Participation Agreement as of May 1, 2000 Franklin Templeton Variable Insurance Products Trust Franklin Templeton Distributors, Inc. Kansas City Life Insurance Company CONTENTS Schedules to this Agreement
as
of May 1, 2000
Franklin
Xxxxxxxxx Variable Insurance Products Trust
Franklin
Xxxxxxxxx Distributors, Inc.
Kansas
City 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 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 the amount the Trust is required to maintain.
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 use your best efforts
to 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
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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 use
your best efforts to 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, except registered products sold
to United States citizens temporarily resident on overseas United States
military bases.
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
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the
principal underwriter for each such Account and any subaccounts thereof is
a registered broker-dealer with the SEC under the 1934
Act;
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2.1.11.2
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the
shares of the Portfolios of the Trust are and will continue to be the only
investment securities held by the corresponding sub accounts;
and
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2.1.11.3
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with
regard to each Portfolio, you, on behalf of the corresponding subaccount,
will:
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(a)
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vote
such shares held by it in the same proportion as the vote of all other
holders of such shares; and
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(b)
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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.
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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 the1940
Act.
2.2.4 Each
class of shares of the Portfolios of the Trust is registered under the1933
Act.
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 It is
currently qualified as a “regulated investment company” under Subchapter M of
the Code, it will make every effort to 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 The Trust
will use its best efforts to 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.
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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-l”),
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.
2.4 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
5
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. 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 the
Trust or in your general account. Net amounts available under the Contracts may
also be invested in an investment company other than the Trust if: (i) such
other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives and
policies of the Portfolios; or (ii) you give us forty-five (45) days written
notice of your intention to make such other investment company available as a
funding vehicle for the Contracts; or (iii) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and you so inform us prior to our signing this Agreement (a list of such
investment companies appears on Schedule E to this Agreement); or (iv) we
consent in writing to the use of such other investment company.
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 the New York Stock Exchange on that Business
Day. Instructions we receive after 9 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).
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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, notice to you of any 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
request, we shall provide you with camera ready copy, in a form suitable for
printing, of a copy of portions of 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. We shall delete information relating to series of the Trust
other than the Portfolios to the extent practicable. We shall provide you with a
copy of the
7
Trust’s
current statement of additional information, including any amendments or
supplements, in a form suitable for you to duplicate. You shall bear the costs
of furnishing these documents (including printing and mailing) to Contract
owners or others.
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 fiend 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
8
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
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.
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 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.
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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
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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
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7.1.1.2
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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
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7.1.1.3
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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
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7.1.1.4
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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;
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7.1.1.5
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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
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7.1.1.6
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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.
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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, officers, employees and agents 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
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are
related to the sale or acquisition of the shares of the Trust or the Contracts
and:
7.2.1.1
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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
12
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, officers,
employees and agents 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.
13
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 sixty (60) days advance written notice
delivered to the other parties. This Agreement shall terminate immediately 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 This
Agreement may be terminated immediately by us upon written notice to you
if:
9.2.1 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; or
9.2.2 either
one or both of the Trust or the Underwriter respectively, shall determine, in
their sole judgment exercised in good faith, that you have suffered a
material
14
adverse
change in your business, operations, financial condition or prospects since the
date of this Agreement or are the subject of material adverse publicity;
or
9.2.3 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 9.2.3 shall be effective forty-five (45) days after the notice
specified in Section 3.3 was given.
9.3 If this
Agreement is terminated for any reason, except as required by the Shared Funding
Order or pursuant to Section 9.2.1, 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.
9.4 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 9.3, except that we shall have no further obligation
to sell Trust shares with respect to Contracts issued after
termination.
9.5 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” ); or (iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act. 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.
15
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 maybe amended or modified in any manner except by a
written agreement properly authorized and executed by both parties.
16
IN WITNESS WHEREOF, each of
the parties have caused their duly authorized officers to execute this
Agreement.
The
Company:
|
Kansas City Life Insurance
Company
|
|
By: /s/
Xxxxxxx X. Xxxx
|
||
Name: Xxxxxxx
X. Xxxx
|
||
Title: SVP
|
||
The
Trust:
|
Franklin Xxxxxxxxx Variable Insurance Products
Trust
|
|
Only
on behalf of each Portfolio listed on Schedule C hereof.
|
||
By: /s/
Company
|
||
Name:
|
||
Title: Vice
President
|
||
The
Underwriter:
|
Franklin Xxxxxxxxx Distributors,
Inc.
|
|
By: /s/
Xxxxxx X. Xxxxxx
|
||
Name: Xxxxxx
X. Xxxxxx
|
||
Title:
|
17
Schedule
A
The
Company
Kansas
City Life Insurance Company
0000
Xxxxxxxx
Xxxxxx
Xxxx, Xxxxxxxx 00000
Organized
as a corporation under Missouri law.
18
Schedule
B
Accounts
of the Company
0.Xxxx:
Date
Established:
SEC
Registration Number:
|
April
24, 0000
000-0000
|
0.Xxxx:
Date
Established:
SEC
Registration Number:
|
Kansas
City Life Variable Annuity Separate Account
January
23, 0000
000-0000
|
19
Schedule
C
Available
Portfolios and Classes of Shares of the Trust; Investment Advisers
Franklin Xxxxxxxxx Variable Insurance Products
Trust
|
Investment Adviser
|
Xxxxxxxxx
International Securities Fund Class 2
|
Xxxxxxxxx
Investment Counsel, Inc.
|
Franklin
Small Cap Fund Class 2
|
Franklin
Advisers, Inc.
|
Franklin
Real Estate Fund Class 2
|
Franklin
Advisers, Inc.
|
Templeton
Developing Markets Securities Fund Class 2
|
Xxxxxxxxx
Asset Management Ltd.
|
20
Schedule
D
Contracts
of the Company
Contract 1
|
Contract
2
|
Contract
3
|
|
Contract/Product
Name
|
Kansas
City Life Variable Life
|
Kansas
City Life Survivorship VUL
|
Century
II Variable Annuity
|
Registered
(YIN)
|
Yes
|
Yes
|
Yes
|
SEC
Registration Number
|
333-25443
33-95354
|
333-25443
33-95354
|
33-89984
|
Representative
Form Numbers
|
J146
|
J150
|
J147
|
Separate
Account Name/Date Established
|
Kansas
City Life Variable Life Separate Account/April 24, 1995
|
Kansas
City Life Variable Life Separate Account/April 24, 1995
|
Kansas
City Life Variable Annuity Separate Account/January 23,
1995
|
SEC
Registration Number
|
811-9080
|
811-9080
|
811-8994
|
Portfolios
and Classes
|
Xxxxxxxxx
International Securities Fund Class 2
Franklin
Small Cap Fund Class 2
Franklin
Real Estate Fund Class 2
Templeton
Developing Markets Securities Fund Class 2
|
Xxxxxxxxx
International Securities Fund Class 2
Franklin
Small Cap Fund Class 2
Franklin
Real Estate Fund Class 2
Templeton
Developing Markets Securities Fund Class 2
|
Xxxxxxxxx
International Securities Fund Class 2
Franklin
Small Cap Fund Class 2
Franklin
Real Estate Fund Class 2
Templeton
Developing Markets Securities Fund Class 2
|
21
Schedule
E
Other
Portfolios Available under the Contracts
AIM
Dent
Demographic
Telecommunications
and Technology
Value
American
Century Variable Portfolios
VP
International
Federated
Insurance Series
Federated
American Leaders Fund II
Federated
High Income Bond Fund II
International
Small Company
Federated
Prime Money Fund II
Dreyfus
Variable Investment Fund
Capital
Appreciation
Small
Capitalization
Dreyfus
Stock Index
Fund MFS
Variable Insurance Trust
MFS
Emerging Growth
MFS
Research
MFS Total
Return
MFS
Utilities
MFS World
Government
MFS
Bond
Xxxxxxxx
Capital
Portfolio
Communications
and Technology
22
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
|
Xxxxxxxxx
International Securities Fund
|
0.25%
|
Franklin
Small Cap Fund
|
0.25%
|
Franklin
Real Estate Fund
|
0.25%
|
Templeton
Developing Markets 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 Shares (“
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.
23
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 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 Plans 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. You agree: that your selling agreements with persons
or entities through whom you intend to distribute Contracts will provide that
compensation paid to such persons or entities may be reduced if a Portfolio’s
Plan is no longer effective or is no longer applicable to such Portfolio or
class of shares available under the Contracts.
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.
24
Schedule
G
Addresses
for Notices
To
the Company:
|
Kansas
City Life Insurance Company
0000
Xxxxxxxx
Xxxxxx
Xxxx, Xxxxxxxx 00000
Attention:
C. Xxxx Xxxxxxxxx, General Counsel
|
To
the Trust:
|
Franklin
Xxxxxxxxx Variable Insurance Products Trust
000
Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx
Xxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxx X. Xxxxxxxx, Assistant Vice President
|
To
the Underwriter:
|
Franklin
Xxxxxxxxx Distributors, Inc.
000
Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx
Xxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxx, Vice President
|
25
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
26
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. (000)
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 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 (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
27
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
28
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)(l 5) is not available with respect to a scheduled premium variable life
insurance separate account that owns shares of an underlying fiend 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)(l 5) 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 Xxxxxxxxx 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
29
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
30
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
31
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 8 17(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
32
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.
33
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
34
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 s 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
35
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
36
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.
37
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.
38
For the
Commission, by the Division of Investment Management, pursuant to delegated
authority.
39