Exhibit (8)(s)
Participation Agreement
as of August 1, 2002
Franklin Xxxxxxxxx Variable Insurance Products Trust
Franklin Xxxxxxxxx Distributors, Inc.
GE Capital Life Assurance Company of New York
Capital Brokerage Corporation
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
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust; Investment Advisers
D. Contracts of the Company
E. This schedule not used.
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
1. Parties and Purpose
This agreement (the "Agreement") is between certain portfolios, specified
below and in Schedule C, of Franklin Xxxxxxxxx Variable Insurance Products
Trust, an open-end management investment company organized as a business trust
under Massachusetts law (the "Trust"), Franklin Xxxxxxxxx Distributors, Inc., a
California corporation which is the principal underwriter for the Trust (the
"Underwriter," and together with the Trust, "we" or "us") and the insurance
company identified on Schedule A ("you") and your distributor, on your own
behalf and on
behalf of each segregated asset account maintained by you that is listed on
Schedule B, as that schedule may be amended from time to time ("Account" or
"Accounts").
The purpose of this Agreement is to entitle you, on behalf of the Accounts, to
purchase the shares, and classes of shares, of portfolios of the Trust
("Portfolios") that are identified on Schedule C, solely for the purpose of
funding benefits of your variable life insurance policies or variable annuity
contracts ("Contracts") that are identified on Schedule D. This Agreement does
not authorize any other purchases or redemptions of shares of the Trust.
2. Representations and Warranties
2.1 Representations and Warranties by You
You represent and warrant that:
2.1.1 You are an insurance company duly organized and in good standing
under the laws of the Commonwealth of Virginia.
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
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exempt from registration under Section 4(2) or Regulation D of the 1933 Act, in
which case you will make every effort to maintain such exemption and will notify
us immediately upon having a reasonable basis for believing that such exemption
no longer applies or might not apply in the future.
2.1.6 The Contracts: (i) will be sold by broker-dealers, or their
registered representatives, who are registered with the Securities and Exchange
Commission ("SEC") under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and (iii) will be sold in compliance in all material respects with
state insurance suitability requirements and NASD suitability guidelines.
2.1.7 The Contracts currently are and will be treated as annuity
contracts or life insurance contracts under applicable provisions of the Code
and you will 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 Each registration statement for the Contracts includes a
representation that 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 onIy 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 3(c)(l) 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
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(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 0000 Xxx.
2.1.12 You undertake and agree to comply, and to take full
responsibility in complying with any and all laws, regulations, protocols and
other requirements relating to money laundering both United States and foreign,
including, without limitation, the International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001 (Title III of the USA Patriot Act),
hereinafter, collectively with the rules, regulations and orders promulgated
thereunder, the "Act," and any requirements and/or requests in connection
therewith, made by regulatory authorities, the Trust or the Underwriter or their
duly appointed agents, either generally or in respect of a specific transaction,
and/or in the context of a "primary money laundering concern" as defined in the
Act.
You agree as a condition precedent to any transaction taking or continuing to be
in effect, to comply with any and all anti-money laundering laws, regulations,
orders or requirements, and without prejudice to the generality of the above, to
provide regulatory authorities, the Trust, the Underwriter or their duly
appointed agents, with all necessary reports and information for them to fulfill
their obligations, if any, under the Act for the purposes of the Trust, the
Underwriter, or other third parties complying with any and all anti-money
laundering requirements, including, without limitation, the enhanced due
diligence obligations imposed by the Act, the filing of Currency Transaction
Reports and/or of Suspicious Activity Reports obligations required by the Act,
and/or the sharing of information requirements imposed by the Act.
In the event satisfactory reports and information are not received within a
reasonable time period from the date of the request, the Trust or the
Underwriter reserve the right to reject any transaction and/or cease to deal
with you and/or the Accounts.
Further, you represent that you have not received notice of, and to your
knowledge, there is no basis for, any claim, action, suit, investigation or
proceeding that might result in a finding that you are not or have not been in
compliance with the Act, and the rules and regulations promulgated thereunder.
You agree to notify the Trust and the Underwriter as soon as possible if the
representation in the previous sentence is no longer true or if you have
reasonable basis for believing that such representation may no longer be true.
2.2 Representations and Warranties by the Trust
The Trust represents and warrants that:
2.2.1 It is duly organized and in good standing under the laws of the
State of Massachusetts.
2.2.2 All of its directors, officers, employees and others dealing
with the money and/or securities of a Portfolio are and shall be at all times
covered by a blanket fidelity bond or
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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-l"), although it may determine to discontinue such practice
in the future. To the extent that any Class of the Trust finances its
distribution expenses pursuant to a Plan adopted under rule 12b-1, the Trust
undertakes to comply with any then current SEC interpretations concerning rule
12b-1 or any successor provisions.
2.3 Representations and Warranties by the Underwriter
The Underwriter represents and warrants that:
2.3.1 It is registered as a broker dealer with the SEC under the 1934
Act, and is a member in good standing of the NASD.
2.3.2 Each investment adviser listed on Schedule C (each, an
"Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and any applicable state securities law.
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2.4 Warranty and Agreement by Both You and Us
We received an order from the SEC dated November 16, 1993 (File No.
812-8546), which was amended by a notice and an order we received on
September 17, 1999 and October 13, 1999, respectively (File No. 812-11698)
(collectively, the "Shared Funding Order," attached to this Agreement as
Schedule H). The Shared Funding Order grants exemptions from certain provisions
of the 1940 Act and the regulations thereunder to the extent necessary to permit
shares of the Trust to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies and qualified pension and retirement plans outside the separate
account context. You and we both warrant and agree that both you and we will
comply with the "Applicants' Conditions" prescribed in the Shared Funding Order
as though such conditions were set forth verbatim in this Agreement, including,
without limitation, the provisions regarding potential conflicts of interest
between the separate accounts which invest in the Trust and regarding contract
owner voting privileges. In order for the Trust's Board of Trustees to perform
its duty to monitor for conflicts of interest, you agree to inform us of the
occurrence of any of the events specified in condition 2 of the Shared Funding
Order to the extent that such event may or does result in a material conflict of
interest as defined in that order.
3. Purchase and Redemption of Trust Portfolio Shares
3.1 We will make shares of the Portfolios available to the Accounts for the
benefit of the Contracts. The shares will be available for purchase at the net
asset value per share next computed after we (or our agent) receive a purchase
order, as established in accordance with the provisions of the then current
prospectus of the Trust. Notwithstanding the foregoing, the Trust's Board of
Trustees ("Trustees") may refuse to sell shares of any Portfolio to any person,
or may suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Trustees, they deem such action to be in the
best interests of the shareholders of such Portfolio. Without limiting the
foregoing, the Trustees have determined that there is a significant risk that
the Trust and its shareholders may be adversely affected by investors whose
purchase and redemption activity follows a market timing pattern, and have
authorized the Trust, the Underwriter and the Trust's transfer agent to adopt
procedures and take other action (including, without limitation, rejecting
specific purchase orders) as they deem necessary to reduce, discourage or
eliminate market timing activity. You agree to cooperate with us to assist us in
implementing the Trust's restrictions on purchase and redemption activity that
follows a market timing pattern.
3.2 We agree that shares of the Trust will be sold only to life insurance
companies which have entered into fund participation agreements with the Trun,t
("Participating Insurance Companies") and their separate accounts or to
qualified pension and retirement plans in accordance with the terms of the
Shared Funding Order. No shares of any Portfolio will be sold to the general
public.
3.3 You agree that all net amounts available under the Contracts shall be
invested in: (i) the Company's general account; (ii) investment companies
currently available as funding vehicles for the Contracts; or (iii) other
investment companies.
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3.4 You shall be the designee for us for receipt of purchase orders and
requests for redemption resulting from investment in and payments under the
Contracts ("Instructions"). The Business Day on which such Instructions are
received in proper form by you and time stamped by the close of trading will be
the date as of which Portfolio shares shall be deemed purchased, exchanged, or
redeemed as a result of such Instructions. Instructions received in proper form
by you and time stamped after the close of trading on any given Business Day
shall be treated as if received on the next following Business Day. You warrant
that all orders, Instructions and confirmations received by you which will be
transmitted to us for processing on a Business Day will have been received and
time stamped prior to the Close of Trading on that Business Day. Instructions we
receive after 9 a.m. Eastern Time shall be processed on the next Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the SEC and its current prospectus.
3.5 We shall calculate the net asset value per share of each Portfolio on
each Business Day, and shall communicate these net asset values to you or your
designated agent on a daily basis as soon as reasonably practical after the
calculation is completed (normally by 6:30 p.m. Eastern time).
3.6 You shall submit payment for the purchase of shares of a Portfolio on
behalf of an Account 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 6:00 p.m. Eastern time, on the Business Day following
the Business Day as of which such purchases orders are made.
3.7 We will redeem any full or fractional shares of any Portfolio, when
requested by you on behalf of an Account, at the net asset value next computed
after receipt by us (or our agent) of the request for redemption, as established
in accordance with the provisions of the then current prospectus of the Trust.
We shall make payment for such shares in the manner we establish from time to
time, but in no event shall payment be delayed for a greater period than is
permitted by the 0000 Xxx.
3.8 Issuance and transfer of the Portfolio shares will be by book entry
only. Stock certificates will not be issued to you or the Accounts. Portfolio
shares purchased from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.
3.9 We shall furnish, on or before the ex-dividend date, notice to you of
any income dividends or capital gain distributions payable on the shares of any
Portfolio. You hereby elect to receive all such income dividends and capital
gain distributions as are payable on shares of a Portfolio in additional shares
of that Portfolio, and you reserve the right to change this election in the
future. We will notify you of the number of shares so issued as payment of such
dividends and distributions.
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3.10 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.
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
4.1 We shall pay no fee or other compensation to you under this Agreement
except as provided on Schedule F, if attached.
4.2 We shall prepare and be responsible for filing with the SEC, and any
state regulators requiring such filing, all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
We shall bear the costs of preparation and filing of the documents listed in the
preceding sentence, registration and qualification of the Trust's shares of the
Portfolios.
4.3 We shall use reasonable efforts to provide you, on a timely basis, with
such information about the Trust, the Portfolios and each Adviser, in such form
as you may reasonably require, as you shall reasonably request in connection
with the preparation of disclosure documents and annual and semi-annual reports
pertaining to the Contracts.
4.4 At your option, we shall provide you, at our expense, with either: (i)
for each Contract owner who is invested through the Account in a subaccount
corresponding to a Portfolio ("designated subaccount"), one copy of each of the
following documents on each occasion that such document is required by law or
regulation to be delivered to such Contract owner who is invested in a
designated subaccount: the Trust's current prospectus, annual report,
semi-annual report and other shareholder communications, including any
amendments or supplements to any of the foregoing, pertaining specifically to
the Portfolios ("Designated Portfolio Documents"); or (ii) a camera ready copy
of such Designated Portfolio Documents in a form suitable for printing and from
which information relating to series of the Trust other than the Portfolios has
been deleted to the extent practicable. In connection with clause (ii) of this
paragraph, we will pay for proportional printing costs for such Designated
Portfolio Documents in order to provide one copy for each Contract owner who is
invested in a designated subaccount on each occasion that such document is
required by law or regulation to be delivered to such Contract owner, and
provided the appropriate documentation is provided and approved by us. We shall
provide you with a copy of the Trust's current statement of additional
information, including any amendments or supplements, in a form suitable for you
to duplicate. The expenses of furnishing, including mailing, to Contract owners
the documents referred to in this paragraph shall be borne by you. For each of
the documents provided to you in accordance with clause (i) of this paragraph
4.4, we shall provide you, upon your request and at your expense, additional
copies. In no event shall we be responsible for the costs of printing or
delivery of Designated Portfolio Documents to potential or new Contract owners
or the delivery of Designated Portfolio Documents to existing contract owners.
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4.5 We shall provide you, at our expense, and on a timely basis, 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 Provided that the Trust's prospectuses, shareholder reports and
communications and proxy materials are received in a timely manner, you assume
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
5. Voting
5.1 All Participating Insurance Companies shall have the obligations and
responsibilities regarding pass-through voting and conflicts of interest
corresponding to those contained in the Shared Funding Order.
5.2 If and to the extent required by law, you shall: (i) solicit voting
instructions from Contract owners; (ii) vote the Trust shares in accordance with
the instructions received from Contract owners; and (iii) vote Trust shares for
which no instructions have been received in the same proportion as Trust shares
of such Portfolio for which instructions have been received; so long as and to
the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. You reserve the
right to vote Trust shares held in any Account in your own right, to the extent
permitted by law.
5.3 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, you shall provide
pass-through voting privileges to Contract owners whose Contract values are
invested, through the Accounts, in shares of one or more Portfolios of the
Trust. We shall require all Participating Insurance Companies to calculate
voting privileges in the same manner and you shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by us.
With respect to each Account, you will vote shares of each Portfolio of the
Trust held by an Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
Account for which voting instructions are received. You and your agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without our prior written consent,
which consent may be withheld in our sole discretion.
6. Sales Material, Information and Trademarks
6.1 For purposes of this Section 6, "Sales literature or other Promotional
material" includes, but is not limited to, portions of the following that use
any logo or other trademark related to the Trust, or Underwriter or its
affiliates, or refer to the Trust: advertisements (such as material published or
designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures, electronic communication or other public media), sales
literature (i.e., any written communication
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distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts or any other advertisement, sales literature or
published article or electronic communication), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees in any media, and disclosure documents,
shareholder reports and proxy materials.
6.2 You shall furnish, or cause to be furnished to us or our designee, at
least one complete copy of each registration statement, prospectus, statement of
additional information, private placement memorandum, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "Disclosure Documents"), as well as any report, solicitation for
voting instructions, Sales literature or other Promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. You shall furnish, or shall cause to be furnished, to us
or our designee each piece of Sales literature or other Promotional material in
which the Trust or an Adviser is named, at least fifteen (15) Business Days
prior to its proposed use. No such material shall be used unless we or our
designee approve such material and its proposed use.
6.3 You and your agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser, other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and prospectus
may be amended or supplemented from time to time), annual and semi-annual
reports of the Trust, Trust-sponsored proxy statements, or in Sales literature
or other Promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee. You shall send us a complete copy of
each Disclosure Document and item of Sales literature or other Promotional
materials in its final form within twenty (20) days of its first use.
6.4 We shall not give any information or make any representations or
statements on behalf of you or concerning you, the Accounts or the Contracts
other than information or representations, including naming you as a Trust
shareholder, contained in and accurately derived from Disclosure Documents for
the Contracts (as such Disclosure Documents may be amended or supplemented from
time to time), or in materials approved by you for distribution, including Sales
literature or other Promotional materials, except as required by legal process
or regulatory authorities or with your written permission.
6.5 Except as provided in Section 6.2, you shall not use any designation
comprised in whole or part of the names or marks "Franklin" or "Xxxxxxxxx" or
any logo or other trademark relating to the Trust or the Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
you shall cease all use of any such name or xxxx as soon as reasonably
practicable.
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6.6 You shall furnish to us at least ten (10) Business Days prior to its
first submission to the SEC or its staff, any request or tiling for no-action
assurance or exemptive relief naming, pertaining to, or affecting, the Trust,
the Underwriter or any of the Portfolios.
6.7 Except as provided in Section 6.7, we shall not use any designation
comprised in whole or in part of the names or marks "GE" or "GE financial" or
any logo or other trademark relating to the Company or the Company Distributor
without prior written consent, and upon termination of this Agreement for any
reason, we shall cease all use of any name or xxxx as soon as reasonable
practicable.
6.8 We shall furnish to you at least ten (10) Business Days prior to its
first submission to the SEC or its staff, any request for filing for no-action
assurance or exemptive relief naming, pertaining to or affecting the Company or
the Company Distributor.
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, fines, liabilities (including amounts paid in settlement with your
written consent, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, fines, 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 Trust Documents as
defined below
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in Section 7.2) or wrongful conduct of you or persons under your control,
with respect to the sale or acquisition of the Contracts or Trust shares;
or
7.1.1.3 arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust Documents as
defined below in Section 7.2 or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of you; or
7.1.1.4 arise out of or result from any failure by you to provide
the services or furnish the materials required under the terms of this
Agreement;
7.1.1.5 arise out of or result from any material breach of any
representation and/or warranty made by you in this Agreement or arise out
of or result from any other material breach of this Agreement by you; or
7.1.1.6 arise out of or result from a Contract failing to be
considered a life insurance policy or an annuity Contract, whichever is
appropriate, under applicable provisions of the Code thereby depriving the
Trust of its compliance with Section 817(h) of the Code.
7.1.2 You shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Trust or Underwriter, whichever is applicable.
You shall also not be liable under this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified you in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify you of any such claim shall not relieve you from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, you shall be entitled to
participate, at your own expense, in the defense of such action. Unless the
Indemnified Party releases you from any further obligations under this
Section 7.1, you also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from you to
such party of 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.
12
7.1.3 The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
7.2 Indemnification By The Underwriter
7.2.1 The Underwriter agrees to indemnify and hold harmless you, and
each of your directors and officers and each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually an "Indemnified Party" for purposes of this Section
7.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter, which consent
shall not be unreasonably withheld) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such Losses are
related to the sale or acquisition of the shares of the Trust or the Contracts
and:
7.2.1.1 arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the Trust (or
any amendment or supplement to any of the foregoing) (collectively, the
"Trust Documents") or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission of such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to us by or on behalf of you for use in the Registration
Statement or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Contracts or Trust shares; or
7.2.1.2 arise out of or as a result of statements or
representations (other than statements or representations contained in the
Disclosure Documents or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust shares; or
7.2.1.3 arise out of or result from 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
13
7.2.1.4 arise as a result of any failure by us to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the qualification representation specified above in Section
2.2.7 and the diversification requirements specified above in Section
2.2.8); or
7.2.1.5 arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement
or arise out of or result from any other material breach of this Agreement
by the Underwriter; as limited by and in accordance with the provisions of
Sections 7.2.2 and 7.2.3 hereof.
7.2.2 The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to you or the Accounts, whichever
is applicable.
7.2.3 The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the Indemnified
Party releases the Underwriter from any further obligations under this Section
7.2, the Underwriter also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2.4 You agree promptly to notify the Underwriter of the commencement of
any litigation or proceedings against you or the Indemnified Parties in
connection with the issuance or sale of the Contracts or the operation of each
Account.
7.3 Indemnification By The Trust
7.3.1 The Trust agrees to indemnity 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
14
written consent of the Trust, which consent shall not be unreasonably withheld)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Trust, and arise out of or result from any material breach of
any representation and/or warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 7.3.2 and 7.3.3
hereof. It is understood and expressly stipulated that neither the holders of
shares of the Trust nor any Trustee, officer, agent or employee of the Trust
shall be personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation hereunder, but
the Trust only shall be liable.
7.3.2 The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
you, the Trust, the Underwriter or each Account, whichever is applicable.
7.3.3 The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claims shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. Unless the Indemnified Party releases the Trust
from any further obligations under this Section 7.3, the Trust also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Trust to such party of the Trust's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Trust will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independentiy in connection with the defense
thereof other than reasonable costs of investigation.
7.3.4 You agree as soon as possible 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.
15
8. Notices
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth in Schedule G below or
at such other address as such party may from time to time specify in writing to
the other party.
9. Termination
9.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties. This Agreement shall terminate
immediately in the event of its assignment by any party without the prior
written approval of the other parties, or as otherwise required by law.
9.2 This Agreement may be terminated immediately by us upon written notice to
you if:
9.2.1 (i) you breach any of the representations and warranties made in
this Agreement; 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; or
9.2.2 either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that you have suffered a material adverse change in your business,
operations, financial condition or prospects since the date of this Agreement
or are the subject of material adverse publicity.
9.3 If this Agreement is terminated with respect to any Portfolio for any
reason, except as required by the Shared Funding Order, we may, as mutually
agreed, and pursuant to the terms and conditions of this Agreement, continue to
make available additional shares of any Portfolio for any or all Contracts or
Accounts existing on the effective date of termination of this Agreement. Upon
liquidation of a Portfolio, or if this Agreement is terminated with respect to
any Portfolio by the Trust's Board of Trustee's in the exercise of its duties
and it determines it is a necessary and appropriate remedy for a material breach
of the Agreement, including a violation of laws, the Trust may involuntarily
redeem, at its option in kind or for cash, shares of any Portfolio, for any or
all Contracts or Accounts existing on the effective date of termination of this
Agreement. If this Agreement is terminated as required by the Shared Funding
Order, its provisions shall govern.
9.4 The provisions of Sections 2 (Representations and Warranties) and 7
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 9.3, except that we shall have no further obligation
to sell Trust shares with respect to Contracts issued after termination.
9.5 You shall not redeem Trust shares attributable to the Contracts (as
opposed to Trust shares attributable to your assets held in the Account) except:
(i) as necessary to implement
16
Contract owner initiated or approved transactions; (ii) as required by state
and/or federal laws or regulations or judicial or other legal precedent of
general application (hereinafter referred to as a "Legally Required
Redemption"); or (iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act. Upon request, you shall promptly furnish to us the
opinion of your counsel (which counsel shall be reasonably satisfactory to us)
to the effect that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, 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,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
10.8 Each party 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
17
Agreement or as required by appropriate governmental authority (including,
without limitation, the SEC, the NASD, 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 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.
18
10.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, each of the parties have caused their duly authorized
officers to execute this Agreement.
The Company: GE Capital Life Assurance Company
of New York
By:[SIGNATURE OF XXXXXXX XXXXXX]
Name: Xxxxxxx Xxxxxx
Title: Vice President
Distributor for the Company: Capital Brokerage Corporation
By:[SIGNATURE OF XXXXXXX X. XXXXX]
Name: Xxxxxxx X. Xxxxx
Title: Vice President, Counsel
and Secretary
The Trust: Franklin Xxxxxxxxx Variable Insurance
Products Trust
Only on behalf of each
Portfolio listed on
Schedule C hereof.
By:[SIGNATURE OF XXXXX X. XXXXXXXX]
Name: Xxxxx X. Skidmow
Title: Assistant Vice President
The Underwriter: Franklin Temnleton Distributors. Inc.
By:[SIGNATURE]
Name:
Title:
19
Schedule A
The Company and its Distributor
GE Capital Life Assurance Company
of New York
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
An insurance company in good standing under the laws of the Commonwealth of
Virginia.
Capital Brokerage Corporation
000 Xxxxxx 0
Xxxxxxx, Xxxxxxxxxxx 00000
Incorporated in the State of Washington.
20
Schedule B
Accounts of the Company
1. Name: GE Capital Life Separate Account II
Date Established: April 1, 1996
SEC Registration Number: 81l-08475
21
Schedule C
Available Portfolios and Classes of Shares of the Trust; Investment Advisers
Portfolio Investment Adviser
Franklin Large Cap Growth Securities Fund--Class 2 shares Franklin Advisers, Inc.
Mutual Shares Securities Fund--Class 2 shares Franklin Mutual Advisers, LLC
Templeton Foreign Securities Fund--Class 2 shares Xxxxxxxxx Investment Counsel,
LLC
Templeton Global Asset Allocation Fund--Class 2 shares Xxxxxxxxx Investment Counsel,
LLC
22
Schedule D
Contracts of the Company
------------------------------------------------------------------------------------------------------------------------
Insurance Product Name Separate Account Name
# Company Registered Y/N Registered Y/N Classes of Shares and Portfolios
1933 Act #, State Form ID 1940 Act #
------------------------------------------------------------------------------------------------------------------------
1 GE Capital GE Foundation NY GE Capital Life Class 2 shares:
Life Assurance Yes Account II ---------------
Company of 333-47016 Yes Franklin Large Cap Growth Securities Fund
New York 811-08475 Mutual Shares Securities Fund
Xxxxxxxxx Foreign Securities Fund
Templeton Global Asset Allocation Fund
------------------------------------------------------------------------------------------------------------------------
23
Schedule E
This schedule not used.
24
Schedule F
Rule 12b-1 Plans
Compensation Schedule
---------------------
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
-------------- ---------------------------
Franklin Large Cap Growth Securities Fund 0.25
Mutual Shares Securities Fund 0.25
Xxxxxxxxx Foreign Securities Fund 0.25
Templeton Global Asset Allocation Fund 0.25
Agreement Provisions
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide any activity or service which is primarily intended
to assist in the promotion, distribution or account servicing of Eligible Shares
("Rule 12b-1 Services") or variable contracts offering Eligible Shares, the
Underwriter, the Trust or their affiliates (collectively, "we") may pay you a
Rule 12b-1 fee. "Rule 12b-1 Services" may include, but are not limited to,
printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education of
dealers and their representatives, and similar distribution-related expenses,
furnishing personal services to owners of Contracts which may invest in Eligible
Shares ("Contract Owners"), education of Contract Owners, answering routine
inquiries regarding a Portfolio, coordinating responses to Contract Owner
inquiries regarding the Portfolios, maintaining such accounts or providing such
other enhanced services as a Trust Portfolio or Contract may require, or
providing other services eligible for service fees as defined under NASD rules.
Your acceptance of such compensation is your acknowledgment that eligible
services have been rendered. All Rule 12b-1 fees, shall be based on the value of
Eligible Shares owned by the Company on behalf of its Accounts, and shall be
calculated on the basis and at the rates set forth in the Compensation Schedule
stated above. The aggregate annual fees paid pursuant to each Plan shall not
exceed the amounts stated as the "annual maximums" in the Portfolio's
prospectus, unless an increase is approved by shareholders as provided in the
Plan. These maximums shall be a specified percent of the value of a Portfolio's
net assets attributable to Eligible Shares owned by the Company on behalf of its
Accounts (determined in the same manner as the Portfolio uses to compute its net
assets as set forth in its effective Prospectus). The Rule
25
12b-1 fee will be paid to you within thirty (30) days after the end of the
three-month periods ending in January, April, July and October.
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. and its affiliates and the Trust. Continuation
of the Plans is also conditioned on Disinterested Trustees being ultimately
responsible for selecting and nominating any new Disinterested Trustees. Under
Rule 12b-1, the Trustees have a duty to request and evaluate, and persons who
are party to any agreement related to a Plan have a duty to furnish, such
information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, the Trust is permitted to implement or continue Plans or the provisions
of any agreement relating to such Plans from year-to-year only if, based on
certain legal considerations, the Trustees are able to conclude that the Plans
will benefit each affected Trust Portfolio and class. Absent such yearly
determination, the Plans must be terminated as set forth above. In the event of
the termination of the Plans for any reason, the provisions of this Schedule F
relating to the Plans will also terminate. You agree that your selling
agreements with persons or entities through whom you intend to distribute
Contracts will provide that compensation paid to such persons or entities may be
reduced if a Portfolio's Plan is no longer effective or is no longer applicable
to such Portfolio or class of shares available under the Contracts.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Trust.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule F, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the Contracts.
26
Schedule G
Addresses for Notices
To the Company: GE Capital Life Assurance Company
0000 X. Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Vice President
To the Distributor: Capital Brokerage Corporation
000 Xxxxxx 0
Xxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Chief Compliance Officer
To the Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
0 Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Assistant Vice President
To the Underwriter: Franklin Xxxxxxxxx Distributors, Inc.
0 Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Vice President
27
Schedule H
Shared Funding Order
Templeton Variable Products Series Fund, et al.
File No. 812-l1698
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.
28
Supplementary Information: The following is a summary of the application. The
complete application is available for a fee from the SEC's Public Reference
Branch, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000 (tel. (202)
000-0000).
Applicants' Representations:
1. Each of the Funds is registered under the 1940 Act as an open-end management
investment company and was organized as a Massachusetts business trust. The
Templeton Trust currently consists of eight separate series, and the VIP Trust
consists of twenty-five separate series. Each Fund's Declaration of Trust
permits the Trustees to create additional series of shares at any time. The
Funds currently serve as the underlying investment medium for variable annuity
contracts and variable life insurance policies issued by various insurance
companies. The Funds have entered into investment management agreements with
certain investment managers ("Investment Managers") directly or indirectly owned
by Franklin Resources, Inc. ("Resources"), a publicly owned company engaged in
the financial services industry through its subsidiaries.
2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is the sole
insurance company in the Franklin Xxxxxxxxx organization, and specializes in the
writing of variable annuity contracts. The Templeton Trust has entered into a
Fund Administration Agreement with Franklin Xxxxxxxxx Services, Inc. ("FT
Services"), which replaced TFAC in 1998 as administrator, and FT Services
subcontracts certain services to TFAC. FT Services also serves as administrator
to all series of the VIP Trust. TFAC and FT Services provide certain
administrative facilities and services for the VIP and Templeton Trusts.
3. On November 16, 1993, the Commission issued an order granting exemptive
relief to permit shares of the Xxxxxxxxx Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (Investment Company Act
Release No. 19879, File NO. 812-8546) (the "Original Order"). Applicants
incorporate by reference into the application the Application for the Original
Order and each amendment thereto, the Notice of Application for the Original
Order, and the Original Order, to the extent necessary, to supplement the
representations made in the application in support of the requested relief.
Applicants 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(~)(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
29
rule) thereunder, respectively, to the extent necessary to permit shares of the
Funds and any Future Funds to be sold to and held by Qualified Plans. Applicants
submit that the exemptions requested are appropriate in the public interest,
consistent with the protection of investors, and consistent with the purposes
fairly intended by the policy and provisions of the 1940 Act.
2. The Original Order does not include the VIP Trust or Future Funds as parties
nor expressly address the sale of shares of the Funds or any Future Funds to
Qualified Plans. Applicants propose that the VIP Trust and Future Funds be added
as parties to the Original Order and the Funds and any Future Funds be permitted
to offer and sell their shares to Qualified Plans.
3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by order
upon application, may conditionally or unconditionally exempt any person,
security or transaction, or any class or classes of persons, securities or
transactions from any provisions of the 1940 Act or the rules or regulations
thereunder, if and to the extent that such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
4. In connection with the funding of scheduled premium variable life insurance
contracts issued through a separate account registered under the 1940 Act as a
unit investment trust ("UIT"), Rule 6e-2(b)( 15) provides partial exemptions
from various provisions of the 1940 Act, including the following: (1) Section
9(a), which makes it unlawful for certain individuals to act in the capacity of
employee, officer, or director for a UIT, by limiting the application of the
eligibility restrictions in Section 9(a) to affiliated persons directly
participating in the management of a registered management investment company;
and (2) Sections 13(a), 15(a) and 15(b) of the 1940 Act to the extent that those
sections might be deemed to require "pass-through" voting with respect to an
underlying fund's shares, by allowing an insurance company to disregard the
voting instructions of contractowners in certain circumstances.
5. These exemptions are available, however, only where the management investment
company underlying the separate account (the "underlying fund") offers its
shares "exclusively to variable life insurance separate accounts of the life
insurer, or of any affiliated life insurance company." Therefore, Rule 6e-2 does
not permit either mixed funding or shared funding because the relief granted by
Rule 6e-2(b)( 15) is not available with respect to a scheduled premium variable
life insurance separate account that owns shares of an underlying fund that also
offers its shares to a variable annuity or a flexible premium variable life
insurance separate account of the same company or of any affiliated life
insurance company. Rule 6e-2(b)( 15) also does not permit the sale of shares of
the underlying fund to Qualified Plans.
6. In connection with flexible premium variable life insurance contracts issued
through a separate account registered under the 1940 Act as a UIT, Rule
6e-3(T)(b)( 15) also provides partial exemptions from Sections 9(a), 13(a),
15(a) and 15(b) of the 1940 Act. These exemptions, however, are available only
where the separate account's underlying fund offers its shares "exclusively to
separate accounts of the life insurer, or of any affiliated life insurance
company, offering either scheduled contracts or flexible contracts, or both; or
which also offer their shares to variable annuity separate accounts of the life
insurer or of an affiliated life insurance company." Therefore, Rule 6e-3(T)
permits mixed funding but does not permit shared funding and also does not
permit the sale of shares of the underlying fund to Qualified Plans. As noted
above, the Original Order granted the Templeton Trust exemptive relief to permit
mixed and shared funding, but did not expressly address the sale of its shares
to Qualified Plans.
7. Applicants note that if the Funds were to sell their shares only to Qualified
Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be necessary.
Applicants state that the relief provided for under Rule 6e-2(b)( 15) and Rule
6e-3(T)(b)( 15) does not relate to qualified pension and retirement plans or to
a registered investment company's ability to sell its shares to such plans.
8. Applicants state that changes in the federal tax law have created the
opportunity for each of the Funds to increase its asset base through the sale of
its shares to Qualified Plans. Applicants state that Section 8 17(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
30
to this requirement that permits trustees of a Qualified Plan to hold shares of
an investment company, the shares of which are also held by insurance company
segregated asset accounts, without adversely affecting the status of the
investment company as an adequately diversified underlying investment of
Variable Contracts issued through such segregated asset accounts (Treas. Reg.
1.817-5(f)(3)(iii)).
9. Applicants state that the promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)
(15) under the 1940 Act preceded the issuance of these Treasury Regulations.
Thus, Applicants assert that the sale of shares of the same investment company
to both separate accounts and Qualified Plans was not contemplated at the time
of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
10. Section 9(a) provides that it is unlawful for any company to serve as
investment adviser or principal underwriter of any registered open-end
investment company if an affiliated person of that company is subject to a
disqualification enumerated in Section 9(a)(1) or (2). Rules 6e-2(b)(15) and
6e-3(T)(b)(15) provide exemptions from Section 9(a) under certain
circumstances, subject to the limitations on mixed and shared funding. These
exemptions limit the application of the eligibility restrictions to affiliated
individuals or companies that directly participate in the management of the
underlying portfolio investment company.
11. Applicants state that the relief granted in Rule 6e-2(b)(15) and
6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the amount
of monitoring of an insurer's personnel that would otherwise be necessary to
ensure compliance with Section 9 to that which is appropriate in light of the
policy and purposes of Section 9. Applicants submit that those Rules recognize
that it is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the provisions of
Section 9(a) to the many individuals involved in an insurance company complex,
most of whom typically will have no involvement in matters pertaining to
investment companies funding the separate accounts.
12. Applicants to the Original Order previously requested and received relief
from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the extent
necessary to permit mixed and shared funding. Applicants maintain that the
relief previously granted from Section 9(a) will in no way be affected by the
proposed sale of shares of the Funds to Qualified Plans. Those individuals who
participate in the management or administration of the Funds will remain the
same regardless of which Qualified Plans use such Funds. Applicants maintain
that more broadly applying the requirements of Section 9(a) because of
investment by Qualified Plans would not serve any regulatory purpose. Moreover,
Qualified Plans, unlike separate accounts, are not themselves investment
companies and therefore are not subject to Section 9 of the 1940 Act.
13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(l5)(iii)(A) and 6e-3(T)(b)(l5)(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)(l5)(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
31
402(c)(3) of ERISA. Unless one of the two above exceptions stated in Section
403(a) applies, Qualified Plan trustees have the exclusive authority and
responsibility for voting proxies. Where a named fiduciary to a Qualified Plan
appoints an investment manager, the investment manager has the responsibility to
vote the shares held unless the right to vote such shares is reserved to the
trustees or the named fiduciary. Where a Qualified Plan does not provide
participants with the right to give voting instructions, Applicants do not see
any potential for material irreconcilable conflicts of interest between or among
variable contract holders and Qualified Plan investors with respect to voting of
the respective Fund's shares. Accordingly, Applicants state that, unlike the
case with insurance company separate accounts, the issue of the resolution of
material irreconcilable conflicts with respect to voting is not present with
respect to such Qualified Plans since the Qualified Plans are not entitled to
pass-through voting privileges.
15. Even if a Qualified Plan were to hold a controlling interest in one of the
Funds, Applicants believe that such control would not disadvantage other
investors in such Fund to any greater extent than is the case when any
institutional shareholder holds a majority of the voting securities of any
open-end management investment company. In this regard, Applicants submit that
investment in a Fund by a Qualified Plan will not create any of the voting
complications occasioned by mixed funding or shared funding. Unlike mixed or
shared funding, Qualified Plan investor voting rights cannot be frustrated by
veto rights of insurers or state regulators.
16. Applicants state that some of the Qualified Plans, however, may provide for
the trustee(s), an investment adviser (or advisers), or another named fiduciary
to exercise voting rights in accordance with instructions from participants.
Where a Qualified Plan provides participants with the right to give voting
instructions, Applicants see no reason to believe that participants in Qualified
Plans generally or those in a particular Qualified Plan, either as a single
group or in combination with participants in other Qualified Plans, would vote
in a manner that would disadvantage Variable Contract holders. In sum,
Applicants maintain that the purchase of shares of the Funds by Qualified Plans
that provide voting rights does not present any complications not otherwise
occasioned by mixed or shared funding.
17. Applicants do not believe that the sale of the shares of the Funds to
Qualified Plans will increase the potential for material irreconcilable
conflicts of interest between or among different types of investors. In
particular, Applicants see very little potential for such conflicts beyond that
which would otherwise exist between variable annuity and variable life insurance
contractowners.
18. As noted above, Section 8 17(h) of the Code imposes certain diversification
standards on the underlying assets of variable contracts held in an underlying
mutual fund. The Code provides that a variable contract shall not be treated as
an annuity contract or life insurance, as applicable, for any period (and any
subsequent period) for which the investments are not, in accordance with
regulations prescribed by the Treasury Department, adequately diversified.
19. Treasury Department Regulations issued under Section 8 17(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. 1.8 17-5(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
32
will inform each shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the meeting, including their
respective share of ownership in the relevant Fund. Each Participating Insurance
Company will then solicit voting instructions in accordance with Rules 6e-2 and
6e-3(T), as applicable, and its participation agreement with the relevant Fund.
Shares held by Qualified Plans will be voted in accordance with applicable law.
The voting rights provided to Qualified Plans with respect to shares of the
Funds would be no different from the voting rights that are provided to
Qualified Plans with respect to shares of funds sold to the general public.
22. Applicants have concluded that even if there should arise issues with
respect to a state insurance commissioner's veto powers over investment
objectives where the interests of contractowners and the interests of Qualified
Plans are in conflict, the issues can be almost immediately resolved since the
trustees of (or participants in) the Qualified Plans can, on their own, redeem
the shares out of the Funds. Applicants note that state insurance commissioners
have been given the veto power in recognition of the fact that insurance
companies usually cannot simply redeem their separate accounts out of one fund
and invest in another. Generally, time-consuming, complex transactions must be
undertaken to accomplish such redemptions and transfers. Conversely, the
trustees of Qualified Plans or the participants in participant-directed
Qualified Plans can make the decision quickly and redeem their interest in the
Funds and reinvest in another funding vehicle without the same regulatory
impediments faced by separate accounts or, as is the case with most Qualified
Plans, even hold cash pending suitable investment.
23. Applicants also state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of participants
under Qualified Plans and contractowners of Participating Separate Accounts from
possible future changes in the federal tax laws than that which already exist
between variable annuity contractowners and variable life insurance
contractowners.
24. Applicants state that the sale of shares of the Funds to Qualified Plans in
addition to separate accounts of Participating Insurance Companies will result
in an increased amount of assets available for investment by the Funds. This may
benefit variable contractowners by promoting economies of scale, by permitting
increased safety of investments through greater diversification, and by making
the addition of new portfolios more feasible.
25. Applicants assert that, regardless of the type of shareholders in each Fund,
each Fund's Investment Manager is or would be contractually and otherwise
obligated to manage the Fund solely and exclusively in accordance with that
Fund's investment objectives, policies and restrictions as well as any
guidelines established by the Board of Trustees of such Fund (the "Board"). The
Investment Manager works with a pool of money and (except in a few instances
where this may be required in order to comply with state insurance laws) does
not take into account the identity of the shareholders. Thus, each Fund will be
managed in the same manner as any other mutual fund. Applicants therefore see no
significant legal impediment to permitting the sale of shares of the Funds to
Qualified Plans.
26. Applicants state that the Commission has permitted the amendment of a
substantially similar original order for the purpose of adding a party to the
original order and has permitted open-end management investment companies to
offer their shares directly to Qualified Plan in addition to separate accounts
of affiliated or unaffiliated insurance companies which issue either or both
variable annuity contracts or variable life insurance contracts. Applicants
state that the amended order sought in the application is identical to precedent
with respect to the conditions Applicants propose should be imposed on Qualified
Plans in connection with investment in the Funds.
Applicants' Conditions:
If the requested amended order is granted, Applicants consent to the following
conditions:
1. A majority of the Board of each Fund shall consist of persons who are not
"interested persons" thereof, as defined by Section 2(a)( 19) of the 1940 Act,
and the rules thereunder and as modified by any applicable orders of the
Commission, except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any Board Member or Members, then
the operation of this condition shall be suspended: (a) for a period of 45 days
if the vacancy or vacancies may be filled by the remaining Board Members; (b)
for a period of 60 days if a vote of shareholders is required to till the
vacancy or vacancies; or (c) for such longer period as the Commission may
prescribe by order upon application.
33
2. The Board will monitor their respective Fund for the existence of any
material irreconcilable conflict among the interests of the Variable Contract
owners of all Separate Accounts investing in the Funds and of the Qualified Plan
participants investing in the Funds. The Board will determine what action, if
any, shall be taken in response to such conflicts. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Funds are being managed; (e) a difference in voting
instructions given by variable annuity contract owners, variable life insurance
contract owners, and trustees of Qualified Plans; (f) a decision by an insurer
to disregard the voting instructions of Variable Contract owners; or (g) if
applicable, a decision by a Qualified Plan to disregard the voting instructions
of Qualified Plan participants.
3. Participating Insurance Companies, the Investment Managers, and any Qualified
Plan that executes a fund participation agreement upon becoming an owner of 10
percent or more of the assets of an Fund (a "Participating Qualified Plan"),
will report any potential or existing conflicts of which it becomes aware to the
Board of any relevant Fund. Participating Insurance Companies, the Investment
Managers and the Participating Qualified Plans will be responsible for assisting
the Board in carrying out its responsibilities under these conditions by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This responsibility includes, but is not limited to,
an obligation by each Participating Insurance Company to inform the Board
whenever voting instructions of Contract owners are disregarded and, if
pass-through voting is applicable, an obligation by each Participating Qualified
Plan to inform the Board whenever it has determined to disregard Qualified Plan
participant voting instructions. The responsibility to report such information
and conflicts, and to assist the Board, will be contractual obligations of all
Participating Insurance Companies investing in the Funds under their agreements
governing participation in the Funds, and such agreements shall provide that
these responsibilities will be carried out with a view only to the interests of
the Variable Contract owners. The responsibility to report such information and
conflicts, and to assist the Board, will be contractual obligations of all
Participating Qualified Plans under their agreements governing participation in
the Funds, and such agreements will provide that their responsibilities will be
carried out with a view only to the interests of Qualified Plan participants.
4. If it is determined by a majority of the Board of a Fund, or by a majority of
the disinterested Board Members, that a material irreconcilable conflict exists,
the relevant Participating Insurance Companies and Participating Qualified Plans
will, at their own expense and to the extent reasonably practicable as
determined by a majority of the disinterested Board Members, take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps could include: (a) in the case of Participating Insurance Companies,
withdrawing the assets allocable to some or all of the Separate Account s from
the Fund or any portfolio thereof and reinvesting such assets in a different
investment medium including another portfolio of an Fund or another Fund, or
submitting the question as to whether such segregation should be implemented to
a vote of all affected Variable Contract owners and, as appropriate, segregating
the assets of any appropriate group (i.e., variable annuity contract owners or
variable life insurance contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Variable Contract owners the option of making such a change; (b) in the case of
Participating Qualified Plans, withdrawing the assets allocable to some or all
of the Qualified Plans from the Fund and reinvesting such assets in a different
investment medium; and (c) establishing a new registered management investment
company or managed Separate Account. If a material irreconcilable conflict
arises because of a decision by a Participating Insurance Company to disregrrd
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 Funds election, to withdraw its investment in such Fund, and
no charge or penalty wilI 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
34
agreements governing participation in the Funds, and these responsibilities will
be carried out with a view only to the interest of Variable Contract owners and
Qualified Plan participants.
5. For purposes of Condition 4, a majority of the disinterested Board Members of
the applicable Board will determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the relevant Fund or the Investment Managers be required to establish a new
funding medium for any Contract. No Participating Insurance Company shall be
required by Condition 4 to establish a new funding medium for any Variable
Contract if any offer to do so has been declined by vote of a majority of the
Variable Contract owners materially and adversely affected by the material
irreconcilable conflict. Further, no Participating Qualified Plan shall be
required by Condition 4 to establish a new funding medium for any Participating
Qualified Plan if (a) a majority of Qualified Plan participants materially and
adversely affected by the irreconcilable material conflict vote to decline such
offer, or (b) pursuant to governing Qualified Plan documents and applicable law,
the Participating Qualified Plan makes such decision without a Qualified Plan
participant vote.
6. The determination of the Board of the existence of a material irreconcilable
conflict and its implications will be made known in writing promptly to all
Participating Insurance Companies and Participating Qualified Plans.
7. Participating Insurance Companies will provide pass-through voting privileges
to Variable Contract owners who invest in registered Separate Accounts so long
as and to the extent that the Commission continues to interpret the 1940 Act as
requiring pass-through voting privileges for Variable Contract owners. As to
Variable Contracts issued by unregistered Separate Accounts, pass-through voting
privileges will be extended to participants to the extent granted by issuing
insurance companies. Each Participating Insurance Company will also vote shares
of the Funds held in its Separate Accounts for which no voting instructions from
Contract owners are timely received, as well as shares of the Funds which the
Participating Insurance Company itself owns, in the same proportion as those
shares of the Funds for which voting instructions from contract owners are
timely received. Participating Insurance Companies will be responsible for
assuring that each of their registered Separate Accounts participating in the
Funds calculates voting privileges in a manner consistent with other
Participating Insurance Companies. The obligation to calculate voting privileges
in a manner consistent with all other registered Separate Accounts investing in
the Funds will be a contractual obligation of all Participating Insurance
Companies under their agreements governing their participation in the Funds.
Each Participating Qualified Plan will vote as required by applicable law and
governing Qualified Plan documents.
8. All reports of potential or existing conflicts received by the Board of a
Fund and all action by such Board with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating
Qualified Plans of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
meetings of such Board or other appropriate records, and such minutes or other
records shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that separate
disclosure in their respective Separate Account prospectuses may be appropriate
to advise accounts regarding the potential risks of mixed and shared funding.
Each Fund shall disclose in its prospectus that (a) the Fund is intended to be a
funding vehicle for variable annuity and variable life insurance contracts
offered by various insurance companies and for qualified pension and retirement
plans; (b) due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Fund and/or the
interests of Qualified Plans investing in the Fund may at some time be in
conflict; and (c) the Board of such Fund will monitor events in order to
identify the existence of any material irreconcilable conflicts and to determine
what action, if any, should be taken in response to any such conflict.
10. Each Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders (which, for these purposes, will be the persons having a voting
interest in the shares of the Funds), and, in particular, the Funds will either
provide for annual shareholder meetings (except insofar as the Commission may
interpret Section 16 of the 1940 Act not to require such meetings) or comply
with Section 16(c) of the 1940 Act, although the Funds are not the type of trust
described in Section 16(c) of the 1940 Act, as well as with Section 16(a) of the
1940 Act and, if and when applicable, Section 16(b) of the 1940 Act. Further,
each Fund will act in accordance with the Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of Board
Members and with whatever rules the Commission may promulgate with respect
thereto.
35
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is amended, or
proposed Rule 6e-3 under the 1940 Act is adopted, to provide exemptive relief
from any provision of the 1940 Act or the rules promulgated thereunder, with
respect to mixed or shared funding on terms and conditions materially different
from any exemptions granted in the order requested in the application, then the
Funds and/or Participating Insurance Companies and Participating Qualified
Plans, as appropriate, shall take such steps as may be necessary to comply with
such Rules 6e-2 and 6e-3(T), as amended, or proposed Rule 6e-3, as adopted, to
the extent that such Rules are applicable.
12. The Participating Insurance Companies and Participating Qualified Plans
and/or the Investment Managers, at least annually, will submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out obligations imposed upon it by the conditions contained in
the application. Such reports, materials and data will be submitted more
frequently if deemed appropriate by the Board. The obligations of the
Participating Insurance Companies and Participating Qualified Plans to provide
these reports, materials and data to the Board, when the Board so reasonably
requests, shall be a contractual obligation of all Participating Insurance
Companies and Participating Qualified Plans under their agreements governing
participation in the Funds.
13. If a Qualified Plan should ever become a holder of ten percent or more of
the assets of a Fund, such Qualified Plan will execute a participation agreement
with the Fund that includes the conditions set forth herein to the extent
applicable. A Qualified Plan will execute an application containing an
acknowledgment of this condition upon such Qualified Plan's initial purchase of
the shares of any Fund.
Conclusion:
Applicants assert that, for the reasons summarized above, the requested
exemptions are appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy and
provisions of the 1940 Act.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
36
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)(l5). 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.
PARTICIPATION AGREEMENT
Among
XXX XXXXXX LIFE INVESTMENT TRUST,
XXX XXXXXX FUNDS INC.,
XXX XXXXXX ASSET MANAGEMENT INC.,
and
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
DATED AS OF
May 1, 2002
Table of Contents
ARTICLE I. Fund Shares................................................... 3
ARTICLE II Representations and Warranties................................ 5
ARTICLE III Prospectuses, Reports to Shareholders and
Proxy Statements; Voting...................................... 7
ARTICLE IV Sales Material and Information................................ 9
ARTICLE V Distribution and Service Plans................................10
ARTICLE VI Diversification...............................................11
ARTICLE VII Potential Conflicts...........................................11
ARTICLE VIII Indemnification...............................................13
ARTICLE IX Applicable Law................................................20
ARTICLE X Termination...................................................20
ARTICLE XI Notices.......................................................23
ARTICLE XII Foreign Tax Credits...........................................24
ARTICLE XIII Miscellaneous.................................................24
SCHEDULE A Separate Accounts and Contracts...............................27
SCHEDULE B Participating Xxx Xxxxxx Life Investment Trust Portfolios.....28
SCHEDULE C Proxy Voting Procedures.......................................29
PARTICIPATION AGREEMENT
Among
XXX XXXXXX LIFE INVESTMENT TRUST,
XXX XXXXXX FUNDS INC.,
XXX XXXXXX ASSET MANAGEMENT INC.,
and
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
THIS AGREEMENT, made and entered into as of the 1st day of May, 2002 by and
among GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK (hereinafter the "Company"),
a New York corporation, on its own behalf and on behalf of each separate account
of the Company set forth on Schedule A hereto as may be amended from time to
time (each such account hereinafter referred to as the "Account"), and XXX
XXXXXX LIFE INVESTMENT TRUST (hereinafter the "Fund"), a Delaware business
trust, XXX XXXXXX FUNDS INC. (hereinafter the "Underwriter"), a Delaware
corporation, and XXX XXXXXX ASSET MANAGEMENT INC. (hereinafter the "Adviser"), a
Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established by insurance companies for individual and group life insurance
policies and annuity contracts with variable accumulation and/or payout
provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into
participation agreements with the Fund and the Underwriter (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of
the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1990 (File No. 812-7552), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(j)(b)(15) thereunder to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Annuity Product separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Underwriter and the Adviser agree as follows:
2
ARTICLE 1
Fund Shares
1.1 The Fund and the Underwriter agree to make available for purchase by
the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and the Underwriter for receipt of
such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
10:00 a.m. Houston time on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 9:15 a.m. Houston time on the next following Business
Day. "Business Day" shall mean any day on which New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission, as set forth in the Fund's
prospectus and statement of additional information. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies for their Variable Insurance Products.
No shares of any Portfolio will be sold to the general public.
1.3 The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4 The Fund and the Underwriter agree to redeem for cash, on the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.4, the Company shall be the designee of the Fund for
receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Underwriter
receives notice of such request for redemption on the next following Business
Day in accordance with the timing rules described in Section 1.1.
1.5 The Company agrees that purchases and redemptions of Portfolio
3
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Underwriter sixty (60) days
written notice of its intention to make available in the future, as a funding
vehicle under the Contracts, any other investment company.
1.6 The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof.
Notwithstanding the foregoing, if the payment of redemption proceeds on the next
Business Day would require the Portfolio to dispose of Portfolio securities or
otherwise incur substantial additional costs, and if the Portfolio has
determined to settle redemption transactions for all shareholders on a delayed
basis, proceeds shall be wired to the Company within seven (7) days and the
Portfolio shall notify in writing the person designated by the Company as the
recipient for such notice of such delay by 3:00 p.m. Houston time on the same
Business Day that the Company transmits the redemption order to the Portfolio.
1.7 Issuance and transfer of the Fund's shares will be by book entry only.
Share certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8 The Underwriter shall use its best efforts to furnish same day notice
by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9 The Underwriter shall make the net asset value per share of each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net
4
asset value per share available by 6:00 p.m. Houston time. In the event that
Underwriter is unable to meet the 6:00 p.m. time stated immediately above, then
Underwriter shall provide the Company with additional time to notify Underwriter
of purchase or redemption orders pursuant to Sections 1.1 and 1.4, respectively
above. Such additional time shall be equal to the additional time that
Underwriter takes to make the net asset values available to the Company
provided, however, that notification must be made by 10:00 a.m. Houston time on
the Business Day such order is to be executed, regardless of when net asset
value is made available.
1.10 If Underwriter provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level pursuant to the SEC's recommended guidelines. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
ARTICLE 2
Representations and Warranties
------------------------------
2.1 The Company represents and warrants that the interests of Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued and sold in compliance with all
applicable federal and state laws and regulations. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the New York Insurance Code and the regulations thereunder
and has registered or, prior to any issuance or sale of the Contracts, will
register and will maintain the registration of each Account as a unit investment
trust in accordance with and to the extent required by the provisions of the
1940 Act and the regulations thereunder to serve as a segregated investment
account for the Contracts. The Company shall amend its registration statement
for its contracts under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its Contracts.
2.2 The Fund and the Underwriter represent and warrant that Fund shares
sold pursuant to this Agreement shall be registered under the 1933 Act and the
regulations thereunder to the extent required by the 1933 Act, duly authorized
for issuance in accordance with the laws of the State of Delaware and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the
5
extent required by the 0000 Xxx. The Fund shall amend the registration statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently qualified
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code") and that each will make every effort to
maintain such qualification (under Subchapter M or any successor or similar
provision) and that each will notify the Company immediately upon having a
reasonable basis for believing that the Fund has ceased to so qualify or that
the Fund might not so qualify in the future.
2.4 The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5 The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7 The Fund and the Adviser represent that the Fund is duly organized and
validly existing under the laws of the State of Delaware and that the Fund does
and will comply in all material respects with the 1940 Act.
2.8 The Underwriter represents and warrants that it is and shall remain
duly registered under all applicable federal and state laws and regulations and
that it will perform its obligations for the Fund and the Company in compliance
with the laws and regulations of its state of domicile and any applicable state
and federal laws and regulations.
2.9 The Company represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities dealing with the
money and/or securities of the Fund are covered by a blanket fidelity bond or
similar coverage, in an amount equal to the greater of $5 million or any amount
required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny
6
and embezzlement is issued by a reputable bonding company. The Company agrees to
make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE 3
Prospectuses, Reports to Shareholders and Proxy Statements; Voting
------------------------------------------------------------------
3.1 The Fund shall provide the Company with as many printed copies of
the Fund's current prospectus and statement of additional information as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a) Except as otherwise provided in this Section 3.2., all reasonable
expenses of preparing, setting in type and printing and distributing Fund
prospectuses and statements of additional information shall be the expense of
the Company. For prospectuses and statements of additional information provided
by the Company to its existing owners of Contracts in order to update disclosure
as required by the 1933 Act and/or the 1940 Act, the cost of setting in type,
printing and distributing shall be borne by the Fund. If the Company chooses to
receive camera-ready film or computer diskettes in lieu of receiving printed
copies of the Fund's prospectus and/or statement of additional information, the
Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or
statement of additional information to the Company in the format in which the
Fund is accustomed to formatting prospectuses and statements of additional
information, respectively, and the Company shall bear the expense of adjusting
or changing the format to conform with any of its prospectuses and/or statements
of additional information. In such event, the Fund will reimburse the Company in
an amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b) The Fund, at its expense, shall provide the Company, within a
reasonable amount of time, with copies of its proxy statements, reports to
shareholders, and other communications (except for prospectuses and statements
of additional
7
information, which are covered in Section 3.2(a) above) to shareholders in such
quantity as the Company shall reasonably require for distributing to Contract
owners. The Fund shall not pay any costs of distributing such proxy related
material, reports to shareholders, and other communications to prospective
Contract owners.
3.2(c) The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.3 The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.4 If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(1) solicit voting instructions from Contract owners;
(2) vote the Fund shares in accordance with instructions received
from Contract owners; and
(3) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require passthrough voting privileges for
variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the
8
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE 4
Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund,
the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund, the
Adviser, the Underwriter or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
4.2 Neither the Company nor any person contracting with the Company shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of the Contracts other
than the information or representations contained in the registration statement
or Fund prospectus, as such registration statement or Fund prospectus may be
amended or supplemented from time to time, or in reports to shareholders or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3 The Fund shall furnish, or shall cause to be furnished, to the Company
or its designee, each piece of sales literature or other promotional material
prepared by the Fund in which the Company or its Accounts, are named at least
ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
9
4.4 Neither the Fund nor the Underwriter shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Account or Contract, contemporaneously with the filing of
such document with the Securities and Exchange Commission or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE 5
Distribution and Service Plans
10
5.1 The Fund is subject to a plan adopted under Rule 18f-3 under the 1940
Act pursuant to which, as described in the current prospectus of each Portfolio,
the Fund may sell multiple classes of its shares of each Portfolio with a
varying combination of distribution fees, service fees, exchange features,
conversion rights, voting rights, expense allocations and investment
requirements.
5.2 Should the Company wish to participate in the Fund's distribution plan
with respect to a class of shares of a Portfolio of the Fund pursuant to Rule
12b-1 (the "Rule 12b-1 Plan") under the 1940 Act, or the Fund's service plan
(the "Service Plan"), each as described in the current prospectus of each
Portfolio, with respect to a class of shares of a Portfolio of the Fund, it is
understood that the Company must be approved by the Board of Trustees of the
Fund. Pursuant to the Rule 12b-1 Plan and the Service Plan, the Underwriter is
authorized to remit payments at rates specified in the respective plans with
respect to the net asset value of shares maintained by the Company for
distribution-related services and/or personal services to Contract owners
accounts provided. If the Company wishes to participate in these plans and
receive the aforementioned remittance, the Company must enter into a separate
agreement specifically regarding these plans.
5.3 The Company's acceptance of this Agreement constitutes a representation
that it will adopt policies and procedures to comply with Rule 18f-3 under the
1940 Act, with respect to when the Company may appropriately make available the
various classes of shares of the Portfolios of the Fund and that it will make
available such shares only in accordance therewith.
ARTICLE 6
Diversification
6.1 The Fund will use its best efforts to at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event the Fund ceases to so qualify, it will take all
reasonable steps (a) to notify Company of such event and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 817-5.
ARTICLE 7
Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a
11
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract owners and variable life insurance contract owners; or (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Accounts
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result
12
of such withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5 For purposes of Sections 7.3 through 7.4 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 through 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out the obligations imposed upon them by the provisions
hereof and in the Shared Funding Exemptive Order, and said reports, materials
and data shall be submitted more frequently if deemed appropriate by the Board.
All reports received by the Board of potential or existing conflicts, and all
Board action with regard to determining the existence of a conflict, notifying
Participating Insurance Companies of a conflict, and determining whether any
proposed action adequately remedies a conflict, shall be properly recorded in
the minutes of the Board or other appropriate records, and such minutes or other
records shall be made available to the Securities and Exchange Commission upon
request.
ARTICLE 8
Indemnification
8.1 Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written
13
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact
contained in the registration statement or prospectus
for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Company by or on
behalf of the Fund for use in the registration
statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its
control and other than statements or representations
authorized by the Fund or the Underwriter) or unlawful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(3) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained
in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statement or
statements therein not misleading, if such a statement
or omission was made in reliance upon and in conformity
with information furnished to the Fund by or on behalf
of the Company; or
14
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
8.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with this Agreement, the issuance or sale of the Fund shares or the Contracts,
or the operation of the Fund.
8.2 Indemnification by Underwriter
8.2(a) The Underwriter agrees, with respect to each Portfolio that
it distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2)
15
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares that it distributes or the Contracts and:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Fund or the
Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund
or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(2) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Underwriter or
persons under their respective control and other than
statements or representations authorized by the
Company) or unlawful conduct of the Fund or Underwriter
or persons under their control, with respect to the
sale or distribution of the Contracts or Portfolio
shares; or
(3) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained
in a registration statement, prospectus, 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 and in
conformity with information furnished to the Company by
or on behalf of the Fund or the Underwriter; or
16
(4) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the
materials under the terms of this Agreement; or
(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 Section 8.2(b) and 8.2(c) hereof.
8.2(b) The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.2(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts or the operation of each Account.
8.3 Indemnification by the Adviser
17
8.3(a) The Adviser agrees to indemnify and hold harmless the
Company and its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the
operations of the Adviser or the Fund and:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Adviser, the Fund or
the Underwriter by or on behalf of the Company for use
in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Portfolio shares; or
(2) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Adviser or
persons under its control and other than statements or
representations authorized by the Company) or unlawful
conduct of the Fund, the Adviser or persons under their
control, with respect to the sale or distribution of
the Contracts or Portfolio shares; or
(3) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained
in a registration statement, prospectus, 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
18
statement or statements therein not misleading, if such
statement or omission was made in reliance upon
information furnished to the Company by or on behalf of
the Fund or the Adviser; or
(4) arise as a result of any failure by the Adviser to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or the
Adviser in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Fund or the Adviser, including without limitation any
failure by the Fund to comply with the conditions of
Article VI hereof.
8.3(b) The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.3(c) The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other 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 Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d) The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the
19
Adviser.
ARTICLE 9
Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2 This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, the Investment Advisers Act of 1940 and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the Securities and Exchange Commission may
grant (including, but not limited to, the Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE 10
Termination
10.1 This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason upon six months
advance written notice delivered to the other parties;
or
(b) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter with respect to
any Portfolio based upon the Company's determination
that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate
shall be furnished by the Company, said termination to
be effective ten (10) days after receipt of notice
unless the fund makes available a sufficient number of
shares to reasonably meet the requirements of the
Account within said ten (10) day period; or
(c) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter with respect to
any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law
precludes the use of such shares as the underlying
investment medium of the Contracts issued or to be
issued by the Company. The terminating party shall give
prompt notice to the other parties of its decision to
terminate; or
20
(d) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter with respect to any
Portfolio in the event that such Portfolio ceases to qualify
as a Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision; or
(e) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event that such Portfolio fails to meet the
diversification requirements specified in Article VI hereof;
or
(f) termination by either the Fund, the Adviser or the
Underwriter by written notice to the Company, if either one
or more of the Fund, the Adviser or the Underwriter, shall
determine, in its or their sole judgment exercised in good
faith, that the Company and/or their affiliated companies
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity, provided that the Fund, the Adviser or the
Underwriter will give the Company sixty (60) days' advance
written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any
other changes in circumstances since the giving of such
notice, the determination of the Fund, the Adviser or the
Underwriter shall continue to apply on the 60th day since
giving of such notice, then such 60th day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good faith,
that either the Fund, the Adviser or the Underwriter has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity, provided that the Company will give the Fund, the
Adviser and the Underwriter sixty (60) days' advance written
notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of
the actions taken by the Fund, the Adviser or the
Underwriter and any other changes in circumstances since the
giving of such notice, the determination of the Company
shall continue to apply on the 60th day since giving of such
notice, then such 60th day shall be the effective date of
termination; or
(h) termination by the Fund, the Adviser or the Underwriter
by
21
written notice to the Company, if the Company gives the Fund, the
Adviser and the Underwriter the written notice specified in Section
1.5 hereof and at the time such notice was given there was no notice
of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section
10.1(h) shall be effective sixty (60) days after the notice specified
in Section 1.5 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement which breach has not been cured to the satisfaction of the
terminating party within ten (10) days after written notice of such
breach is delivered to the Fund or the Company, as the case may be; or
(j) termination by the Fund, Adviser or Underwriter by written notice
to the Company in the event an Account or Contract is not registered
or sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as distinct from Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(c) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption.
22
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Adviser 90 days notice of its intention to do so.
ARTICLE 11
Notices
11.1 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Xxx Xxxxxx Life Investment Trust
0 Xxxxxxxx Xxxxx
XX Xxx 0000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000-0000
Attention: A. Xxxxxx Xxxxx III
If to Underwriter:
Xxx Xxxxxx Funds Inc.
0 Xxxxxxxx Xxxxx
XX Xxx 0000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000-0000
Attention: A. Xxxxxx Xxxxx III
If to Adviser:
Xxx Xxxxxx Asset Management Inc.
0 Xxxxxxxx Xxxxx
XX Xxx 0000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000-0000
Attention: A. Xxxxxx Xxxxx III
If to the Company:
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
0000 Xxxx Xxxxx Xxxxxx
Xxx Xxxxxxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
23
ARTICLE 12
Foreign Tax Credits
12.1 The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
ARTICLE 13
Miscellaneous
13.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. Each of the Company, Adviser and
Underwriter acknowledges and agrees that, as provided by Article 8, Section 8.1,
of the Fund's Agreement and Declaration of Trust, the shareholders, trustees,
officers, employees and other agents of the Fund and its Portfolios shall not
personally be bound by or liable for matters set forth hereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder. A Certificate of Trust referring to the Fund's Agreement and
Declaration of Trust is on file with the Secretary of State of Delaware.
13.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and
24
Exchange Commission, the National Association of Securities Dealers 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
13.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally
accepted accounting principles ("GAAP"), if any), as soon practical
and in any event within 90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory), as soon
as practical and in any event within 45 days following such period;
(c) any financial statement proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical
after the filing thereof,
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after
the receipt thereof.
25
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date specified above.
GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK
on behalf of itself and each of its Accounts named in
Schedule A hereto, as amended from time to time
By: ________________________________
XXX XXXXXX LIFE INVESTMENT TRUST
By: ________________________________
XXX XXXXXX FUNDS INC.
By: ________________________________
XXX XXXXXX ASSET MANAGEMENT INC.
By: ________________________________
26
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
GE Capital Life Separate Account II NY1155 Flexible Premium Deferred
Annuity
April 1, 1996
GE Capital Life Separate Account III NY 1260/1261
March 20, 2000
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SCHEDULE B
PARTICIPATING XXX XXXXXX LIFE INVESTMENT TRUST PORTFOLIOS
Xxxxxxxx Portfolio - Class II Shares
Emerging Growth Portfolio - Class II Shares
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SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding
responsibilities for the handling of proxies and voting instructions relating to
the Fund. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Company to perform the steps
delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.4 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a) name (legal name as found on account registration)
b) address
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c) fund or account number
d) coding to state number of units (or equivalent shares)
e) individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process
due to possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Company). Contents of envelope sent to Customers
by the Company will include:
a) Voting Instruction Card(s)
b) One proxy notice and statement (one document)
c) Return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d) "Urge buckslip" optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e) Cover letter optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company. The Fund must allow at least a 15 day
solicitation time to the Company as the shareowner. (A 5 week period
is recommended.) Solicitation time is calculated as calendar days from
(but not including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
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9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For example, if the account registration is under "Xxxx X.
Xxxxx, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to
sort the Cards as they first arrive, into categories depending upon
their vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number
of shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote. Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes, the
Fund will be permitted reasonable access to such Cards.
16. All approvals and "signing off' may be done orally, but must always be
followed up in writing.
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