of this
Agreement), except that the Trust reserves the right to delay payment of
redemption proceeds to the extent permitted under Section 22(e) of the 1940 Act
and any rules thereunder, and in accordance with the procedures and policies of
the Trust as described in the then-current prospectus.
(d) Any purchase or redemption request for Designated
Portfolio shares held or to be held in the Company's general account shall be
effected at the net asset value per share next determined after the Trust's
receipt and acceptance of such request, provided that, in the case of a purchase
request, payment for Trust shares so requested is received by the Trust in
federal funds prior to close of business for determination of such value, as
defined from time to time in the Trust's prospectus.
(e) All purchase or redemption requests shall be in
accordance with the terms of the Trust's prospectus.
1.4. The Trust shall use its best efforts to make the net asset
value per share for each Designated Portfolio available to the Company by 6:30
p.m. Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Trust's prospectus. If the Trust provides the Company with materially incorrect
share net asset value information, the Company on behalf of the Account, shall
be entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct share net asset value. Any material error in the calculation
of the net asset value per share, dividend or capital gain information shall be
reported promptly to the Company upon discovery. In the event that any such
material error is the result of the gross negligence of the Trust, or its
designated agent for calculating the net asset value, any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at the Underwriter's expense.
1.5. The Trust shall use its best efforts to furnish notice (by
wire or telephone followed by written confirmation) to the Company of any income
dividends or capital gain distributions payable on any Designated Portfolio
shares by the record date, but in no event later than 6:30 p.m. Eastern Time on
the ex-dividend date. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such dividends
and capital gain distributions in cash. The Trust shall notify the Company
promptly of the number of Designated Portfolio shares so issued as payment of
such dividends and distributions.
1.6. Issuance and transfer of Trust shares shall be by book entry
only. Share certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Trust's shares may be sold
to other insurance companies and the cash value of the Contracts may be invested
in other investment companies.
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(b) The Company shall not, without prior notice to the Trust
(unless otherwise required by applicable law), take any action to operate the
Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Trust
(unless otherwise required by applicable law), induce Contract owners to change
or modify the Trust or change the Trust's investment adviser.
(d) The Company shall not, without prior notice to the
Trust, induce Contract owners to vote on any matter submitted for consideration
by the shareholders of the Trust in a manner other than as recommended by the
Board.
1.8 The parties may agree, in lieu of the procedures set forth
above in this Article 1, to place and settle trades for Trust shares through a
clearing corporation. In the event that such a clearing corporation is used, the
parties agree to abide by the rules of the clearing corporation.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law, that
it has legally and validly established the Account as a segregated asset account
under Kansas insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 0000 Xxx.
2.2. The Trust represents and warrants that Designated Portfolio
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
shall be duly authorized for issuance and sold in compliance with applicable
state and federal securities laws and that the Trust is and shall remain
registered under the 1940 Act. The Trust shall amend the registration statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Trust shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Trust.
2.3. The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.4. The Underwriter represents and warrants that it is registered
as a broker/dealer under the 1934 Act with the SEC and is a member in good
standing with the NASD.
2.5. The Trust and the Underwriter represent and warrant that all
of their trustees/directors, officers, employees, and other individuals or
entities dealing with the money and/or securities of the Trust are and shall
continue to 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 the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time.
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The aforesaid bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
2.6. The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Account are covered
by a blanket fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Trust shall provide the Company with as many printed
copies of the current prospectus, current Statement of Additional Information
("SAI"), supplements, proxy statements, and annual or semi-annual reports of
each Designated Portfolio (for distribution to Contract owners with value
allocated to such Designated Portfolios) as the Company may reasonably request
to deliver to existing Contract owners. If requested by the Company in lieu
thereof, the Trust shall provide such documents (including a "camera-ready" copy
of such documents as set in type, a diskette in the form sent to the financial
printer, or an electronic copy of the documents in a format suitable for posting
on the Company's website, all as the Company may reasonably request) and such
other assistance as is reasonably necessary in order for the Company to have
prospectuses, SAIs, supplements and annual or semi-annual reports for the
Contracts and the Trust printed together in a single document or posted on the
Company's web-site or printed individually by the Company if it so chooses. The
expenses associated with printing and providing such documentation shall be as
set forth in Article V.
3.2. The Trust's prospectus shall state that the current SAI for
the Trust is available.
3.3. The Trust shall provide the Company with information regarding
the Trust's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information
substantially in the form provided. The Company shall provide prior written
notice of any proposed modification of such information, which notice will
describe the manner in which the Company proposes to modify the information, and
agrees that it may not modify such information in any way without the prior
consent of the Trust, which consent shall not be unreasonably withheld.
3.4. The Trust will pay or cause to be paid the expenses associated
with text composition, printing, mailing, distributing, and tabulation of proxy
statements and voting instruction solicitation materials to Contract owners with
respect to proxies related to the Trust, consistent with applicable provisions
of the 1940 Act.
3.5. So long as, and to the extent the SEC continues to interpret
the 1940 Act to require pass-through voting privileges for variable contract
owners, or to the extent otherwise required by law, the Company shall provide a
list of Contract owners with value allocated to a Designated Portfolio as of the
record date to the Trust or its agent in order to facilitate the Trust's
solicitation of voting instructions from Contract owners on behalf of the
Company. The Company shall also provide such other information to the Trust as
is reasonably necessary in order for the Trust to properly tabulate votes for
Trust initiated proxies. The Company reserves the right to vote Trust shares
held in its general account in its own right, to the extent permitted by
applicable laws.
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ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Trust or its designee, each piece of sales literature or other promotional
material that the Company develops and in which the Trust (or a Designated
Portfolio thereof) or the Underwriter is named. No such material shall be used
until approved by the Trust or its designee, and the Trust will use its best
efforts for it or its designee to review such sales literature or promotional
material within five (5) Business Days after receipt of such material. Materials
not approved or disapproved within (5) Business Days shall be deemed approved.
The Trust or its designee reserves the right to reasonably object to the
continued use of any such sales literature or other promotional material in
which the Trust (or a Designated Portfolio thereof) or the Underwriter is named,
and no such material shall be used if the Trust or its designee so objects.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
the Underwriter in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus or SAI for the Trust shares, as such registration statement and
prospectus or SAI may be amended or supplemented from time to time, or in
reports or proxy statements for the Trust, or in sales literature or other
promotional material approved by the Trust or its designee, except with the
permission of the Trust or its designee.
4.3. The Trust and the Underwriter, or their designee, shall
furnish, or cause to be furnished, to the Company, each piece of sales
literature or other promotional material that it develops and in which the
Company, and/or the Account, is named. No such material shall be used until
approved by the Company, and the Company will use its best efforts to review
such sales literature or promotional material within five (5) Business Days
after receipt of such material. Materials not approved or disapproved within (5)
Business Days shall be deemed approved. The Company reserves the right to
reasonably object to the continued use of any such sales literature or other
promotional material in which the Company and/or its Account is named, and no
such material shall be used if the Company so objects.
4.4. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus (which shall include an offering memorandum,
if any, if the Contracts issued by the Company or interests therein are not
registered under the 1933 Act), or SAI for the Contracts, as such registration
statement, prospectus, or SAI may be amended or supplemented from time to time,
or in published reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company, except with
the permission of the Company.
4.5. The Trust will provide to the Company at least one complete
copy of all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Designated Portfolios or their shares, promptly after
the filing of such document(s) with the SEC or other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete
copy of all registration statements, prospectuses (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or interests
therein are not registered under the 1933 Act), SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, promptly after
the filing of such document(s) with the SEC or other regulatory
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authorities. The Company shall provide to the Trust and the Underwriter any
complaints received from the Contract owners pertaining to the Trust or a
Designated Portfolio.
4.7. The Trust will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Trust's registration statement, particularly
any change resulting in a change to the registration statement or prospectus for
any Account. The Trust will work with the Company to facilitate the solicitation
of proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Trust will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the
Company under this Agreement, except that if the Trust or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-l to finance
distribution expenses, then the Trust may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Trust in
writing.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Trust, in
accordance with applicable state laws prior to their sale. The Trust shall bear
the expenses for the cost of registration and qualification of the Trust's
shares, preparation and filing of the Trust's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Trust's shares. The Trust shall
bear the expenses of distributing the Trust's proxy materials and reports to
existing Contract owners. The Trust shall also bear the expense of printing the
Trust's prospectus and annual and semi-annual reports which are delivered to
existing Contract owners with value allocated to one or more Designated
Portfolios (with respect to the expense of printing of prospectuses, the expense
shall be borne by the Trust regardless of whether such prospectuses are printed
by the Trust or the Company).
5.3. The Company shall bear the expense of distributing all
prospectuses and reports to shareholders (whether for existing Contract owners
or prospective Contract owners). The Company shall bear the expense of printing
copies of the prospectus for the Contracts for use with prospective Contract
owners. The Company shall bear the expenses incident to (including the costs of
printing) sales literature and other promotional material that the Company
develops and in which the Trust (or a Designated Portfolio thereof) is named.
ARTICLE VI. QUALIFICATION
The Trust represents and warrants that it is or will be qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code,") and that it will maintain such
qualification (under Subchapter M or any successor or similar provisions) and
that it will notify the Company 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.
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ARTICLE VII. INDEMNIFICATION
7.1. INDEMNIFICATION BY THE COMPANY
7.1(a). The Company agrees to indemnify and hold harmless
each of the Trust and the Underwriter and each of its trustees/directors and
officers, employees, and agents, and each person, if any, who controls the Trust
or Underwriter within the meaning of Section 15 of the 1933 Act or who is under
common control with the Trust or the Underwriter (collectively, the "Indemnified
Parties" for purposes of this Section 7.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statements of any material fact contained in the
registration statement, prospectus (which shall include a written
description of a Contract that is not registered under the 1933
Act), or SAI for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by
or on behalf of the Trust or the Underwriter for use in the
registration statement, prospectus or SAI for the Contracts or in
the Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts,
or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than
statements or representations contained in the registration
statement, prospectus, SAI, or sales literature of the Trust not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or its agents or persons under the Company's
authorization or control, with respect to the sale or distribution
of the Contracts, or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, SAI, or sales literature of the Trust or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Trust by or on behalf of the Company; or
(iv) arise as a result of any material failure by the
Company to provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company;
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as limited by and in accordance with the provisions of Sections 7.l(b) and
7.l(c) hereof.
7.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation 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 its obligations or
duties under this Agreement.
7.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust.
7.2. INDEMNIFICATION BY THE UNDERWRITER
7.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers, employees and agents and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" 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) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature of
the Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Trust by or on
behalf of the Company for use in the registration statement,
prospectus or SAI 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
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(ii) arise out of or as a result of statements or
representations by or on behalf of the Trust or the Underwriter
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature for the
Contracts not supplied by the Trust or the Underwriter) or wrongful
conduct of the Underwriter or the Trust with respect to the sale or
distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, SAI or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Underwriter or the Trust; or
(iv) arise as a result of any failure by the Trust or the
Underwriter to provide the services and furnish the materials under
the terms of this Agreement (including a failure of the Trust,
whether unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by or on behalf of the
Underwriter or the Trust in this Agreement or arise out of or result
from any other material breach of this Agreement by or on behalf of
the Underwriter or the Trust;
as limited by and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
7.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation 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 or 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 Company or the Account, whichever is applicable.
7.2(c). 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 Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel reasonably 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 fees and 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.
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7.2(d). The Company agrees promptly to notify the Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
7.3. INDEMNIFICATION BY THE TRUST
7.3(a). The Trust agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.3)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, expenses, damages, liabilities
or expenses (or actions in respect thereof) or settlements, are related to the
operations of the Trust and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SA1 or sales literature of
the Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Trust by or on
behalf of the Company for use in the registration statement,
prospectus or SAI 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
(ii) arise out of or as a result of statements or
representations by or on behalf of the Trust or the Underwriter
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature for the
Contracts not supplied by the Trust or the Underwriter) or wrongful
conduct of the Underwriter or the Trust with respect to the sale or
distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, SAI or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Underwriter or the Trust; or
(iv) arise as a result of any failure by the Trust 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 diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by or on behalf of the Trust in
this Agreement or arise out of or result from any other material
breach of this Agreement by or on behalf of the Trust;
- 11 -
as limited by and in accordance with the provisions of Sections 7.3(b) and
7.3(c) hereof. The parties acknowledge that the Trust's indemnification
obligations under this Section 7.3 are subject to applicable law. The Company
agrees that, in the event an obligation to indemnify exists pursuant to Section
7.3 as well as Section 7.2 hereof, it will seek satisfaction under the
indemnification provisions of Section 7.2 before seeking indemnification under
this Section 7.3.
7.3(b). The Trust shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation 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 Company or the Account, whichever is applicable.
7.3(c). 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 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 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. The Trust also shall be entitled to
assume the defense thereof, with counsel reasonably 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(d). The Company agrees promptly to notify the Trust of the
commencement of any litigation or proceeding against it or any of its respective
officers or directors in connection with the Agreement, the issuance or sale of
the Contracts, the operation of the Account, or the sale or acquisition of
shares of the Trust.
7.4 Section 7 shall survive the termination of this
Agreement.
ARTICLE VIII. APPLICABLE LAW
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Kansas,
without regard to the conflict of laws provisions thereof.
8.2. This Agreement shall be subject to the provisions of the 1933
and 1940 Acts as well as the Exchange Act of 1934, and the rules and regulations
and rulings thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant, and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE IX. TERMINATION
9.1. This Agreement shall continue in full force and effect until
the first to occur of:
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(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the other
parties based upon the Company's determination that shares of
the Trust are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the other
parties in the event any of the Designated Portfolio's shares
are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Trust or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the National Association of Securities Dealers,
Inc. (the "NASD"), the SEC, the Insurance Commissioner or like
official of any state or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Contracts, the operation of any Account, or the
purchase of the Designated Portfolios' shares; provided,
however, that the Trust or Underwriter determines in its sole
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this
Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Trust or
Underwriter by the SEC or any state securities department or
any other regulatory body; provided, however, that the Company
determines in its sole judgment exercised in good faith, that
any such administrative proceedings will have a material
adverse effect upon the ability of the Trust or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the other
parties in the event that any Designated Portfolio ceases to
qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, or if the Company
reasonably believes that any such Portfolio may fail to so
qualify or comply; or
(g) termination by either the Trust or the Underwriter by written
notice to the other parties, if either one or both the Trust
and the Underwriter, respectively, shall determine, in their
sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(h) termination by the Company by written notice to the other
parties, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or the Underwriter has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse
publicity; or
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(i) termination by the Company upon any substitution of the shares
of another investment company or series thereof for shares of
a Designated Portfolio of the Trust in accordance with the
terms of the Contracts, provided that the Company has given at
least 45 days prior written notice to the Trust and
Underwriter of the date of substitution.
9.2. Notwithstanding any termination of this Agreement, the Trust
and the Underwriter shall, at the option of the Company, continue to make
available additional shares of the Trust pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts"), unless the
Company seeks an order pursuant to Section 26(b) of the 1940 Act to permit the
substitution of other securities for the shares of the Designated Portfolios.
Specifically, the owners of the Existing Contracts may be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts (subject to any such election by the Company).
9.3. Notwithstanding any termination of this Agreement, each
party's obligation under Article VII to indemnify the other parties shall
survive.
ARTICLE X. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Company: Security Benefit Life Insurance Company
Attention General Counsel
One Security Benefit Place
Topeka, Kansas 66636 - 0001
If to the Trust: Rydex Series Funds
Attention:
0000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
If to Underwriter: Rydex Distributors, Inc.
Attention:
0000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
ARTICLE XI. MISCELLANEOUS
11.1. All persons dealing with the Trust must look solely to the
property of the respective Designated Portfolios listed on Schedule A hereto as
though each such Designated Portfolio had separately contracted with the Company
and the Underwriter for the enforcement of any claims against the Trust. The
parties agree that neither the Board, officers, agents or shareholders of the
Trust assume any personal liability or responsibility for obligations entered
into by or on behalf of the Trust.
- 14 -
11.2. Subject to the requirements of legal process and regulatory
authority, the Trust and the Underwriter shall treat as confidential the names
and addresses of the owners of the Contracts. Each party shall treat as
confidential all information reasonably identified as confidential in writing by
any other party hereto and, except as permitted by this Agreement, shall not
disclose, disseminate or utilize such information without the express written
consent of the affected party until such time as such information has come into
the public domain.
11.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5. 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.
11.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Kansas Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable insurance
operations of the Company are being conducted in a manner consistent with the
Kansas insurance laws and regulations and any other applicable law or
regulations.
11.7. 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 hereto are entitled to
under state and federal laws.
11.8 This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative.
Security Benefit Life
Insurance Company By its authorized officer
By: /s/
--------------------------------
Title: Senior Vice President & CMO
Date: June 23, 2003
Rydex Series Funds By its authorized officer
By: /s/
--------------------------------
Title: Secretary
-----------------------------
Date: 6/26/03
------------------------------
Rydex Distributors, Inc. By its authorized officer
By: /s/
--------------------------------
Title: VP
-----------------------------
Date: 6/26/03
------------------------------
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July 1,2003
SCHEDULE A
ACCOUNT(S) CONTRACT(S) DESIGNATED PORTFOLIO(S)
SBL VARIABLE ANNUITY ACCOUNT SECURITY BENEFIT ADVISOR RYDEX SECTOR ROTATION FUND
XIV VARIABLE ANNUITY
A-l
