PARTICIPATION AGREEMENT
as of March 6, 2017
Franklin Xxxxxxxxx Variable Insurance Products Trust
Franklin/Xxxxxxxxx Distributors, Inc.
Brighthouse Life Insurance Company
Brighthouse Life Insurance Company of NY
Brighthouse Securities, LLC
CONTENTS
Section Subject Matter
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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 and its Distributor
B. Accounts of the Company
C. Available Portfolios and Classes of
Shares of the Trust
D. Contracts of the Company
E. [this schedule is not used]
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
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WHEREAS, Franklin Xxxxxxxxx Variable Insurance Products Trust, an open-end
management investment company organized as a statutory trust under Delaware 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"), MetLife Insurance Company USA ("MetLife
USA"), on its own behalf and on behalf of certain segregated asset accounts
maintained by MetLife USA, and MetLife Investors Distribution Company ("MetLife
Distributor"), entered into an Amended and Restated
Brighthouse FPA 2017-03-06.docx
Participation Agreement dated May 1, 2004, which has been amended from time to
time (the "MetLife USA Participation Agreement"); and
WHEREAS, the Trust, the Underwriter, First MetLife Investors Insurance
Company ("MetLife Investors"), on its own behalf and on behalf of certain
segregated asset accounts maintained by MetLife Investors, and MetLife
Distributor, entered into a Participation Agreement dated September 1, 2000,
which has been amended from time to time (the "MetLife Investors Participation
Agreement" and, together with the MetLife USA Participation Agreement, the
"Prior Participation Agreements"); and
WHEREAS, effective March 6, 2017, MetLife USA changed its name to
Brighthouse Life Insurance Company ("BLIC"), and MetLife Investors changed its
name to Brighthouse Life Insurance Company of NY ("BLNY"); and
WHEREAS, effective March 6, 2017, MetLife Distributor assigned all of its
rights and obligations under the Prior Participation Agreements to Brighthouse
Securities, LLC ("Brighthouse Distributor"), which is an affiliate of BLIC and
BLNY and the distributor for the Contracts (as defined herein); and
WHEREAS, the parties to the Prior Participation Agreements wish to enter
into new participation agreements that reflect the current names of the
insurance companies and replaces MetLife Distributor with Brighthouse
Distributor as the distributor for the Contracts (as defined herein).
NOW, THEREFORE, the parties hereto agree as follows:
1. PARTIES AND PURPOSE
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This Participation Agreement (the "Agreement") is entered by and between
certain portfolios and classes thereof, specified below and in Schedule C, of
the Trust, the Underwriter, BLIC and BLNY (each of BLIC and BLNY, the "Company"
or "you" and, together, the "Companies") and Brighthouse Distributor (the
"Distributor"). Each Company is subject to this Agreement individually, on its
own behalf and on behalf of each segregated asset account maintained by it 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, directly 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, consistent with the
terms of the prospectuses of the Portfolios, 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. In
addition, the Trust, the Underwriter, the Company and Brighthouse Distributor
acknowledge that this Agreement will supersede and replace the Prior
Participation Agreements, and the Prior Participation Agreements will
terminate, subject to the survival provisions of Section 9.8 of the Prior
Participation Agreements, accordingly upon effectiveness of this Agreement.
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2. REPRESENTATIONS AND WARRANTIES
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2.1 REPRESENTATIONS AND WARRANTIES BY YOU
You represent and warrant that:
2.1.1 You are an insurance company duly organized and in good standing
under the laws of your state of incorporation.
2.1.2 All of your directors, officers, employees, and other individuals
or entities dealing with the money and/or securities of the Trust are and shall
be at all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Trust, in an amount not less than $5 million. Such bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company. You agree to make all reasonable efforts to see that
this bond or another bond containing such provisions is always in effect, and
you agree to notify us in the event that such coverage no longer applies.
2.1.3 Each Account is a duly organized, validly existing segregated
asset account under applicable insurance law and interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract" within the meaning of such terms under Section 817 of the Internal
Revenue Code of 1986, as amended ("Code") and the regulations thereunder. You
will 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
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 Exchange Act of 1934, as amended (the
"1934 Act") and who are members in good standing of the Financial Industry
Regulatory Authority ("FINRA"); (ii) will be issued and sold in compliance in
all material respects with all applicable federal
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and state laws; and (iii) will be sold in compliance in all material respects
with state insurance suitability requirements and FINRA suitability guidelines.
Without limiting the foregoing, you agree that in recommending to a Contract
owner the purchase, sale or exchange of any subaccount units under the
Contracts, you shall have reasonable grounds for believing that the
recommendation is suitable for such Contract owner and, to the extent such
recommendations are made by broker-dealers not affiliated with you, you shall
require in written agreements with such broker-dealers that they have
reasonable grounds for believing that such recommendation is suitable for such
Contract owner.
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.
2.1.11 With respect to any Accounts which are exempt from registration
under the 1940 Act in reliance on Section 3(c)(1) or Section 3(c)(7) thereof:
2.1.11.1 the principal underwriter for each such Account and any
subaccounts thereof is a registered broker-dealer with the
SEC under the 1934 Act;
2.1.11.2 the shares of the Portfolios of the Trust are and will
continue to be the only investment securities held by the
corresponding subaccounts; and
2.1.11.3 with regard to each Portfolio, you, on behalf of the
corresponding subaccount, will:
(a) vote such shares held by it in the same proportion as
the vote of all other holders of such shares; and
(b) refrain from substituting shares of another security
for such shares unless the SEC has approved such
substitution in the manner provided in Section 26 of
the 1940 Act.
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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 Delaware.
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 than the minimum coverage required by Rule 17g-1 or
other regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
2.2.3 It is registered as an open-end management investment company
under the 0000 Xxx.
2.2.4 Each class of shares of the Portfolios of the Trust is registered
under the 0000 Xxx.
2.2.5 It will amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares.
2.2.6 It will comply, in all material respects, with the 1933 and 1940
Acts and the rules and regulations thereunder.
2.2.7 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.
2.2.9 It currently intends for one or more classes of shares (each, a
"Class") to make payments to finance its distribution expenses, including
service fees, pursuant to a plan ("Plan") adopted under rule 12b-1 under the
1940 Act ("Rule 12b-1"), although it may determine to discontinue such practice
in the future. To the extent that any Class of the Trust finances its
distribution expenses pursuant to a Plan adopted under rule 12b-1, the Trust
undertakes to comply with any then current SEC interpretations concerning rule
12b-1 or any successor provisions.
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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 FINRA.
2.3.2 Each investment adviser (each, an "Adviser") of a Portfolio, as
indicated in the current prospectus of the Portfolio, is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended or
exempt from such registration.
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.
2.4.1 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.
2.4.2 As covered financial institutions we, only with respect to Portfolio
shareholders, and you each undertake and agree to comply, and to take full
responsibility in complying with any and all applicable laws, regulations,
protocols and other requirements relating to money laundering including,
without limitation, the International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001 (Title III of the USA PATRIOT Act).
3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
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3.1 AVAILABILITY OF TRUST PORTFOLIO SHARES
3.1.1 We will make shares of the Portfolios available to the Accounts
for the benefit of the Contracts. The shares will be available for purchase by
the Accounts at the net asset value per share next computed after we (or our
agent, or you as our designee) receive a purchase order, as established in
accordance with the provisions of the then current prospectus of the Trust. All
such orders are subject to acceptance by us and by the Portfolio or its transfer
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agent, and become effective only upon confirmation by us. 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.
3.1.2 Without limiting the other provisions of this Section 3.1, among
other delegations by the Trustees, the Trustees have determined that there is a
significant risk that the Trust and its shareholders may be adversely affected
by investors with short term trading activity and/or whose purchase and
redemption activity follows a market timing pattern as defined in the
prospectus for the Trust, 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 in whole or
in part) as they deem necessary to reduce, discourage, restrict or eliminate
such trading and/or market timing activity. You agree that your purchases and
redemptions of Portfolio shares are subject to, and that you will assist us in
implementing, the Market Timing Trading Policy and Additional Policies (as
described in the Trust's prospectus) and the Trust's restrictions on excessive
and/or short term trading activity and/or purchase and redemption activity that
follows a market timing pattern. You further agree to cooperate fully in the
implementation and fulfillment of the Trust's obligations pursuant to Rule
22c-2 under the 1940 Act.
3.1.3 We agree that shares of the Trust will be sold only to: (i) life
insurance companies which have entered into fund participation agreements with
the Trust ("Participating Insurance Companies") and their separate accounts or
to qualified pension and retirement plans in accordance with the terms of the
Shared Funding Order; and
(ii) investment companies in the form of funds of funds. No shares of
any Portfolio will be sold to the general public.
3.2 MANUAL OR AUTOMATED PORTFOLIO SHARE TRANSACTIONS
3.2.1 Section 3.3 of this Agreement shall govern and Section 3.4 shall
not be operative, unless we receive from you at the address provided in the
next sentence, written notice that you wish to communicate, process and settle
purchase and redemptions for shares (collectively, "share transactions") via
the Fund/SERV and Networking systems of the National Securities Clearing
Corporation ("NSCC"). The address for you to send such written notice shall be:
Retirement Services, Franklin Xxxxxxxxx Investments, 000 Xxxx Xxxxx, 0/xx/
Xxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000-0000. After giving ten (10) days' advance
written notice at the address provided in the previous sentence of your desire
to use NSCC processing, Section 3.4 of this Agreement shall govern and
Section 3.3 shall not be operative.
3.2.2 At any time when, pursuant to the preceding paragraph, Section 3.4
of this Agreement governs, any party to this Agreement may send written notice
to the other parties that it chooses to end the use of the NSCC Fund/SERV and
Networking systems and return to manual handling of share transactions. Such
written notice shall be sent: (i) if from you to us, to the address provided in
the preceding paragraph; (ii) if from us to you, to your address in Schedule G
of this Agreement. After giving ten (10) days' advance written notice
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at the address as provided in the previous sentence, Section 3.3 of this
Agreement shall govern and Section 3.4 shall not be operative.
3.3 MANUAL PURCHASE AND REDEMPTION
3.3.1 You are hereby appointed as our designee for the sole purpose of
receiving from Contract owners purchase and exchange orders and requests for
redemption resulting from investment in and payments under the Contracts that
pertain to subaccounts that invest in Portfolios ("Instructions"). "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. "Close of Trading" shall mean the
close of trading on the New York Stock Exchange, generally 4:00 p.m. Eastern
Time. You represent and warrant that all Instructions transmitted to us for
processing on or as of a given Business Day (the "Designated Day") shall have
been received in proper form and time stamped by you prior to the Close of
Trading on the Designated Day. Such Instructions shall receive the Portfolio
share price next calculated following the Close of Trading on the Designated
Day (the "Designated Day Price"), provided that we receive the Instructions
from you before 9:00 a.m. Eastern Time on the Business Day following the
Designated Day (the "Submission Time"). Any such Instructions that we receive
after the Submission Time may, but are not guaranteed to, receive the
Designated Day Price. You assume responsibility for any loss to a Portfolio
caused by our receipt of Instructions after the Submission Time, including but
not limited to, losses caused by such Instructions receiving the Designated Day
Price, or any cancellation or correction made subsequent to the Submission
Time. You will immediately pay the amount of such loss to a Portfolio upon
notification by us. You represent and warrant that you have, maintain and
periodically test, procedures and systems in place reasonably designed to
prevent Instructions received after the Close of Trading on a Designated Day
from being executed with Instructions received before the Close of Trading on
that Designated Day.
3.3.2 We shall calculate the net asset value per share of each Portfolio
on each Business Day, and shall communicate these net asset values to you or
your designated agent on a daily basis as soon as reasonably practical after
the calculation is completed (normally by 6:30 p.m. Eastern Time).
3.3.3 You shall submit payment for the purchase of shares of a Portfolio
on behalf of an Account in federal funds transmitted by wire to the Trust or to
its designated custodian, which must receive such wires no later than the close
of the Reserve Bank, which is currently 6:00 p.m. Eastern Time, on the same
Business Day on which such purchase orders are transmitted to us for processing
on that Business Day in conformance with section 3.3.1.
3.3.4 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 or you as our designee) 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.
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3.3.5 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.
3.3.6 We shall furnish, on or before the ex-dividend date, notice to you
of any income dividends or capital gain distributions payable to the Accounts
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.
3.3.7 Each party to this Agreement agrees that, in the event of a
material error resulting from incorrect information or confirmations, the
parties will seek to comply in all material respects with the provisions of
applicable federal securities laws.
3.4 AUTOMATED PURCHASE AND REDEMPTION
3.4.1 "Fund/SERV" shall mean NSCC's Mutual Fund Settlement, Entry and
Registration Verification System, a system for automated, centralized
processing of mutual fund purchase and redemption orders, settlement, and
account registration; "Networking" shall mean NSCC's system that allows mutual
funds and life insurance companies to exchange account level information
electronically; and "Settling Bank" shall mean the entity appointed by the
Trust or you, as applicable, to perform such settlement services on behalf of
the Trust and you, as applicable, which entity agrees to abide by NSCC's then
current rules and procedures insofar as they relate to same day funds
settlement. In all cases, processing and settlement of share transactions shall
be done in a manner consistent with applicable law.
3.4.2 You are hereby appointed as our designee for the sole purpose of
receiving from Contract owners purchase and exchange orders and requests for
redemption resulting from investment in and payments under the Contracts that
pertain to subaccounts that invest in Portfolios ("Instructions"). "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. "Close of Trading" shall mean the
close of trading on the New York Stock Exchange, generally 4:00 p.m. Eastern
Time. Upon receipt of Instructions, and upon your determination that there are
good funds with respect to Instructions involving the purchase of shares, you
will calculate the net purchase or redemption order for each Portfolio.
3.4.3 On each Business Day, you shall aggregate all purchase and
redemption orders for shares of a Portfolio that you received prior to the
Close of Trading. You represent and warrant that all orders for net purchases
or net redemptions derived from Instructions received by you and transmitted to
Fund/SERV for processing on or as of a given Business Day (the "Designated
Day") shall have been received in proper form and time stamped by you prior to
the Close of Trading on the Designated Day. Such orders shall receive the
Portfolio share price next calculated following the Close of Trading on the
Designated Day (the "Designated Day Price"), provided that we receive
Instructions from Fund/SERV by 9:00 a.m. Eastern Time on the Business Day
following the Designated Day
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(the "Submission Time"). Any such Instructions that we receive after the
Submission Time may, but are not guaranteed to, receive the Designated Day
Price. You assume responsibility for any loss to a Portfolio caused by our
receipt of Instructions after the Submission Time including, but not limited
to, losses caused by such Instructions receiving the Designated Day Price, or
any cancellation or correction made subsequent to the Submission Time. You will
immediately pay the amount of such loss to a Portfolio upon notification by us.
You represent and warrant that you have, maintain and periodically test,
procedures and systems in place reasonably designed to prevent Instructions
received after the Close of Trading on a Designated Day from being executed
with Instructions received before the Close of Trading on that Designated Day.
3.4.4 We shall calculate the net asset value per share of each Portfolio
on each Business Day, and shall furnish to you through NSCC's Networking or
Mutual Fund Profile System: (i) the most current net asset value information
for each Portfolio; and (ii) in the case of fixed income funds that declare
daily dividends, the daily accrual or the interest rate factor. All such
information shall be furnished to you by 6:30 p.m. Eastern Time on each
Business Day or at such other time as that information becomes available.
3.4.5 You will wire payment for net purchase orders by the Trust's NSCC
Firm Number, in immediately available funds, to an NSCC settling bank account
designated by you in accordance with NSCC rules and procedures on the same
Business Day such purchase orders are communicated to NSCC. For purchases of
shares of daily dividend accrual funds, those shares will not begin to accrue
dividends until the day the payment for those shares is received.
3.4.6 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 or you as our designee) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust. NSCC will wire payment for net redemption
orders by the Trust, in immediately available funds, to an NSCC settling bank
account designated by you in accordance with NSCC rules and procedures on the
Business Day such redemption orders are communicated to NSCC, except as
provided in the Trust's prospectus and statement of additional information.
3.4.7 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.
3.4.8 We shall furnish through NSCC's Networking or Mutual Fund Profile
System on or before the ex-dividend date, notice to you of any income dividends
or capital gain distributions payable to the Accounts 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.
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3.4.9 All orders are subject to acceptance by Underwriter and become
effective only upon confirmation by Underwriter. Underwriter reserves the
right: (i) not to accept any specific order or part of any order for the
purchase or exchange of shares through Fund/SERV; and (ii) to require any
redemption order or any part of any redemption order to be settled outside of
Fund/SERV, in which case the order or portion thereof shall not be "confirmed"
by Underwriter, but rather shall be accepted for redemption in accordance with
Section 3.4.11 below.
3.4.10 All trades placed through Fund/SERV and confirmed by Underwriter
via Fund/SERV shall settle in accordance with Underwriter's profile within
Fund/SERV applicable to you. Underwriter agrees to provide you with account
positions and activity data relating to share transactions via Networking.
3.4.11 If on any specific day you or Underwriter are unable to meet the
NSCC deadline for the transmission of purchase or redemption orders for that
day, a party may at its option transmit such orders and make such payments for
purchases and redemptions directly to you or us, as applicable, as is otherwise
provided in the Agreement; provided, however, that we must receive written
notification from you by 9:00 a.m. Eastern Time on any day that you wish to
transmit such orders and/or make such payments directly to us.
3.4.12 In the event that you or we are unable to or prohibited from
electronically communicating, processing or settling share transactions via
Fund/SERV, you or we shall notify the other, including providing the
notification provided above in Section 3.4.11. After all parties have been
notified, you and we shall submit orders using manual transmissions as are
otherwise provided in the Agreement.
3.4.13 These procedures are subject to any additional terms in each
Portfolio's prospectus and the requirements of applicable law. The Trust
reserves the right, at its discretion and without notice, to suspend the sale
of shares or withdraw the sale of shares of any Portfolio.
3.4.14 Each party to the Agreement agrees that, in the event of a
material error resulting from incorrect information or confirmations, the
parties will seek to comply in all material respects with the provisions of
applicable federal securities laws.
3.4.15 You and Underwriter represent and warrant that each: (a) has
entered into an agreement with NSCC; (b) has met and will continue to meet all
of the requirements to participate in Fund/SERV and Networking; (c) intends to
remain at all times in compliance with the then current rules and procedures of
NSCC, all to the extent necessary or appropriate to facilitate such
communications, processing, and settlement of share transactions; and (d) will
notify the other parties to this Agreement if there is a change in or a pending
failure with respect to its agreement with NSCC.
4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS
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4.1 We shall pay no fee or other compensation to you under this Agreement
except as provided on Schedule F, if attached.
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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 "Designated Portfolio Document" means the following documents we create
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with respect to each Portfolio and provide to you: (1) a Portfolio's
prospectus, including a summary prospectus (together, "Prospectus") if the
Trust chooses to create one for a Portfolio and we and you have signed the
necessary Participation Agreement Addendum; (2) its annual report to
shareholders; (3) its semi-annual report to shareholders; (4) amendments or
supplements to any of the foregoing if we direct you to deliver them to
Contract owners; and (5) other shareholder communications including, without
limitation, proxy statements, if we direct you to deliver them to Contract
owners.
"Document Event" means (1) with respect to the Prospectus, the effectiveness of
--------------
a new annual post-effective amendment to the Prospectus to update financial
statements and make other disclosure changes or other post-effective amendment
to the Prospectus; (2) with respect to the Trust's annual report and
semi-annual reports to shareholders, the Trust's creation of reports intended
to satisfy the requirements of Section 30(a) of the 1940 Act applicable to the
Trust; or (3) with respect to amendments or supplements to any of the foregoing
or other shareholder communications, the Trust's creation of such documents and
provision of them to you.
"Printing Expenses" means expenses of the physical creation of Designated
-----------------
Portfolio Documents, and not of their distribution to Contract owners
(including, without limitation, mailing and postage expenses) or the provision
of other services.
Each time there is a Document Event with respect to a Designated Portfolio
Document we shall, at your option, provide you with one of the following:
(1) one copy of the applicable Designated Portfolio Document for each
Contract owner with investments allocated to a subaccount
corresponding to the Portfolio before the date of the Designated
Portfolio Document (the "Contract Owner Recipients"); or
(2) a copy suitable for reproduction of such Designated Portfolio
Document, in which case we will reimburse you, as provided below under
"Reimbursement Procedures," for Printing Expenses you incur to create
Designated Portfolio Documents in sufficient quantity so that one such
Designated Portfolio
12
Document is available for you to have delivered to each Contract Owner
Recipient.
REIMBURSEMENT PROCEDURES
------------------------
ROUTINE REIMBURSEMENTS. Within six months following the delivery date of
----------------------
the Designated Portfolio Document ("Delivery Date"), we must receive
your request for reimbursement and: (i) a statement of the number of
Contract Owner Recipients; (ii) copies of all printing company invoices
applicable to the Printing Expenses that you request we reimburse;
(iii) a description of the methodology used to determine the amount of
reimbursement requested; and (iv) your representation that the
reimbursement request covers only Printing Expenses covered by
Section 4.4 of this Agreement; the date we have received all these items
is the "Request Date." If we are able to validate your request based on
the information you provided as well as, among other things we believe
to be appropriate, our analysis of your previous reimbursement requests,
if applicable, and/or third party industry benchmarking information,
then we will reimburse you within sixty days of the Request Date.
REIMBURSEMENTS REQUIRING ADDITIONAL INFORMATION. If we cannot validate
-----------------------------------------------
your reimbursement request based on the information you have provided to
us and our analysis described in the preceding paragraph, then we will
request additional information from you and work with you to validate
your request.
EXPENSES NOT SUBJECT TO REIMBURSEMENT. We will not reimburse expenses
-------------------------------------
related to: (1) creation or provision of any Designated Portfolio
Document for or to a person who is not a Contract Owner Recipient of
such document; (2) creation or provision of any Designated Portfolio
Document to a person accompanying, or at the time of the delivery of, a
confirmation of their purchase of or exchange into subaccount shares
corresponding to a Portfolio; (3) posting any Designated Portfolio
Document on your website; or (4) electronic filing of Designated
Portfolio Documents or other documents with the Securities and Exchange
Commission (using its XXXXX or other system).
STATEMENT OF ADDITIONAL INFORMATION. We shall provide you with a copy of the
-----------------------------------
Trust's current statement of additional information, including any amendments
or supplements to it ("SAI), in a form suitable for reproduction, but we will
not pay Printing Expenses or other expenses with respect to the SAI.
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 Designated
Portfolio Documents and proxy materials are delivered to Contract owners in
accordance with
13
applicable federal and state securities laws. For Designated Portfolio
Documents and other Trust materials provided by you on your website or by other
electronic means, you assume sole responsibility for ensuring that such
delivery is in compliance with applicable state and federal requirements
pertaining to electronic delivery, including consent, access, searchability by
users, notice and evidence of delivery.
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 owned by subaccounts for which no instructions have been received from
Contract owners in the same proportion as Trust shares of such Portfolio for
which instructions have been received from Contract owners; so long as and to
the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. You reserve the
right to vote Trust shares held in any Account in your own right, to the extent
permitted by law.
5.3 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, you shall provide
pass-through voting privileges to Contract owners whose Contract values are
invested, through the Accounts, in shares of one or more Portfolios of the
Trust. We shall require all Participating Insurance Companies to calculate
voting privileges in the same manner and you shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by us.
With respect to each Account, you will vote shares of each Portfolio of the
Trust held by an Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by
that Account for which voting instructions are received. You and your agents
will in no way recommend or oppose or interfere with the solicitation of
proxies for Portfolio shares held to fund the Contracts without our prior
written consent, which consent may be withheld in our sole discretion.
6. SALES MATERIAL, INFORMATION AND TRADEMARKS
------------------------------------------
6.1 "Sales Literature/ 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, web-sites and other
electronic communications 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. "Disclosure Documents"
--------------------
shall mean
14
each item of the following if prepared, approved or used by you and relating to
a Contract, an Account, or a Portfolio, and any amendments or revisions to such
document: registration statements, prospectuses, statements of additional
information, private placement memoranda, retirement plan disclosure
information or other disclosure documents or similar information, as well as
any solicitation for voting instructions.
6.2 You may use the name of the Trust and trademarks and the logo of the
Underwriter in Sales Literature/Promotional Material as reasonably necessary to
carry out your performance and obligations under this Agreement provided that
you comply with the provisions of this Agreement. You agree to abide by any
reasonable use guidelines regarding use of such trademarks and logos that we
may give from time to time. You shall, as we may request from time to time,
promptly furnish, or cause to be furnished to us or our designee, one complete
copy of each item of the following: (i) Sales Literature/Promotional Material
prepared, approved or used by you; and (ii) Disclosure Documents.
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/Promotional Material created by us for the Trust and provided by the
Trust or its designee to you, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee.
6.4 You agree, represent and warrant that you are solely responsible for any
Sales Literature/ Promotional Material prepared by you and that such material
will: (a) conform to all requirements of any applicable laws or regulations of
any government or authorized agency having jurisdiction over the offering or
sale of shares of the Portfolios or Contracts; (b) be solely based upon and not
contrary to or inconsistent with the written information or materials provided
to you by us or a Portfolio, including the Trust's prospectus and statement of
additional information; and (c) be made available promptly to us upon our
request. You agree to file any Sales Literature/Promotional Material prepared
by you with FINRA, or other applicable legal or regulatory authority, within
the timeframes that may be required from time to time by FINRA or such other
legal or regulatory authority. Unless otherwise expressly agreed to in writing,
it is understood that we will neither review nor approve for use any materials
prepared by you and will not be materially involved in the preparation of, or
have any responsibility for, any such materials prepared by you. You are not
authorized to modify or translate any materials we have provided to you.
6.5 You shall promptly notify us of any written customer complaint or notice
of any regulatory investigation or proceeding received by you relating to any
Sales Literature/Promotional Material.
6.6 Other than naming you as a Trust shareholder, 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
(as such Disclosure Documents may be
15
amended or supplemented from time to time), or in materials approved by you for
distribution, including Sales Literature/ Promotional Material, except as
required by legal process or regulatory authorities or with your written
permission.
6.7 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.
6.8 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.
6.9 You agree that any posting of Designated Portfolio Documents on your
website or use of Designated Portfolio Documents in any other electronic format
will result in the Designated Portfolio Documents: (i) appearing identical to
the hard copy printed version or .pdf format file provided to you by us (except
that you may reformat .pdf format prospectus files in order to delete blank
pages and to insert .pdf format prospectus supplement files provided by us to
you); (ii) being clearly associated with the particular Contracts in which they
are available and posted in close proximity to the applicable Contract
prospectuses; (iii) having no less prominence than prospectuses of any other
underlying funds available under the Contracts; (iv) in compliance with any
statutory prospectus delivery requirements and (v) being used in an authorized
manner. Notwithstanding the above, you understand and agree that you are
responsible for ensuring that participation in the Portfolios, and any website
posting, or other use, of the Designated Portfolio Documents is in compliance
with this Agreement and applicable state and federal securities and insurance
laws and regulations, including as they relate to paper or electronic delivery
or use of fund prospectuses. We reserve the right to inspect and review your
website if any Designated Portfolio Documents and/or other Trust documents are
posted on your website and you shall, upon our reasonable request, provide us
timely access to your website materials to perform such inspection and review.
In addition, you agree to be solely responsible for maintaining and updating
the Designated Portfolio Documents' .pdf files and removing and/or replacing
promptly any outdated prospectuses and other documents, as necessary, ensuring
that any accompanying instructions by us, for using or stopping use, are
followed. You agree to designate and make available to us a person to act as a
single point of communication contact for these purposes. We are not
responsible for any additional costs or additional liabilities that may be
incurred as a result of your election to place the Designated Portfolio
Documents on your website. We reserve the right to revoke this authorization,
at any time and for any reason, although we may instead make our authorization
subject to new procedures.
6.10 Each of your and your distributor's registered representatives, agents,
independent contractors and employees, as applicable, will have access to our
websites at xxxxxxxxxxxxxxxxx.xxx, and such other URLs through which we may
permit you to conduct business concerning the Portfolios from time to time
(referred to collectively as the "Site") as provided herein: (i) upon
registration by such individual on a Site, (ii) if you cause a Site
16
Access Request Form (an "Access Form") to be signed by your authorized
supervisory personnel and submitted to us, as a Schedule to, and legally a part
of, this Agreement, or (iii) if you provide such individual with the necessary
access codes or other information necessary to access the Site through any
generic or firm-wide authorization we may grant you from time to time. Upon
receipt by us of a completed registration submitted by an individual through
the Site or a signed Access Form referencing such individual, we shall be
entitled to rely upon the representations contained therein as if you had made
them directly hereunder and we will issue a user identification, express number
and/or password (collectively, "Access Code"). Any person to whom we issue an
Access Code or to whom you provide the necessary Access Codes or other
information necessary to access the Site through any generic or firm-wide
authorization we may grant you from time to time shall be an "Authorized User."
We shall be entitled to assume that such person validly represents you and
that all instructions received from such person are authorized, in which case
such person will have access to the Site, including all services and
information to which you are authorized to access on the Site. All inquiries
and actions initiated by you (including your Authorized Users) are your
responsibility, are at your risk and are subject to our review and approval
(which could cause a delay in processing). You agree that we do not have a duty
to question information or instructions you (including Authorized Users) give
to us under this Agreement, and that we are entitled to treat as authorized,
and act upon, any such instructions and information you submit to us. You agree
to take all reasonable measures to prevent any individual other than an
Authorized User from obtaining access to the Site. You agree to inform us if
you wish to restrict or revoke the access of any individual Access Code. If you
become aware of any loss or theft or unauthorized use of any Access Code, you
agree to contact us immediately. You also agree to monitor your (including
Authorized Users') use of the Site to ensure the terms of this Agreement are
followed. You also agree that you will comply with all policies and agreements
concerning Site usage, including without limitation the Terms of Use
Agreement(s) posted on the Site ("Site Terms"), as may be revised and reposted
on the Site from time to time, and those Site Terms (as in effect from time to
time) are a part of this Agreement. Your duties under this section are
considered "services" required under the terms of this Agreement. You
acknowledge that the Site is transmitted over the Internet on a reasonable
efforts basis and we do not warrant or guarantee their accuracy, timeliness,
completeness, reliability or non-infringement. Moreover, you acknowledge that
the Site is provided for informational purposes only, and is not intended to
comply with any requirements established by any regulatory or governmental
agency.
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
17
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of shares of the
Trust or the Contracts and
7.1.1.1 arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a Disclosure
Document for the Contracts or in the Contracts themselves or in sales
literature generated or approved by you on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Section 7), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from written
information furnished to you by or on behalf of the Trust for use in Company
Documents or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
7.1.1.2 arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined below in Section 7.2) or wrongful conduct of
you or persons under your control, with respect to the sale or acquisition of
the Contracts or Trust shares; or
7.1.1.3 arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined
below in Section 7.2 or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
and accurately derived from written information furnished to the Trust by or on
behalf of you; or
7.1.1.4 arise out of or result from any failure by you to provide the
services or furnish the materials required under the terms of this Agreement;
7.1.1.5 arise out of or result from any material breach of any
representation and/or warranty made by you in this Agreement or arise out of or
result from any other material breach of this Agreement by you;
7.1.1.6 arise out of or result from a Contract failing to be
considered a life insurance policy or an annuity Contract, whichever is
appropriate, under applicable provisions of the Code thereby depriving the
Trust of its compliance with Section 817(h) of the Code; or
7.1.1.7 arise out of or result from any failure by you to satisfy
requirements, including but not limited to compliance with all applicable laws,
relating to your electronic delivery of Designated Portfolio Documents or your
making such documents available on-line.
18
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 your election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and you will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.1.3 The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
7.2 INDEMNIFICATION BY THE UNDERWRITER
7.2.1 The Underwriter agrees to indemnify and hold harmless you, and
each of your directors and officers and each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually an "Indemnified Party" for purposes of
this Section 7.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition by the Accounts
of the shares of the Trust or the Contracts and:
7.2.1.1 arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing) (collectively, the "Trust Documents") or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or omission of
such alleged statement
19
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 to the Accounts; or
7.2.1.3 arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Disclosure Document or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished to you by or on behalf of the Trust; or
7.2.1.4 arise as a result of any failure by us to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the qualification representation specified above in Section 2.2.7 and the
diversification requirements specified above in Section 2.2.8); or
7.2.1.5 arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of Sections
7.2.2 and 7.2.3 hereof.
7.2.2 The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to you or the Accounts,
whichever is applicable.
7.2.3 The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Underwriter
of any such claim shall not relieve the Underwriter from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the Indemnified
Party releases the Underwriter from any further obligations under this
Section 7.2, the Underwriter also shall be entitled to assume the defense
thereof, with counsel
20
satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional
counsel retained by it, and the Underwriter will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
7.2.4 You agree promptly to notify the Underwriter of the commencement
of any litigation or proceedings against you or the Indemnified Parties in
connection with the issuance or sale of the Contracts or the operation of each
Account.
7.3 INDEMNIFICATION BY THE TRUST
7.3.1 The Trust agrees to indemnify and hold harmless you, and each of
your directors and officers and each person, if any, who controls you within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Trust, and arise out of or result from any material breach of
any representation and/or warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 7.3.2 and 7.3.3
hereof. It is understood and expressly stipulated that neither the holders of
shares of the Trust nor any Trustee, officer, agent or employee of the Trust
shall be personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation hereunder, but
the Trust only shall be liable.
7.3.2 The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
you, the Trust, the Underwriter or each Account, whichever is applicable.
7.3.3 The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claims shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. Unless the Indemnified Party releases the
Trust from
21
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, except for those provided in Sections 3.2.1 and 3.2.2 of the
Agreement, shall be sufficiently given when sent by registered or certified
mail, or by nationally recognized overnight courier services, 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 mutual agreement at any time. If
this Agreement is so terminated, we shall, at your option, continue to make
available additional shares of any Portfolio and redeem shares of any Portfolio
for any or all Contracts or Accounts existing on the effective date of
termination of this Agreement, pursuant to the terms and conditions of this
Agreement.
9.2 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. If this Agreement is so
terminated, we may, at our option, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio for any or all Contracts or
Accounts existing on the effective date of termination of this Agreement,
pursuant to the terms and conditions of this Agreement; alternatively, we may,
at our option, redeem the Portfolio shares held by the Accounts, PROVIDED that
such redemption shall not occur prior to six (6) months following written
notice of termination, during which time we will cooperate with you in
effecting a transfer of Portfolio assets to another underlying fund pursuant to
any legal and appropriate means. If termination by you occurs in connection
with the substitution of securities, as provided for in Section 26(c) of the
1940 Act, advance written notice to us shall be no later than the date of the
filing of the application for approval of the proposed substitution of
securities.
9.3 This Agreement may be terminated immediately by us upon written notice
to you if you materially breach any of the representations and warranties made
in this Agreement or you are materially in default in the performance of any of
your duties or obligations under the Agreement, receive a written notice
thereof and fail to remedy such default or breach to our reasonable
satisfaction within 30 days after such notice. If this
22
Agreement so terminates, the parties shall cooperate to effect an orderly
windup of the business which may include, at our option, a redemption of the
Portfolio shares held by the Accounts, PROVIDED that such redemption shall not
occur prior to a period of up to six (6) months following written notice of
termination, during which time we will cooperate reasonably with you in
effecting a transfer of Portfolio assets to another underlying fund pursuant to
any legal and appropriate means.
9.4 This Agreement may be terminated immediately by us upon written notice
to you if, with respect to the representations and warranties made in sections
2.1.3, 2.1.5, 2.1.7 and 2.4.2 of this Agreement: (i) you materially breach any
of such representations and warranties; or (ii) you inform us that any of such
representations and warranties may no longer be true or might not be true in
the future; or (iii) any of such representations and warranties were not true
on the effective date of this Agreement, are at any time no longer true, or
have not been true during any time since the effective date of this Agreement.
If this Agreement is so terminated, the Trust may redeem, at its option in kind
or for cash, the Portfolio shares held by the Accounts on the effective date of
termination of this Agreement.
9.5 This Agreement may be terminated by the Board of Trustees of the Trust,
in the exercise of its fiduciary duties, either upon its determination that
such termination is a necessary and appropriate remedy for a material breach of
this Agreement which includes a violation of laws, or upon its determination to
completely liquidate a Portfolio. Pursuant to such termination, the Trust may
redeem, at its option in kind or for cash, the Portfolio shares held by the
Accounts on the effective date of termination of this Agreement.
9.6 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. If this Agreement is so terminated,
the Trust may redeem, at its option in kind or for cash, the Portfolio shares
held by the Accounts on the effective date of termination of this Agreement.
9.6.1 To the extent that the Transaction is deemed to result in an
assignment within the meaning of Section 9.6, the parties hereby consent to
such assignment.
9.7 This Agreement shall be terminated as required by the Shared Funding
Order, and its provisions shall govern.
9.8 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, except that we shall have no further obligation to sell Trust shares
with respect to Contracts issued after termination.
9.9 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
23
of the SEC pursuant to Section 26(c) 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) of this Section 9.9 is a Legally Required Redemption. Furthermore,
you shall not prevent Contract owners from allocating payments to any Portfolio
that has been available under a Contract without first giving us ninety
(90) days advance written notice of your intention to do so.
10. MISCELLANEOUS
-------------
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions of this
Agreement or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.4 This Agreement shall be construed and its provisions interpreted under
and in accordance with the laws of the State of California. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder, to any orders of the SEC on behalf of the Trust
granting it exemptive relief, and to the conditions of such orders. We shall
promptly forward copies of any such orders to you.
10.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
10.6 The parties to this Agreement agree that the assets and liabilities of
each Portfolio of the Trust are separate and distinct from the assets and
liabilities of each other Portfolio. No Portfolio shall be liable or shall be
charged for any debt, obligation or liability of any other Portfolio.
10.7 Each party to this Agreement shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
FINRA, 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 shall treat as confidential all information of the other
party which the parties agree in writing is confidential ("Confidential
Information"). Except as permitted by this Agreement or as required by
appropriate governmental authority (including, without limitation, the SEC,
FINRA, or state securities and insurance regulators) the receiving party shall
not disclose or use Confidential Information of the other party before it
enters the public
24
domain, without the express written consent of the party providing the
Confidential Information.
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.
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.
10.11.1 To the extent that the Transaction is deemed to result in an
assignment within the meaning of Section 10.11, the parties hereby consent to
such assignment.
10.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties. Notwithstanding the foregoing: (i) the Site Terms may be separately
amended as provided therein and, as so amended and in effect from time to time,
shall be a part of this Agreement; and (ii) Schedule C may be separately
amended as provided therein and, as so amended shall be a part of this
Agreement.
10.13 Each party to the Agreement agrees to limit the disclosure of
nonpublic personal information of Contract owners and customers consistent with
its policies on privacy with respect to such information and Regulation S-P of
the SEC. Each party hereby agrees that it will comply with all applicable
requirements under the regulations implementing Title V of the
Xxxxx-Xxxxx-Xxxxxx Act and any other applicable federal and state consumer
privacy acts, rules and regulations. Each party further represents that it has
in place, and agrees that it will maintain, information security policies and
procedures for protecting nonpublic personal customer information adequate to
conform to applicable legal requirements.
[This page has been intentionally left blank]
25
IN WITNESS WHEREOF, each of the parties has caused their duly authorized
officers to execute this Agreement effective as of March 6, 2017.
The Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
----------------------------------------------------
ONLY ON BEHALF OF EACH
PORTFOLIO LISTED ON
SCHEDULE C HEREOF.
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Vice President
The Underwriter: Franklin/Xxxxxxxxx Distributors, Inc.
-------------------------------------
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxx
Title: Executive Vice President
The Companies: Brighthouse Life Insurance Company
----------------------------------
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
Brighthouse Life Insurance Company of NY
----------------------------------------
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
Distributor for the Companies: Brighthouse Securities, LLC
---------------------------
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxx
Title: Vice President
26
SCHEDULE A
THE COMPANIES AND THEIR DISTRIBUTOR
THE COMPANIES
Brighthouse Life Insurance Company
00000 Xxxxx Xxxxxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
An insurance company organized under the laws of the State of Delaware.
and
Brighthouse Life Insurance Company of NY
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
An insurance company organized under the laws of the State of New York.
THE DISTRIBUTOR
Brighthouse Securities, LLC
00000 Xxxxx Xxxxxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
A limited liability company organized under the laws of the State of Delaware.
A-1
SCHEDULE B
ACCOUNTS OF THE COMPANIES
Brighthouse Life Insurance Company
----------------------------------
NAME OF ACCOUNT SEC REGISTRATION YES/NO
--------------- -----------------------
Brighthouse Fund UL for Variable Life Insurance............ Yes
Brighthouse Fund UL III for Variable Life Insurance........ Yes
Brighthouse Separate Account CPPVUL 1...................... No
Brighthouse Separate Account Eleven for Variable Annuities. Yes
Brighthouse Separate Account QPN for Variable Annuities.... No
Brighthouse Separate Account A............................. Yes
Brighthouse Variable Annuity Account C..................... Yes
Brighthouse Variable Life Account A........................ Yes
Brighthouse Variable Life Account Eight.................... No
Brighthouse Variable Life Account One...................... Yes
Brighthouse Life Insurance Company of NY
----------------------------------------
NAME OF ACCOUNT SEC REGISTRATION YES/NO
--------------- -----------------------
Brighthouse Variable Annuity Account B..................... Yes
B-1
SCHEDULE C
AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST
1. Franklin Income VIP Fund (Class 2)
2. Franklin Mutual Global Discovery VIP Fund (Class 2)
3. Franklin Mutual Shares VIP Fund (Class 1 and Class 2)
4. Franklin Rising Dividends VIP Fund (Class 2)
5. Franklin Small Cap Value VIP Fund (Class 2)
6. Franklin Small-Mid Cap Growth VIP Fund (Class 2)
7. Xxxxxxxxx Developing Markets VIP Fund (Class 2)
8. Xxxxxxxxx Foreign VIP Fund (Class 1 and Class 2)
9. Xxxxxxxxx Global Bond VIP Fund (Class 1 and Class 2)
In addition to portfolios and classes of shares listed above, any additional
Portfolios and classes of shares other than Class 3 shares are included in this
Schedule C listing provided that:
(1) the General Counsel of Franklin Xxxxxxxxx Investments receives from
a person authorized by you a written notice in the form attached
(which may be electronic mail or sent by electronic mail)
("Notice") identifying this Agreement as provided in the Notice and
specifying: (i) the names and classes of shares of additional
Portfolios that you propose to offer as investment options of the
Separate Accounts under the Contracts; and (ii) the date that you
propose to begin offering Separate Account interests investing in
the additional Portfolios under the Contracts; and
(2) we do not within ten (10) Business Days following receipt of the
Notice send you a writing (which may be electronic mail) objecting
to your offering such Separate Accounts investing in the additional
Portfolios and classes of shares under the Contracts.
Provided that we do not object as provided above, your Notice shall amend,
supplement and become a part of this Schedule C and the Agreement.
C-1
FORM OF NOTICE PURSUANT TO SCHEDULE C OF PARTICIPATION AGREEMENT
To: General Counsel c/o
Xxxxx Xxx (xxxxx.xxx@xxxxxxxxxxxxxxxxx.xxx) or
Xxxxx Xxxxxxxx (xxxxx.xxxxxxxx@xxxxxxxxxxxxxxxxx.xxx)
Fax: 000 000-0000
Franklin Xxxxxxxxx Investments
0 Xxxxxxxx Xxxxxxx,
Xxxx. 000, 0xx Xxxxx
Xxx Xxxxx, XX 00000
With respect to the following agreement(s) (altogether, the "Agreement")
(please reproduce and complete table for multiple agreements):
DATE OF PARTICIPATION AGREEMENT:
INSURANCE COMPANY(IES):
INSURANCE COMPANY DISTRIBUTOR(S):
As provided by Schedule C of the Agreement, this Notice proposes to Franklin
Xxxxxxxxx Variable Insurance Products Trust, and Franklin/Xxxxxxxxx
Distributors, Inc. the addition as of the offering date(s) listed below of the
following Portfolios as additional investment options listed on Schedule C:
NAMES AND CLASSES OF SHARES OF ADDITIONAL PORTFOLIOS OFFERING DATE(S)
Listing of current classes for your
reference:
Class 1 (no 12b-1 fee);
Class 2 (12b-1 fee of 25 bps);
Class 4 (12b-1 fee of 35 bps); or
Class 5 (12b-1 fee of 15 bps).
NAME AND TITLE OF AUTHORIZED PERSON OF INSURANCE COMPANY:
CONTACT INFORMATION:
C-2
SCHEDULE D
CONTRACTS OF THE COMPANY
All variable life and variable annuity contracts issued by separate accounts
listed on Schedule B of this Agreement.
D-1
SCHEDULE E
THIS SCHEDULE IS NOT USED
E-1
SCHEDULE F
RULE 12B-1 PLANS OF THE TRUST
COMPENSATION
------------
Each Class 2, Class 4 or Class 5 Portfolio named or referenced on Schedule C
of this Agreement may make payments at a rate stated in its prospectus pursuant
to the terms and conditions of its Rule 12b-1 distribution plan.
AGREEMENT PROVISIONS
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") that are subject to a Rule 12b-1 plan adopted under the
1940 Act (the "Plan"), the Company, on behalf of its distributor, may
participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide any activity or service that 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
FINRA 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
provision stated above. The aggregate annual fees paid pursuant to each Plan
shall not exceed the amounts stated as the "annual maximums" in the Portfolio's
prospectus, unless an increase is approved by shareholders as provided in the
Plan. These maximums shall be a specified percent of the value of a Portfolio's
net assets attributable to Eligible Shares owned by the Company on behalf of
its Accounts (determined in the same manner as the Portfolio uses to compute
its net assets as set forth in its effective Prospectus). The Rule 12b-1 fee
will be paid to you within thirty (30) days after the end of the three-month
periods ending in January, April, July and October.
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
F-1
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, or as
provided in the Plan. 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.
F-2
SCHEDULE G
ADDRESSES FOR NOTICES
To the Companies: Brighthouse Life Insurance Company
Xxx Xxxxxxxxx Xxxxxx, 00xx Xx.
Xxxxxx, XX 00000
Attention: The Law Group
Brighthouse Life Insurance Company of
NY
One Financial Center, 21st Fl.
Xxxxxx, XX 00000
Attention: The Law Group
To the Distributor: Brighthouse Securities, LLC
Xxx Xxxxxxxxx Xxxxxx, 00xx Xx.
Xxxxxx, XX 00000
Attention: The Law Group
To the Trust: Franklin Xxxxxxxxx Variable Insurance
Products Trust
Xxx Xxxxxxxx Xxxxxxx, Xxxx. 000 0xx
Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Vice
President
To the Underwriter: Franklin/Xxxxxxxxx Distributors, Inc.
000 Xxxx X. Xxxxxxx Xxxxxxx, 0xx
Xxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. X'Xxxx, President
If to the Trust or Underwriter, with a copy to:
Franklin Xxxxxxxxx Xxxxxxxxxxx
Xxx Xxxxxxxx Xxxxxxx, Xxxx. 000 0xx
Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
G-1
SCHEDULE H
SHARED FUNDING ORDER
Templeton Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24018
1999 SEC LEXIS 1887
September 17, 1999
ACTION: Notice of application for an amended order of exemption pursuant to
Section 6(c) of the Investment Company Act of 1940 (the "1940 Act") from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
TEXT: Summary of Application: Templeton Variable Products Series Fund (the
"Templeton Trust"), Franklin Xxxxxxxxx Variable Insurance Products Trust
(formerly Franklin Valuemark Funds) (the "VIP Trust," and together with the
Templeton Trust, the "Funds"), Xxxxxxxxx Funds Annuity Company ("TFAC") or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor ("Future Funds") seek an amended
order of the Commission to (1) add as parties to that order the VIP Trust and
any Future Funds and (2) permit shares of the Funds and Future Funds to be
issued to and held by qualified pension and retirement plans outside the
separate account context.
Applicants: Templeton Variable Products Series Fund, Franklin Xxxxxxxxx
Variable Insurance Products Trust, Xxxxxxxxx Funds Annuity Company or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor (collectively, the "Applicants").
Filing Date: The application was filed on July 14, 1999, and amended and
restated on September 17, 1999.
Hearing or Notification of Hearing: An order granting the application will
be issued unless the Commission orders a hearing. Interested persons may
request a hearing by writing to the Secretary of the Commission and serving
Applicants with a copy of the request, personally or by mail. Hearing requests
should be received by the Commission by 5:30 p.m., on October 12, 1999, and
should be accompanied by proof of service on the Applicants in the form of an
affidavit or, for lawyers, a certificate of service. Hearing requests should
state the nature of the writer's interest, the reason for the request, and the
issues contested. Persons who wish to be notified of a hearing may request
notification by writing to the Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 000 Xxxxx Xxxxxx,
XX, Xxxxxxxxxx, X.X. 00000-0000.
Applicants: Templeton Variable Products Series Fund and Franklin Xxxxxxxxx
Variable Insurance Products Trust, 000 Xxxxxxxx Xxxxxx Xxxxxxxxx, Xxx Xxxxx,
Xxxxxxxxxx 00000, Attn: Xxxxx X. Xxxxxxxx, Esq.
For Further Information Contact: Xxxxx X. XxXxxxx, Senior Counsel, or Xxxxx
X. Xxxxx, Branch Chief, Office of Insurance Products, Division of Investment
Management, at (000) 000-0000.
Supplementary Information: The following is a summary of the application.
The complete application is available for a fee from the SEC's Public Reference
Branch, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000 (tel. (202)
000-0000).
H-1
Applicants' Representations:
1. Each of the Funds is registered under the 1940 Act as an open-end
management investment company and was organized as a Massachusetts business
trust. The Templeton Trust currently consists of eight separate series, and the
VIP Trust consists of twenty-five separate series. Each Fund's Declaration of
Trust permits the Trustees to create additional series of shares at any time.
The Funds currently serve as the underlying investment medium for variable
annuity contracts and variable life insurance policies issued by various
insurance companies. The Funds have entered into investment management
agreements with certain investment managers ("Investment Managers") directly or
indirectly owned by Franklin Resources, Inc. ("Resources"), a publicly owned
company engaged in the financial services industry through its subsidiaries.
2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is the
sole insurance company in the Franklin Xxxxxxxxx organization, and specializes
in the writing of variable annuity contracts. The Templeton Trust has entered
into a Fund Administration Agreement with Franklin Xxxxxxxxx Services, Inc.
("FT Services"), which replaced TFAC in 1998 as administrator, and FT Services
subcontracts certain services to TFAC. FT Services also serves as administrator
to all series of the VIP Trust. TFAC and FT Services provide certain
administrative facilities and services for the VIP and Templeton Trusts.
3. On November 16, 1993, the Commission issued an order granting exemptive
relief to permit shares of the Templeton Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (Investment Company Act
Release No. 19879, File No. 812-8546) (the "Original Order"). Applicants
incorporate by reference into the application the Application for the Original
Order and each amendment thereto, the Notice of Application for the Original
Order, and the Original Order, to the extent necessary, to supplement the
representations made in the application in support of the requested relief.
Applicants represent that all of the facts asserted in the Application for the
Original Order and any amendments thereto remain true and accurate in all
material respects to the extent that such facts are relevant to any relief on
which Applicants continue to rely. The Original Order allows the Templeton
Trust to offer its shares to insurance companies as the investment vehicle for
their separate accounts supporting variable annuity contracts and variable life
insurance contracts (collectively, the "Variable Contracts"). Applicants state
that the Original Order does not (i) include the VIP Trust or Future Funds as
parties, nor (ii) expressly address the sale of shares of the Funds or any
Future Funds to qualified pension and retirement plans outside the separate
account context including, without limitation, those trusts, plans, accounts,
contracts or annuities described in Sections 401(a), 403(a), 403(b), 408(b),
408(k), 414(d), 457(b), 501(c)(18) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any other trust, plan, contract, account or annuity
that is determined to be within the scope of Treasury Regulation
1.817.5(f)(3)(iii) ("Qualified Plans").
4. Separate accounts owning shares of the Funds and their insurance company
depositors are referred to in the application as "Participating Separate
Accounts" and "Participating Insurance Companies," respectively. The use of a
common management investment company as the underlying investment medium for
both variable annuity and variable life insurance separate accounts of a single
insurance company (or of two or more affiliated insurance companies) is
referred to as "mixed funding." The use of a common management investment
company as the underlying investment medium for variable annuity and/or
variable life insurance separate accounts of unaffiliated insurance companies
is referred to as "shared funding."
Applicants' Legal Analysis:
1. Applicants request that the Commission issue an amended order pursuant to
Section 6(c) of the 1940 Act, adding the VIP Trust and Future Funds to the
Original Order and exempting scheduled premium variable life insurance separate
accounts and flexible premium variable life insurance separate accounts of
Participating Insurance Companies (and, to the extent necessary, any principal
underwriter and depositor of such an account) and the Applicants from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) (and any comparable rule) thereunder, respectively, to the
extent necessary to permit shares of the Funds and any Future Funds to be sold
to and held by Qualified Plans. Applicants submit that the exemptions requested
are appropriate in the public interest, consistent with the protection of
investors, and consistent with the purposes fairly intended by the policy and
provisions of the 1940 Act.
H-2
2. The Original Order does not include the VIP Trust or Future Funds as
parties nor expressly address the sale of shares of the Funds or any Future
Funds to Qualified Plans. Applicants propose that the VIP Trust and Future
Funds be added as parties to the Original Order and the Funds and any Future
Funds be permitted to offer and sell their shares to Qualified Plans.
3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by
order upon application, may conditionally or unconditionally exempt any person,
security or transaction, or any class or classes of persons, securities or
transactions from any provisions of the 1940 Act or the rules or regulations
thereunder, if and to the extent that such exemption is necessary or
appropriate in the public interest and consistent with the protection of
investors and the purposes fairly intended by the policy and provisions of the
1940 Act.
4. In connection with the funding of scheduled premium variable life
insurance contracts issued through a separate account registered under the 1940
Act as a unit investment trust ("UIT"), Rule 6e-2(b)(15) provides partial
exemptions from various provisions of the 1940 Act, including the following:
(1) Section 9(a), which makes it unlawful for certain individuals to act in the
capacity of employee, officer, or director for a UIT, by limiting the
application of the eligibility restrictions in Section 9(a) to affiliated
persons directly participating in the management of a registered management
investment company; and (2) Sections 13(a), 15(a) and 15(b) of the 1940 Act to
the extent that those sections might be deemed to require "pass-through" voting
with respect to an underlying fund's shares, by allowing an insurance company
to disregard the voting instructions of contractowners in certain circumstances.
5. These exemptions are available, however, only where the management
investment company underlying the separate account (the "underlying fund")
offers its shares "exclusively to variable life insurance separate accounts of
the life insurer, or of any affiliated life insurance company." Therefore, Rule
6e-2 does not permit either mixed funding or shared funding because the relief
granted by Rule 6e-2(b)(15) is not available with respect to a scheduled
premium variable life insurance separate account that owns shares of an
underlying fund that also offers its shares to a variable annuity or a flexible
premium variable life insurance separate account of the same company or of any
affiliated life insurance company. Rule 6e-2(b)(15) also does not permit the
sale of shares of the underlying fund to Qualified Plans.
6. In connection with flexible premium variable life insurance contracts
issued through a separate account registered under the 1940 Act as a UIT, Rule
6e-3(T)(b)(15) also provides partial exemptions from Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act. These exemptions, however, are available only
where the separate account's underlying fund offers its shares "exclusively to
separate accounts of the life insurer, or of any affiliated life insurance
company, offering either scheduled contracts or flexible contracts, or both; or
which also offer their shares to variable annuity separate accounts of the life
insurer or of an affiliated life insurance company." Therefore, Rule 6e-3(T)
permits mixed funding but does not permit shared funding and also does not
permit the sale of shares of the underlying fund to Qualified Plans. As noted
above, the Original Order granted the Templeton Trust exemptive relief to
permit mixed and shared funding, but did not expressly address the sale of its
shares to Qualified Plans.
7. Applicants note that if the Funds were to sell their shares only to
Qualified Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be
necessary. Applicants state that the relief provided for under Rule 6e-2(b)(15)
and Rule 6e-3(T)(b)(15) does not relate to qualified pension and retirement
plans or to a registered investment company's ability to sell its shares to
such plans.
8. Applicants state that changes in the federal tax law have created the
opportunity for each of the Funds to increase its asset base through the sale
of its shares to Qualified Plans. Applicants state that Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
diversification standards on the assets underlying Variable Contracts. Treasury
Regulations generally require that, to meet the diversification requirements,
all of the beneficial interests in the underlying investment company must be
held by the segregated asset accounts of one or more life insurance companies.
Notwithstanding this, Applicants note that the Treasury Regulations also
contain an exception to this requirement that permits trustees of a Qualified
Plan to hold shares of an investment company, the shares of which are also held
by insurance company segregated asset accounts, without adversely affecting the
status of the investment company as an adequately diversified underlying
investment of Variable Contracts issued through such segregated asset accounts
(Treas. Reg. 1.817-5(f)(3)(iii)).
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9. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) under the 1940 Act preceded the issuance of these Treasury
Regulations. Thus, Applicants assert that the sale of shares of the same
investment company to both separate accounts and Qualified Plans was not
contemplated at the time of the adoption of Rules 6e-2(b)(15) and
6e-3(T)(b)(15).
10. Section 9(a) provides that it is unlawful for any company to serve as
investment adviser or principal underwriter of any registered open-end
investment company if an affiliated person of that company is subject to a
disqualification enumerated in Section 9(a)(1) or (2). Rules 6e-2(b)(15) and
6e-3(T)(b)(15) provide exemptions from Section 9(a) under certain
circumstances, subject to the limitations on mixed and shared funding. These
exemptions limit the application of the eligibility restrictions to affiliated
individuals or companies that directly participate in the management of the
underlying portfolio investment company.
11. Applicants state that the relief granted in Rule 6e-2(b)(15) and
6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the amount
of monitoring of an insurer's personnel that would otherwise be necessary to
ensure compliance with Section 9 to that which is appropriate in light of the
policy and purposes of Section 9. Applicants submit that those Rules recognize
that it is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the provisions
of Section 9(a) to the many individuals involved in an insurance company
complex, most of whom typically will have no involvement in matters pertaining
to investment companies funding the separate accounts.
12. Applicants to the Original Order previously requested and received
relief from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the extent
necessary to permit mixed and shared funding. Applicants maintain that the
relief previously granted from Section 9(a) will in no way be affected by the
proposed sale of shares of the Funds to Qualified Plans. Those individuals who
participate in the management or administration of the Funds will remain the
same regardless of which Qualified Plans use such Funds. Applicants maintain
that more broadly applying the requirements of Section 9(a) because of
investment by Qualified Plans would not serve any regulatory purpose. Moreover,
Qualified Plans, unlike separate accounts, are not themselves investment
companies and therefore are not subject to Section 9 of the 1940 Act.
13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting instructions of its
contractowners with respect to the investments of an underlying fund or any
contract between a fund and its investment adviser, when required to do so by
an insurance regulatory authority (subject to the provisions of paragraphs
(b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules 6e-2(b)(15)(iii)(B) and 6e-
3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contractowners' voting instructions if the contractowners initiate any change
in such company's investment policies, principal underwriter, or any investment
adviser (provided that disregarding such voting instructions is reasonable and
subject to the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and
(C) of the Rules).
14. Applicants assert that Qualified Plans, which are not registered as
investment companies under the 1940 Act, have no requirement to pass-through
the voting rights to plan participants. Applicants state that applicable law
expressly reserves voting rights to certain specified persons. Under
Section 403(a) of the Employment Retirement Income Security Act ("ERISA"),
shares of a fund sold to a Qualified Plan must be held by the trustees of the
Qualified Plan. Section 403(a) also provides that the trustee(s) must have
exclusive authority and discretion to manage and control the Qualified Plan
with two exceptions: (1) when the Qualified Plan expressly provides that the
trustee(s) are subject to the direction of a named fiduciary who is not a
trustee, in which case the trustees are subject to proper directions made in
accordance with the terms of the Qualified Plan and not contrary to ERISA; and
(2) when the authority to manage, acquire or dispose of assets of the Qualified
Plan is delegated to one or more investment managers pursuant to
Section 402(c)(3) of ERISA. Unless one of the two above exceptions stated in
Section 403(a) applies, Qualified Plan trustees have the exclusive authority
and responsibility for voting proxies. Where a named fiduciary to a Qualified
Plan appoints an investment manager, the investment manager has the
responsibility to vote the shares held unless the right to vote such shares is
reserved to the trustees or the named fiduciary. Where a Qualified Plan does
not provide participants with the right to give voting instructions, Applicants
do not see any potential for material irreconcilable conflicts of interest
between or among variable contract holders
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and Qualified Plan investors with respect to voting of the respective Fund's
shares. Accordingly, Applicants state that, unlike the case with insurance
company separate accounts, the issue of the resolution of material
irreconcilable conflicts with respect to voting is not present with respect to
such Qualified Plans since the Qualified Plans are not entitled to pass-through
voting privileges.
15. Even if a Qualified Plan were to hold a controlling interest in one of
the Funds, Applicants believe that such control would not disadvantage other
investors in such Fund to any greater extent than is the case when any
institutional shareholder holds a majority of the voting securities of any
open-end management investment company. In this regard, Applicants submit that
investment in a Fund by a Qualified Plan will not create any of the voting
complications occasioned by mixed funding or shared funding. Unlike mixed or
shared funding, Qualified Plan investor voting rights cannot be frustrated by
veto rights of insurers or state regulators.
16. Applicants state that some of the Qualified Plans, however, may provide
for the trustee(s), an investment adviser (or advisers), or another named
fiduciary to exercise voting rights in accordance with instructions from
participants. Where a Qualified Plan provides participants with the right to
give voting instructions, Applicants see no reason to believe that participants
in Qualified Plans generally or those in a particular Qualified Plan, either as
a single group or in combination with participants in other Qualified Plans,
would vote in a manner that would disadvantage Variable Contract holders. In
sum, Applicants maintain that the purchase of shares of the Funds by Qualified
Plans that provide voting rights does not present any complications not
otherwise occasioned by mixed or shared funding.
17. Applicants do not believe that the sale of the shares of the Funds to
Qualified Plans will increase the potential for material irreconcilable
conflicts of interest between or among different types of investors. In
particular, Applicants see very little potential for such conflicts beyond that
which would otherwise exist between variable annuity and variable life
insurance contractowners.
18. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable contracts held
in an underlying mutual fund. The Code provides that a variable contract shall
not be treated as an annuity contract or life insurance, as applicable, for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the Treasury Department, adequately
diversified.
19. Treasury Department Regulations issued under Section 817(h) provide
that, in order to meet the statutory diversification requirements, all of the
beneficial interests in the investment company must be held by the segregated
asset accounts of one or more insurance companies. However, the Regulations
contain certain exceptions to this requirement, one of which allows shares in
an underlying mutual fund to be held by the trustees of a qualified pension or
retirement plan without adversely affecting the ability of shares in the
underlying fund also to be held by separate accounts of insurance companies in
connection with their variable contracts (Treas. Reg. 1.817-5(f)(3)(iii)).
Thus, Applicants believe that the Treasury Regulations specifically permit
"qualified pension or retirement plans" and separate accounts to invest in the
same underlying fund. For this reason, Applicants have concluded that neither
the Code nor the Treasury Regulations or revenue rulings thereunder presents
any inherent conflict of interest.
20. Applicants note that while there are differences in the manner in which
distributions from Variable Contracts and Qualified Plans are taxed, these
differences will have no impact on the Funds. When distributions are to be
made, and a Separate Account or Qualified Plan is unable to net purchase
payments to make the distributions, the Separate Account and Qualified Plan
will redeem shares of the Funds at their respective net asset value in
conformity with Rule 22c-1 under the 1940 Act (without the imposition of any
sales charge) to provide proceeds to meet distribution needs. A Qualified Plan
will make distributions in accordance with the terms of the Qualified Plan.
21. Applicants maintain that it is possible to provide an equitable means of
giving voting rights to Participating Separate Account contractowners and to
Qualified Plans. In connection with any meeting of shareholders, the Funds will
inform each shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the meeting, including their
respective share of ownership in the relevant Fund. Each Participating
Insurance Company will then solicit voting instructions in accordance with
Rules 6e-2 and 6e-3(T), as applicable, and its participation agreement with the
relevant Fund. Shares held by Qualified Plans will be voted in accordance with
applicable law. The voting rights provided to Qualified Plans with respect to
shares of the Funds would be no
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different from the voting rights that are provided to Qualified Plans with
respect to shares of funds sold to the general public.
22. Applicants have concluded that even if there should arise issues with
respect to a state insurance commissioner's veto powers over investment
objectives where the interests of contractowners and the interests of Qualified
Plans are in conflict, the issues can be almost immediately resolved since the
trustees of (or participants in) the Qualified Plans can, on their own, redeem
the shares out of the Funds. Applicants note that state insurance commissioners
have been given the veto power in recognition of the fact that insurance
companies usually cannot simply redeem their separate accounts out of one fund
and invest in another. Generally, time-consuming, complex transactions must be
undertaken to accomplish such redemptions and transfers. Conversely, the
trustees of Qualified Plans or the participants in participant-directed
Qualified Plans can make the decision quickly and redeem their interest in the
Funds and reinvest in another funding vehicle without the same regulatory
impediments faced by separate accounts or, as is the case with most Qualified
Plans, even hold cash pending suitable investment.
23. Applicants also state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of participants
under Qualified Plans and contractowners of Participating Separate Accounts
from possible future changes in the federal tax laws than that which already
exist between variable annuity contractowners and variable life insurance
contractowners.
24. Applicants state that the sale of shares of the Funds to Qualified Plans
in addition to separate accounts of Participating Insurance Companies will
result in an increased amount of assets available for investment by the Funds.
This may benefit variable contractowners by promoting economies of scale, by
permitting increased safety of investments through greater diversification, and
by making the addition of new portfolios more feasible.
25. Applicants assert that, regardless of the type of shareholders in each
Fund, each Fund's Investment Manager is or would be contractually and otherwise
obligated to manage the Fund solely and exclusively in accordance with that
Fund's investment objectives, policies and restrictions as well as any
guidelines established by the Board of Trustees of such Fund (the "Board"). The
Investment Manager works with a pool of money and (except in a few instances
where this may be required in order to comply with state insurance laws) does
not take into account the identity of the shareholders. Thus, each Fund will be
managed in the same manner as any other mutual fund. Applicants therefore see
no significant legal impediment to permitting the sale of shares of the Funds
to Qualified Plans.
26. Applicants state that the Commission has permitted the amendment of a
substantially similar original order for the purpose of adding a party to the
original order and has permitted open-end management investment companies to
offer their shares directly to Qualified Plan in addition to separate accounts
of affiliated or unaffiliated insurance companies which issue either or both
variable annuity contracts or variable life insurance contracts. Applicants
state that the amended order sought in the application is identical to
precedent with respect to the conditions Applicants propose should be imposed
on Qualified Plans in connection with investment in the Funds.
Applicants' Conditions:
If the requested amended order is granted, Applicants consent to the
following conditions:
1. A majority of the Board of each Fund shall consist of persons who are not
"interested persons" thereof, as defined by Section 2(a)(19) of the 1940 Act,
and the rules thereunder and as modified by any applicable orders of the
Commission, except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any Board Member or Members, then
the operation of this condition shall be suspended: (a) for a period of 45 days
if the vacancy or vacancies may be filled by the remaining Board Members;
(b) for a period of 60 days if a vote of shareholders is required to fill the
vacancy or vacancies; or (c) for such longer period as the Commission may
prescribe by order upon application.
2. The Board will monitor their respective Fund for the existence of any
material irreconcilable conflict among the interests of the Variable Contract
owners of all Separate Accounts investing in the Funds and of the Qualified
Plan participants investing in the Funds. The Board will determine what action,
if any, shall be taken in response to such conflicts. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by any
state
H-6
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretive letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Funds are being managed; (e) a difference in voting
instructions given by variable annuity contract owners, variable life insurance
contract owners, and trustees of Qualified Plans; (f) a decision by an insurer
to disregard the voting instructions of Variable Contract owners; or (g) if
applicable, a decision by a Qualified Plan to disregard the voting instructions
of Qualified Plan participants.
3. Participating Insurance Companies, the Investment Managers, and any
Qualified Plan that executes a fund participation agreement upon becoming an
owner of 10 percent or more of the assets of an Fund (a "Participating
Qualified Plan"), will report any potential or existing conflicts of which it
becomes aware to the Board of any relevant Fund. Participating Insurance
Companies, the Investment Managers and the Participating Qualified Plans will
be responsible for assisting the Board in carrying out its responsibilities
under these conditions by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This responsibility
includes, but is not limited to, an obligation by each Participating Insurance
Company to inform the Board whenever voting instructions of Contract owners are
disregarded and, if pass-through voting is applicable, an obligation by each
Participating Qualified Plan to inform the Board whenever it has determined to
disregard Qualified Plan participant voting instructions. The responsibility to
report such information and conflicts, and to assist the Board, will be
contractual obligations of all Participating Insurance Companies investing in
the Funds under their agreements governing participation in the Funds, and such
agreements shall provide that these responsibilities will be carried out with a
view only to the interests of the Variable Contract owners. The responsibility
to report such information and conflicts, and to assist the Board, will be
contractual obligations of all Participating Qualified Plans under their
agreements governing participation in the Funds, and such agreements will
provide that their responsibilities will be carried out with a view only to the
interests of Qualified Plan participants.
4. If it is determined by a majority of the Board of a Fund, or by a
majority of the disinterested Board Members, that a material irreconcilable
conflict exists, the relevant Participating Insurance Companies and
Participating Qualified Plans will, at their own expense and to the extent
reasonably practicable as determined by a majority of the disinterested Board
Members, take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps could include: (a) in the case of
Participating Insurance Companies, withdrawing the assets allocable to some or
all of the Separate Accounts 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
H-7
for any Variable Contract if any offer to do so has been declined by vote of a
majority of the Variable Contract owners materially and adversely affected by
the material irreconcilable conflict. Further, no Participating Qualified Plan
shall be required by Condition 4 to establish a new funding medium for any
Participating Qualified Plan if (a) a majority of Qualified Plan participants
materially and adversely affected by the irreconcilable material conflict vote
to decline such offer, or (b) pursuant to governing Qualified Plan documents
and applicable law, the Participating Qualified Plan makes such decision
without a Qualified Plan participant vote.
6. The determination of the Board of the existence of a material
irreconcilable conflict and its implications will be made known in writing
promptly to all Participating Insurance Companies and Participating Qualified
Plans.
7. Participating Insurance Companies will provide pass-through voting
privileges to Variable Contract owners who invest in registered Separate
Accounts so long as and to the extent that the Commission continues to
interpret the 1940 Act as requiring pass-through voting privileges for Variable
Contract owners. As to Variable Contracts issued by unregistered Separate
Accounts, pass-through voting privileges will be extended to participants to
the extent granted by issuing insurance companies. Each Participating Insurance
Company will also vote shares of the Funds held in its Separate Accounts for
which no voting instructions from Contract owners are timely received, as well
as shares of the Funds which the Participating Insurance Company itself owns,
in the same proportion as those shares of the Funds for which voting
instructions from contract owners are timely received. Participating Insurance
Companies will be responsible for assuring that each of their registered
Separate Accounts participating in the Funds calculates voting privileges in a
manner consistent with other Participating Insurance Companies. The obligation
to calculate voting privileges in a manner consistent with all other registered
Separate Accounts investing in the Funds will be a contractual obligation of
all Participating Insurance Companies under their agreements governing their
participation in the Funds. Each Participating Qualified Plan will vote as
required by applicable law and governing Qualified Plan documents.
8. All reports of potential or existing conflicts received by the Board of a
Fund and all action by such Board with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating
Qualified Plans of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
meetings of such Board or other appropriate records, and such minutes or other
records shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that separate
disclosure in their respective Separate Account prospectuses may be appropriate
to advise accounts regarding the potential risks of mixed and shared funding.
Each Fund shall disclose in its prospectus that (a) the Fund is intended to be
a funding vehicle for variable annuity and variable life insurance contracts
offered by various insurance companies and for qualified pension and retirement
plans; (b) due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Fund and/or the
interests of Qualified Plans investing in the Fund may at some time be in
conflict; and (c) the Board of such Fund will monitor events in order to
identify the existence of any material irreconcilable conflicts and to
determine what action, if any, should be taken in response to any such conflict.
10. Each Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders (which, for these purposes, will be the persons having a
voting interest in the shares of the Funds), and, in particular, the Funds will
either provide for annual shareholder meetings (except insofar as the
Commission may interpret Section 16 of the 1940 Act not to require such
meetings) or comply with Section 16(c) of the 1940 Act, although the Funds are
not the type of trust described in Section 16(c) of the 1940 Act, as well as
with Section 16(a) of the 1940 Act and, if and when applicable, Section 16(b)
of the 1940 Act. Further, each Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a) with respect
to periodic elections of Board Members and with whatever rules the Commission
may promulgate with respect thereto.
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is
amended, or proposed Rule 6e-3 under the 1940 Act is adopted, to provide
exemptive relief from any provision of the 1940 Act or the rules promulgated
thereunder, with respect to mixed or shared funding on terms and conditions
materially different from any exemptions granted in the order requested in the
application, then the Funds and/or Participating Insurance Companies and
Participating Qualified Plans, as appropriate, shall take such steps as may be
necessary to comply with such Rules 6e-2 and 6e-3(T), as amended, or proposed
Rule 6e-3, as adopted, to the extent that such Rules are applicable.
H-8
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.
H-9
Xxxxxxxxx Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24079
1999 SEC LEXIS 2177
October 13, 1999
ACTION: Order Granting Exemptions
TEXT: Xxxxxxxxx Variable Products Series Fund ("Xxxxxxxxx Trust"), Franklin
Xxxxxxxxx Variable Insurance Products Trust ("VIP Trust"), Xxxxxxxxx Funds
Annuity Company ("TFAC") or any successor to TFAC, and any future open-end
investment company for which TFAC or any affiliate is the administrator,
sub-administrator, investment manager, adviser, principal underwriter, or
sponsor ("Future Funds") filed an application on July 14, 1999, and an
amendment on September 17, 1999 seeking an amended order of the Commission
pursuant to Section 6(c) of the Investment Company Act of 1940 ("1940 Act")
exempting them from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of
the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15). The prior order (Rel.
No. IC-19879) granted exemptive relief to permit shares of the Xxxxxxxxx Trust
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies. The
proposed relief would amend the prior order to add as parties to that order the
VIP Trust and any Future Funds and to permit shares of the Xxxxxxxxx Trust, the
VIP Trust, and Future Funds to be issued to and held by qualified pension and
retirement plans outside the separate account context.
A notice of the filing of the application was issued on September 17, 1999
(Rel. No. IC-24018). The notice gave interested persons an opportunity to
request a hearing and stated that an order granting the application would be
issued unless a hearing should be ordered. No request for a hearing has been
filed, and the Commission has not ordered a hearing.
The matter has been considered, and it is found that granting the requested
exemptions is appropriate in the public interest and consistent with the
protection of investors and the purposes intended by the policy and provisions
of the 1940 Act.
Accordingly,
IT IS ORDERED, pursuant to Section 6(c) of the 1940 Act, that the requested
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, be, and hereby are, granted,
effective forthwith.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
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