PARTICIPATION AGREEMENT
as of May 1, 2000
Franklin Xxxxxxxxx Variable Insurance Products Trust
Franklin Xxxxxxxxx Distributors, Inc.
Sun Life Assurance Company of Canada (U.S.)
CONTENTS
SECTION SUBJECT MATTER
1. Parties and Purpose
2. Representations and Warranties
3. Purchase and Redemption of Trust Portfolio Shares
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
5. Voting
6. Sales Material, Information and Trademarks
7. Indemnification
8. Notices
9. Termination
10. Miscellaneous
SCHEDULES TO THIS AGREEMENT
A. The Company
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust; Investment
Advisers
D. Contracts of the Company
E. Other Portfolios Available under the Contracts
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
1. PARTIES AND PURPOSE
This agreement (the "Agreement") is between certain portfolios,
specified below and in Schedule C, of Franklin Xxxxxxxxx Variable Insurance
Products Trust, an open-end management investment company organized as a
business trust under Massachusetts law (the "Trust"), Franklin Xxxxxxxxx
Distributors, Inc., a California corporation which is the principal
underwriter for the Trust (the "Underwriter," and together with the Trust,
"we" or "us") and the insurance company identified on Schedule a ("you"), on
your own behalf and on behalf of each segregated asset account maintained by
you that is listed on Schedule B, as that schedule may be amended from time
to time ("Account" or "Accounts").
The purpose of this Agreement is to entitle you, on behalf of the
Accounts, to purchase the shares, and classes of shares, of portfolios of the
Trust ("Portfolios") that are identified on Schedule C, solely for the
purpose of funding benefits of your variable life insurance policies or
variable annuity contracts ("Contracts") that are identified on Schedule D.
This Agreement does not authorize any other purchases or redemptions of
shares of the Trust.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES BY YOU
You represent and warrant that:
2.1.1 You are an insurance company duly organized and in good
standing under the laws of your state of incorporation.
2.1.2 All of your directors, officers, employees, and other
individuals or entities dealing with the money and/or securities of the Trust
are and shall be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust, in an amount not less than $5 million.
Such bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. You agree to make all reasonable
efforts to see that this bond or another bond containing such provisions is
always in effect, and you agree to notify us in the event that such coverage
no longer applies.
2.1.3 Each Account is a duly organized, validly existing
segregated asset account under applicable insurance law and interests in each
Account are offered exclusively through the purchase of or transfer into a
"variable contract" within the meaning of such terms under Section 817 of the
Internal Revenue Code of 1986, as amended ("Code") and the regulations
thereunder. You will use your best efforts to continue to meet such
definitional requirements, and will notify us immediately upon having a
reasonable basis for believing that such requirements have ceased to be met
or that they might not be met in the future.
2.1.4 Each Account either: (i) has been registered or, prior to
any issuance or sale of the Contracts, will be registered as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act"); or
(ii) has not been so registered in proper reliance upon an exemption from
registration under Section 3(c) of the 1940 Act; if the Account is exempt
from registration as an investment company under Section 3(c) of the 1940
Act, you will use your best efforts to maintain such exemption and will
notify us immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
2.1.5 The Contracts or interests in the Accounts: (i) are or,
prior to any issuance or sale will be, registered as securities under the
Securities Act of 1933, as amended (the "1933 Act"); or (ii) are not
registered because they are properly exempt from registration under Section
3(a)(2) of the 1933 Act or will be offered exclusively in transactions that
are properly exempt from registration under Section 4(2) or Regulation D of
the 1933 Act, in which case you will make every effort to maintain such
exemption and will notify us immediately upon having a reasonable basis for
believing that such exemption no longer applies or might not apply in the
future.
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2.1.6 The Contracts: (i) will be sold by broker-dealers, or
their registered representatives, who are registered with the Securities and
Exchange Commission ("SEC") under the Securities and Exchange Act of 1934, as
amended (the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and (iii) will be sold in compliance in all material respects
with state insurance suitability requirements and NASD suitability guidelines.
2.1.7 The Contracts currently are and will be treated as
annuity contracts or life insurance contracts under applicable provisions of
the Code and you will use your best efforts to maintain such treatment; you
will notify us immediately upon having a reasonable basis for believing that
any of the Contracts have ceased to be so treated or that they might not be
so treated in the future.
2.1.8 The fees and charges deducted under each Contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by you.
2.1.9 You will use shares of the Trust only for the purpose of
funding benefits of the Contracts through the Accounts.
2.1.10 Contracts will not be sold outside of the United States.
2.1.11 With respect to any Accounts which are exempt from
registration under the 1940 Act in reliance on 3(c)(1) or Section 3(c)(7)
thereof:
2.1.11.1 the principal underwriter for each such Account
and any subaccounts thereof is a registered
broker-dealer with the SEC under the 1934 Act;
2.1.11.2 the shares of the Portfolios of the Trust are and
will continue to be the only investment
securities held by the corresponding subaccounts;
and
2.1.11.3 with regard to each Portfolio, you, on behalf of
the corresponding subaccount, will:
(a) vote such shares held by it in the same
proportion as the vote of all other holders
of such shares; and
(b) refrain from substituting shares of another
security for such shares unless the SEC has
approved such substitution in the manner
provided in Section 26 of the 1940 Act.
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2.2 REPRESENTATIONS AND WARRANTIES BY THE TRUST
The Trust represents and warrants that:
2.2.1 It is duly organized and in good standing under the laws
of the State of Massachusetts.
2.2.2 All of its directors, officers, employees and others
dealing with the money and/or securities of a Portfolio are and shall be at
all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Trust in an amount not less that the minimum coverage required
by Rule 17g-1 or other regulations under the 1940 Act. Such bond shall
include coverage for larceny and embezzlement and be issued by a reputable
bonding company.
2.2.3 It is registered as an open-end management investment
company under the 0000 Xxx.
2.2.4 Each class of shares of the Portfolios of the Trust is
registered under the 0000 Xxx.
2.2.5 It will amend its registration statement under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.2.6 It will comply, in all material respects, with the 1933
and 1940 Acts and the rules and regulations thereunder.
2.2.7 It is currently qualified as a "regulated investment
company" under Subchapter M of the Code, it will make every effort to
maintain such qualification, and will notify you immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
2.2.8 The Trust will use its best efforts to comply with the
diversification requirements for variable annuity, endowment or life
insurance contracts set forth in Section 817(h) of the Code, and the rules
and regulations thereunder, including without limitation Treasury Regulation
1.817-5. Upon having a reasonable basis for believing any Portfolio has
ceased to comply and will not be able to comply within the grace period
afforded by Regulation 1.817-5, the Trust will notify you immediately and
will take all reasonable steps to adequately diversify the Portfolio to
achieve compliance.
2.2.9 It currently intends for one or more classes of shares
(each, a "Class") to make payments to finance its distribution expenses,
including service fees, pursuant to a plan ("Plan") adopted under rule 12b-1
under the 1940 Act ("Rule 12b-1"), although it may determine to discontinue
such practice in the future. To the extent that any Class of the Trust
finances its distribution expenses pursuant to a Plan adopted under rule
12b-1, the Trust undertakes to comply with any then current SEC
interpretations concerning rule 12b-1 or any successor provisions.
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2.3 REPRESENTATIONS AND WARRANTIES BY THE UNDERWRITER
The Underwriter represents and warrants that:
2.3.1 It is registered as a broker dealer with the SEC under
the 1934 Act, and is a member in good standing of the NASD.
2.3.2 Each investment adviser listed on Schedule C (each, an
"Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and any applicable state securities law.
2.4 WARRANTY AND AGREEMENT BY BOTH YOU AND US
We received an order from the SEC dated November 16, 1993 (file no.
812-8546), which was amended by a notice and an order we received on
September 17, 1999 and October 13, 1999, respectively (file no. 812-11698)
(collectively, the "Shared Funding Order," attached to this Agreement as
Schedule H). The Shared Funding Order grants exemptions from certain
provisions of the 1940 Act and the regulations thereunder to the extent
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies and qualified pension and retirement
plans outside the separate account context. You and we both warrant and agree
that both you and we will comply with the "Applicants' Conditions" prescribed
in the Shared Funding Order as though such conditions were set forth verbatim
in this Agreement, including, without limitation, the provisions regarding
potential conflicts of interest between the separate accounts which invest in
the Trust and regarding contract owner voting privileges. In order for the
Trust's Board of Trustees to perform its duty to monitor for conflicts of
interest, you agree to inform us of the occurrence of any of the events
specified in condition 2 of the Shared Funding Order to the extent that such
event may or does result in a material conflict of interest as defined in
that order.
3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
3.1 We will make shares of the Portfolios available to the Accounts
for the benefit of the Contracts. The shares will be available for purchase
at the net asset value per share next computed after we (or our agent)
receive a purchase order, as established in accordance with the provisions of
the then current prospectus of the Trust. Notwithstanding the foregoing, the
Trust's Board of Trustees ("Trustees") may refuse to sell shares of any
Portfolio to any person, or may suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the
Trustees, they deem such action to be in the best interests of the
shareholders of such Portfolio. Without limiting the foregoing, the 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
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cooperate with us to assist us in implementing the Trust's restrictions on
purchase and redemption activity that follows a market timing pattern.
3.2 We agree that shares of the Trust will be sold only to life
insurance companies which have entered into fund participation agreements
with the Trust ("Participating Insurance Companies") and their separate
accounts or to qualified pension and retirement plans in accordance with the
terms of the Shared Funding Order. No shares of any Portfolio will be sold to
the general public.
3.3 You agree that all net amounts available under the Contracts
shall be invested in the Trust or in your general account. Net amounts
available under the Contracts may also be invested in an investment company
other than the Trust if: (i) such other investment company, or series
thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of the Portfolios; or
(ii) you give us forty-five (45) days written notice of your intention to
make such other investment company available as a funding vehicle for the
Contracts; or (iii) such other investment company is available as a funding
vehicle for the Contracts at the date of this Agreement and you so inform us
prior to our signing this Agreement (a list of such investment companies
appears on Schedule E to this Agreement); or (iv) we consent in writing to
the use of such other investment company.
3.4 You shall be the designee for us for receipt of purchase orders
and requests for redemption resulting from investment in and payments under
the Contracts ("Instructions"). The Business Day on which such Instructions
are received in proper form by you and time stamped by the close of trading
will be the date as of which Portfolio shares shall be deemed purchased,
exchanged, or redeemed as a result of such Instructions. Instructions
received in proper form by you and time stamped after the close of trading on
any given Business Day shall be treated as if received on the next following
Business Day. You warrant that all orders, Instructions and confirmations
received by you which will be transmitted to us for processing on a Business
Day will have been received and time stamped prior to the Close of Trading on
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 no later than the close of business on the
next Business Day after we receive the purchase order. Payment shall be made
in federal funds transmitted by wire to the Trust or to its designated
custodian.
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3.7 We will redeem any full or fractional shares of any Portfolio,
when requested by you on behalf of an Account, at the net asset value next
computed after receipt by us (or our agent) of the request for redemption, as
established in accordance with the provisions of the then current prospectus
of the Trust. We shall make payment for such shares in the manner we
establish from time to time, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act. Payments for the purchase
or redemption of shares by you may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer
on that Business Day.
3.8 Issuance and transfer of the Portfolio shares will be by book
entry only. Stock certificates will not be issued to you or the Accounts.
Portfolio shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
3.9 We shall furnish, on or before the ex-dividend date, notice to
you of any income dividends or capital gain distributions payable on the
shares of any Portfolio. You hereby elect to receive all such income
dividends and capital gain distributions as are payable on shares of a
Portfolio in additional shares of that Portfolio, and you reserve the right
to change this election in the future. We will notify you of the number of
shares so issued as payment of such dividends and distributions.
4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS
4.1 We shall pay no fee or other compensation to you under this
Agreement except as provided on Schedule F, if attached.
4.2 We shall prepare and be responsible for filing with the SEC, and
any state regulators requiring such filing, all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the
Trust. We shall bear the costs of preparation and filing of the documents
listed in the preceding sentence, registration and qualification of the
Trust's shares of the Portfolios.
4.3 We shall use reasonable efforts to provide you, on a timely
basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as you may reasonably require, as you shall reasonably
request in connection with the preparation of disclosure documents and annual
and semi-annual reports pertaining to the Contracts.
4.4 At your request, we shall provide you with camera ready copy, in
a form suitable for printing, of a copy of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the
foregoing, pertaining specifically to the Portfolios. We shall delete
information relating to series of the Trust other than the Portfolios to the
extent practicable. We shall provide you with a copy of the Trust's current
statement of additional information, including any amendments or supplements,
in a form suitable for you to duplicate. You shall bear the costs of
furnishing these documents (including printing and mailing) to Contract
owners or others.
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4.5 We shall provide you, at our expense, with copies of any
Trust-sponsored proxy materials in such quantity as you shall reasonably
require for distribution to Contract owners who are invested in a designated
subaccount. You shall bear the costs of distributing proxy materials (or
similar materials such as voting solicitation instructions) to Contract
owners.
4.6 You assume sole responsibility for ensuring that the Trust's
prospectuses, shareholder reports and communications, and proxy materials are
delivered to Contract owners in accordance with applicable federal and state
securities laws.
5. VOTING
5.1 All Participating Insurance Companies shall have the obligations
and responsibilities regarding pass-through voting and conflicts of interest
corresponding to those contained in the Shared Funding Order.
5.2 If and to the extent required by law, you shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii)
vote Trust shares for which no instructions have been received in the same
proportion as Trust shares of such Portfolio for which instructions have been
received; so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting privileges for variable contract
owners. You reserve the right to vote Trust shares held in any Account in
your own right, to the extent permitted by law.
5.3 So long as, and to the extent that, the SEC interprets the 1940
Act to require pass-through voting privileges for Contract owners, you shall
provide pass-through voting privileges to Contract owners whose Contract
values are invested, through the Accounts, in shares of one or more
Portfolios of the Trust. We shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and you shall be
responsible for assuring that the Accounts calculate voting privileges in the
manner established by us. With respect to each Account, you will vote shares
of each Portfolio of the Trust held by an Account and for which no timely
voting instructions from Contract owners are received in the same proportion
as those shares held by that Account for which voting instructions are
received. You and your agents will in no way recommend or oppose or interfere
with the solicitation of proxies for Portfolio shares held to fund the
Contracts without our prior written consent, which consent may be withheld in
our sole discretion.
6. SALES MATERIAL, INFORMATION AND TRADEMARKS
6.1 For purposes of this Section 6, "Sales literature or other
Promotional material" includes, but is not limited to, portions of the
following that use any logo or other trademark related to the Trust, or
Underwriter or its affiliates, or refer to the Trust: advertisements (such as
material published or designed for use in a newspaper, magazine or other
periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, electronic communication or
other public media), sales literature (I.E., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts or any other advertisement, sales literature or
published article or electronic communication), educational or training
materials
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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.
6.4 We shall not give any information or make any representations or
statements on behalf of you or concerning you, the Accounts or the Contracts
other than information or representations contained in and accurately derived
from Disclosure Documents for the Contracts (as such Disclosure Documents may
be amended or supplemented from time to time), or in materials approved by
you for distribution, including Sales literature or other Promotional
materials, except as required by legal process or regulatory authorities or
with your written permission.
6.5 Except as provided in Section 6.2, you shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Xxxxxxxxx" or any logo or other trademark relating to the Trust or the
Underwriter without prior written consent, and upon termination of this
Agreement for any reason, you shall cease all use of any such name or xxxx as
soon as reasonably practicable.
6.6 You shall furnish to us ten (10) Business Days prior to its first
submission to the SEC or its staff, any request or filing for no-action
assurance or exemptive relief naming, pertaining to, or affecting, the Trust,
the Underwriter or any of the Portfolios.
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7. INDEMNIFICATION
7.1 INDEMNIFICATION BY YOU
7.1.1 You agree to indemnify and hold harmless the Underwriter,
the Trust and each of its Trustees, officers, employees and agents and each
person, if any, who controls the Trust within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" and individually the
"Indemnified Party" for purposes of this Section 7) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with your written consent, which consent shall not be unreasonably withheld)
or expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses are related
to the sale or acquisition of shares of the Trust or the Contracts and
7.1.1.1 arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in a
Disclosure Document for the Contracts or in the Contracts themselves or in
sales literature generated or approved by you on behalf of the Contracts
or Accounts (or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this Section 7), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and was accurately derived from written information furnished to you by or
on behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
7.1.1.2 arise out of or result from statements or
representations (other than statements or representations contained in and
accurately derived from Trust Documents as defined below in Section 7.2)
or wrongful conduct of you or persons under your control, with respect to
the sale or acquisition of the Contracts or Trust shares; or
7.1.1.3 arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust Documents
as defined below in Section 7.2 or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from written
information furnished to the Trust by or on behalf of you; or
7.1.1.4 arise out of or result from any failure by you to
provide the services or furnish the materials required under the terms of
this Agreement;
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7.1.1.5 arise out of or result from any material breach of
any representation and/or warranty made by you in this Agreement or arise
out of or result from any other material breach of this Agreement by you;
or
7.1.1.6 arise out of or result from a Contract failing to be
considered a life insurance policy or an annuity Contract, whichever is
appropriate, under applicable provisions of the Code thereby depriving the
Trust of its compliance with Section 817(h) of the Code.
7.1.2 You shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Trust or
Underwriter, whichever is applicable. You shall also not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified you in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to
notify you of any such claim shall not relieve you from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, you shall be entitled to
participate, at your own expense, in the defense of such action. Unless the
Indemnified Party releases you from any further obligations under this
Section 7.1, you also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from you
to such party of the your election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and you will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.1.3 The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
7.2 INDEMNIFICATION BY THE UNDERWRITER
7.2.1 The Underwriter agrees to indemnify and hold harmless you,
and each of your directors and officers and each person, if any, who controls
you within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually an "Indemnified Party" for purposes of
this Section 7.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject
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under any statute, at common law or otherwise, insofar as such Losses are
related to the sale or acquisition of the shares of the Trust or the
Contracts and:
7.2.1.1 arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the Trust (or
any amendment or supplement to any of the foregoing) (collectively, the
"Trust Documents") or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission of such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to us by or on behalf of you for use in the Registration
Statement or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Contracts or Trust shares; or
7.2.1.2 arise out of or as a result of statements or
representations (other than statements or representations contained in the
Disclosure Documents or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust shares; or
7.2.1.3 arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Disclosure Document or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to you by or on behalf of the
Trust; or
7.2.1.4 arise as a result of any failure by us to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the qualification representation specified above in Section
2.2.7 and the diversification requirements specified above in Section
2.2.8; or
7.2.1.5 arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter; as limited by and in accordance with
the provisions of Sections 7.2.2 and 7.2.3 hereof.
7.2.2 The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to you or the
Accounts, whichever is applicable.
7.2.3 The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have
12
notified the Underwriter in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Underwriter of any such claim
shall not relieve the Underwriter from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the
Indemnified Party releases the Underwriter from any further obligations under
this Section 7.2, the Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Underwriter to such party of the Underwriter's election
to assume the defense thereof, the Indemnified Party shall bear the expenses
of any additional counsel retained by it, and the Underwriter will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
7.2.4 You agree promptly to notify the Underwriter of the
commencement of any litigation or proceedings against you or the Indemnified
Parties in connection with the issuance or sale of the Contracts or the
operation of each Account.
7.3 INDEMNIFICATION BY THE TRUST
7.3.1 The Trust agrees to indemnify and hold harmless you, and
each of your directors and officers and each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Trust, which consent shall not be
unreasonably withheld) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and arise out of or
result from any material breach of any representation and/or warranty made by
the Trust in this Agreement or arise out of or result from any other material
breach of this Agreement by the Trust; as limited by and in accordance with
the provisions of Sections 7.3.2 and 7.3.3 hereof. It is understood and
expressly stipulated that neither the holders of shares of the Trust nor any
Trustee, officer, agent or employee of the Trust shall be personally liable
hereunder, nor shall any resort be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall
be liable.
7.3.2 The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against any Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to you, the Trust, the Underwriter or each Account,
whichever is applicable.
13
7.3.3 The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Trust of
any such claim shall not relieve the Trust from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. Unless the
Indemnified Party releases the Trust from any further obligations under this
Section 7.3, the Trust also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
the Trust to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.3.4 You agree promptly to notify the Trust of the
commencement of any litigation or proceedings against you or the Indemnified
Parties in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of the Account, or the sale or
acquisition of shares of the Trust.
8. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth in Schedule G
below or at such other address as such party may from time to time specify in
writing to the other party.
9. TERMINATION
9.1 This Agreement may be terminated by any party in its entirety or
with respect to one, some or all Portfolios for any reason by sixty (60) days
advance written notice delivered to the other parties. This Agreement shall
terminate immediately in the event of its assignment by any party without the
prior written approval of the other parties, or as otherwise required by law.
9.2 This Agreement may be terminated immediately by us upon written
notice to you if:
9.2.1 you notify the Trust or the Underwriter that the exemption
from registration under Section 3(c) of the 1940 Act no longer applies, or
might not apply in the future, to the unregistered Accounts, or that the
exemption from registration under Section 4(2) or Regulation D promulgated
under the 1933 Act no longer applies or might not apply in the future, to
interests under the unregistered Contracts; or
9.2.2 either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that you have suffered a material
14
adverse change in your business, operations, financial condition or
prospects since the date of this Agreement or are the subject of material
adverse publicity; or
9.2.3 you give us the written notice specified above in Section
3.3 and at the same time you give us such notice there was no notice of
termination outstanding under any other provision of this Agreement;
provided, however, that any termination under this Section 9.2.3 shall be
effective forty-five (45) days after the notice specified in Section 3.3
was given.
9.3 If this Agreement is terminated for any reason, except as
required by the Shared Funding Order or pursuant to Section 9.2.1, above, we
shall, at your option, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to all of the terms and
conditions of this Agreement for all Contracts in effect on the effective
date of termination of this Agreement. If this Agreement is terminated as
required by the Shared Funding Order, its provisions shall govern.
9.4 The provisions of Sections 2 (Representations and Warranties) and
7 (Indemnification) shall survive the termination of this Agreement. All
other applicable provisions of this Agreement shall survive the termination
of this Agreement, as long as shares of the Trust are held on behalf of
Contract owners in accordance with Section 9.3, except that we shall have no
further obligation to sell Trust shares with respect to Contracts issued
after termination.
9.5 You shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to your assets held in the Account)
except: (i) as necessary to implement Contract owner initiated or approved
transactions; (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter
referred to as a "Legally Required Redemption"); or (iii) as permitted by an
order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request, you
shall promptly furnish to us the opinion of your counsel (which counsel shall
be reasonably satisfactory to us) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, you shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving us ninety (90) days notice
of your intention to do so.
10. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions of
this Agreement or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
15
10.4 This Agreement shall be construed and its provisions interpreted
under and in accordance with the laws of the State of California. It shall also
be subject to the provisions of the federal securities laws and the rules and
regulations thereunder, to any orders of the SEC on behalf of the Trust granting
it exemptive relief, and to the conditions of such orders. We shall promptly
forward copies of any such orders to you.
10.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
10.6 The parties to this Agreement agree that the assets and liabilities
of each Portfolio of the Trust are separate and distinct from the assets and
liabilities of each other Portfolio. No Portfolio shall be liable or shall be
charged for any debt, obligation or liability of any other Portfolio.
10.7 Each party to this Agreement shall cooperate with each other party
and all appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
10.8 Each party to this Agreement shall treat as confidential all
information reasonably identified as confidential in writing by any other party
to this Agreement, and, except as permitted by this Agreement or as required by
legal process or regulatory authorities, shall not disclose, disseminate, or use
such names and addresses and other confidential information until such time as
they may come into the public domain, without the express written consent of the
affected party to this Agreement. Without limiting the foregoing, no party to
this Agreement shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
10.9 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties to this Agreement are entitled to under
state and federal laws.
10.10 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided above in
Section 3.3.
10.11 Neither this Agreement nor any rights or obligations created by it
may be assigned by any party without the prior written approval of the other
parties.
10.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
16
IN WITNESS WHEREOF, each of the parties have caused their duly authorized
officers to execute this Agreement.
The Company: SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By: /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
-------------------------------------------
Title: Product Officer
----------------------------------------
The Trust: FRANKLIN XXXXXXXXX VARIABLE INSURANCE PRODUCTS TRUST
ONLY ON BEHALF OF
EACH PORTFOLIO
LISTED ON SCHEDULE
C HEREOF.
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Assistant Vice President
The Underwriter: FRANKLIN XXXXXXXXX DISTRIBUTORS, INC.
By: /s/ X. X. Xxxxxx
-----------------------------------------------
Name: Xxxx X. Xxxxxx
Title:
17
SCHEDULE A
THE COMPANY
Sun Life Assurance Company of Canada (U.S.)
1 Sun Life Executive Park, SC 1145
Xxxxxxxxx Xxxxx, Xxxxxxxxxxxxx 00000
A life insurance company organized as a corporation under Delaware law.
18
SCHEDULE B
ACCOUNTS OF THE COMPANY
1. Name: Separate Account G
Date Established: July 1996
SEC Registration Number: 811-07837
19
SCHEDULE C
AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS
Franklin Xxxxxxxxx Variable Insurance Products Trust Investment Adviser
---------------------------------------------------- ------------------
Templeton Growth Securities Fund Xxxxxxxxx Global Advisors Limited
20
SCHEDULE D
CONTRACTS OF THE COMPANY
-------------------------------------------------------------------------------------
CONTRACT 1 CONTRACT 2 CONTRACT 3
-------------------------------------------------------------------------------------
CONTRACT/PRODUCT Sun Life Corporate
NAME VUL
-------------------------------------------------------------------------------------
REGISTERED (Y/N) Yes
-------------------------------------------------------------------------------------
SEC REGISTRATION 333-13087
NUMBER
-------------------------------------------------------------------------------------
REPRESENTATIVE VUL-COLI-97
FORM NUMBERS
-------------------------------------------------------------------------------------
SEPARATE ACCOUNT Separate Account G /
NAME/DATE July 1996
ESTABLISHED
-------------------------------------------------------------------------------------
SEC REGISTRATION 811-07837
NUMBER
-------------------------------------------------------------------------------------
PORTFOLIOS AND Templeton Growth
CLASSES-ADVISER Securities Fund
Class 1 - Xxxxxxxxx
Global Advisors
Limited
-------------------------------------------------------------------------------------
21
SCHEDULE E
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
Dreyfus VIF Appreciation Portfolio
Dreyfus VIF Growth and Income Portfolio
Dreyfus VIF Quality Bond Portfolio
Dreyfus VIF Small Cap Portfolio
Dreyfus Stock Index Fund
Fidelity VIP Equity-Income Fund
Fidelity VIP High Income Portfolio
Fidelity VIP II Asset Manager: Growth Portfolio
Fidelity VIP II Contrafund Portfolio
X.X. Xxxxxx Bond Portfolio
X.X. Xxxxxx U.S. Disciplined Equity Portfolio
X.X. Xxxxxx Small Company Portfolio
MFS/Sun Life Series Trust
Capital Appreciation Series
MFS/Sun Life Series Trust
Emerging Growth Series
MFS/Sun Life Series Trust
Global Growth Series
MFS/Sun Life Series Trust
Government Securities Series
MFS/Sun Life Series Trust
Massachusetts Investors Trust Series
MFS/Sun Life Series Trust
Massachusetts Investors Growth Stock
Series
MFS/Sun Life Series Trust
Money Market Series
MFS/Sun Life Series Trust
Research Series
MFS/Sun Life Series Trust
Total Return Series
MFS/Sun Life Series Trust
Utilities Series
Xxxxxxxxx Xxxxxx AMT
Limited Maturity Bond Portfolio
Xxxxxxxxx Xxxxxx AMT
Mid-Cap Growth Portfolio
Xxxxxxxxx Xxxxxx AMT Partners Portfolio
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
X. Xxxx Price Equity Income Portfolio
X. Xxxx Price
New America Growth Portfolio
22
SCHEDULE F
23
SCHEDULE G
ADDRESSES FOR NOTICES
To the Company: Sun Life Assurance Company of Canada (U.S.)
1 Sun Life Executive Park, SC 1145
Xxxxxxxxx Xxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx, FSA
To the Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Vice President
To the Underwriter: Franklin Xxxxxxxxx Distributors, Inc.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
24
SCHEDULE H
SHARED FUNDING ORDER
Templeton Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24018
1999 SEC LEXIS 1887
September 17, 1999
ACTION: Notice of application for an amended order of exemption pursuant to
Section 6(c) of the Investment Company Act of 1940 (the "1940 Act") from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
TEXT: Summary of Application: Templeton Variable Products Series Fund (the
"Templeton Trust"), Franklin Xxxxxxxxx Variable Insurance Products Trust
(formerly Franklin Valuemark Funds) (the "VIP Trust," and together with the
Templeton Trust, the "Funds"), Xxxxxxxxx Funds Annuity Company ("TFAC") or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor ("Future Funds") seek an amended
order of the Commission to (1) add as parties to that order the VIP Trust and
any Future Funds and (2) permit shares of the Funds and Future Funds to be
issued to and held by qualified pension and retirement plans outside the
separate account context.
Applicants: Templeton Variable Products Series Fund, Franklin Xxxxxxxxx
Variable Insurance Products Trust, Xxxxxxxxx Funds Annuity Company or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor (collectively, the "Applicants").
Filing Date: The application was filed on July 14, 1999, and amended and
restated on September 17, 1999.
Hearing or Notification of Hearing: An order granting the application will be
issued unless the Commission orders a hearing. Interested persons may request a
hearing by writing to the Secretary of the Commission and serving Applicants
with a copy of the request, personally or by mail. Hearing requests should be
received by the Commission by 5:30 p.m., on October 12, 1999, and should be
accompanied by proof of service on the Applicants in the form of an affidavit
or, for
25
lawyers, a certificate of service. Hearing requests should state the nature of
the writer's interest, the reason for the request, and the issues contested.
Persons who wish to be notified of a hearing may request notification by writing
to the Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 000 Xxxxx Xxxxxx,
XX, Xxxxxxxxxx, X.X. 00000-0000.
Applicants: Templeton Variable Products Series Fund and Franklin Xxxxxxxxx
Variable Insurance Products Trust, 000 Xxxxxxxx Xxxxxx Xxxxxxxxx, Xxx Xxxxx,
Xxxxxxxxxx 00000, Attn: Xxxxx X. Xxxxxxxx, Esq.
For Further Information Contact: Xxxxx X. XxXxxxx, Senior Counsel, or Xxxxx
X. Xxxxx, Branch Chief, Office of Insurance Products, Division of Investment
Management, at (000) 000-0000.
Supplementary Information: The following is a summary of the application. The
complete application is available for a fee from the SEC's Public Reference
Branch, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000 (tel. (202)
000-0000).
Applicants' Representations:
1. Each of the Funds is registered under the 1940 Act as an open-end
management investment company and was organized as a Massachusetts business
trust. The Templeton Trust currently consists of eight separate series, and the
VIP Trust consists of twenty-five separate series. Each Fund's Declaration of
Trust permits the Trustees to create additional series of shares at any time.
The Funds currently serve as the underlying investment medium for variable
annuity contracts and variable life insurance policies issued by various
insurance companies. The Funds have entered into investment management
agreements with certain investment managers ("Investment Managers") directly or
indirectly owned by Franklin Resources, Inc. ("Resources"), a publicly owned
company engaged in the financial services industry through its subsidiaries.
2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is the
sole insurance company in the Franklin Xxxxxxxxx organization, and specializes
in the writing of variable annuity contracts. The Templeton Trust has entered
into a Fund Administration Agreement with Franklin Xxxxxxxxx Services, Inc. ("FT
Services"), which replaced TFAC in 1998 as administrator, and FT Services
subcontracts certain services to TFAC. FT Services also serves as administrator
to all series of the VIP Trust. TFAC and FT Services provide certain
administrative facilities and services for the VIP and Templeton Trusts.
3. On November 16, 1993, the Commission issued an order granting exemptive
relief to permit shares of the Templeton Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (Investment Company Act
Release No. 19879, File No. 812-8546) (the "Original Order"). Applicants
incorporate by reference into the application the Application for the Original
Order and each amendment thereto, the Notice of Application for the Original
Order, and the Original Order, to the extent necessary, to supplement the
representations made in the application in support of the requested relief.
Applicants
26
represent that all of the facts asserted in the Application for the Original
Order and any amendments thereto remain true and accurate in all material
respects to the extent that such facts are relevant to any relief on which
Applicants continue to rely. The Original Order allows the Templeton Trust to
offer its shares to insurance companies as the investment vehicle for their
separate accounts supporting variable annuity contracts and variable life
insurance contracts (collectively, the "Variable Contracts"). Applicants state
that the Original Order does not (i) include the VIP Trust or Future Funds as
parties, nor (ii) expressly address the sale of shares of the Funds or any
Future Funds to qualified pension and retirement plans outside the separate
account context including, without limitation, those trusts, plans, accounts,
contracts or annuities described in Sections 401(a), 403(a), 403(b), 408(b),
408(k), 414(d), 457(b), 501(c)(18) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any other trust, plan, contract, account or annuity
that is determined to be within the scope of Treasury Regulation
1.817.5(f)(3)(iii) ("Qualified Plans").
4. Separate accounts owning shares of the Funds and their insurance company
depositors are referred to in the application as "Participating Separate
Accounts" and "Participating Insurance Companies," respectively. The use of a
common management investment company as the underlying investment medium for
both variable annuity and variable life insurance separate accounts of a single
insurance company (or of two or more affiliated insurance companies) is referred
to as "mixed funding." The use of a common management investment company as the
underlying investment medium for variable annuity and/or variable life insurance
separate accounts of unaffiliated insurance companies is referred to as "shared
funding."
Applicants' Legal Analysis:
1. Applicants request that the Commission issue an amended order pursuant to
Section 6(c) of the 1940 Act, adding the VIP Trust and Future Funds to the
Original Order and exempting scheduled premium variable life insurance separate
accounts and flexible premium variable life insurance separate accounts of
Participating Insurance Companies (and, to the extent necessary, any principal
underwriter and depositor of such an account) and the Applicants from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) (and any comparable rule) thereunder, respectively, to the extent
necessary to permit shares of the Funds and any Future Funds to be sold to and
held by Qualified Plans. Applicants submit that the exemptions requested are
appropriate in the public interest, consistent with the protection of investors,
and consistent with the purposes fairly intended by the policy and provisions of
the 1940 Act.
2. The Original Order does not include the VIP Trust or Future Funds as
parties nor expressly address the sale of shares of the Funds or any Future
Funds to Qualified Plans. Applicants propose that the VIP Trust and Future Funds
be added as parties to the Original Order and the Funds and any Future Funds be
permitted to offer and sell their shares to Qualified Plans.
3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by
order upon application, may conditionally or unconditionally exempt any person,
security or transaction, or any class or classes of persons, securities or
transactions from any provisions of the 1940 Act or the rules or regulations
thereunder, if and to the extent that such exemption is necessary or appropriate
in the
27
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 Xxxxxxxxx Trust exemptive relief to permit
mixed and shared funding, but did not expressly address the sale of its shares
to Qualified Plans.
7. Applicants note that if the Funds were to sell their shares only to
Qualified Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be
necessary. Applicants state that the relief provided for under Rule 6e-2(b)(15)
and Rule 6e-3(T)(b)(15) does not relate to qualified pension and retirement
plans or to a registered investment company's ability to sell its shares to such
plans.
8. Applicants state that changes in the federal tax law have created the
opportunity for each of the Funds to increase its asset base through the sale of
its shares to Qualified Plans. Applicants state that Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
diversification standards on the assets underlying Variable Contracts. Treasury
Regulations
28
generally require that, to meet the diversification requirements, all of the
beneficial interests in the underlying investment company must be held by the
segregated asset accounts of one or more life insurance companies.
Notwithstanding this, Applicants note that the Treasury Regulations also contain
an exception to this requirement that permits trustees of a Qualified Plan to
hold shares of an investment company, the shares of which are also held by
insurance company segregated asset accounts, without adversely affecting the
status of the investment company as an adequately diversified underlying
investment of Variable Contracts issued through such segregated asset accounts
(Treas. Reg. 1.817-5(f)(3)(iii)).
9. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) under the 1940 Act preceded the issuance of these Treasury
Regulations. Thus, Applicants assert that the sale of shares of the same
investment company to both separate accounts and Qualified Plans was not
contemplated at the time of the adoption of Rules 6e-2(b)(15) and
6e-3(T)(b)(15).
10. Section 9(a) provides that it is unlawful for any company to serve as
investment adviser or principal underwriter of any registered open-end
investment company if an affiliated person of that company is subject to a
disqualification enumerated in Section 9(a)(1) or (2). Rules 6e-2(b)(15) and
6e-3(T)(b)(15) provide exemptions from Section 9(a) under certain circumstances,
subject to the limitations on mixed and shared funding. These exemptions limit
the application of the eligibility restrictions to affiliated individuals or
companies that directly participate in the management of the underlying
portfolio investment company.
11. Applicants state that the relief granted in Rule 6e-2(b)(15) and
6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the amount
of monitoring of an insurer's personnel that would otherwise be necessary to
ensure compliance with Section 9 to that which is appropriate in light of the
policy and purposes of Section 9. Applicants submit that those Rules recognize
that it is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the provisions of
Section 9(a) to the many individuals involved in an insurance company complex,
most of whom typically will have no involvement in matters pertaining to
investment companies funding the separate accounts.
12. Applicants to the Original Order previously requested and received relief
from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the extent
necessary to permit mixed and shared funding. Applicants maintain that the
relief previously granted from Section 9(a) will in no way be affected by the
proposed sale of shares of the Funds to Qualified Plans. Those individuals who
participate in the management or administration of the Funds will remain the
same regardless of which Qualified Plans use such Funds. Applicants maintain
that more broadly applying the requirements of Section 9(a) because of
investment by Qualified Plans would not serve any regulatory purpose. Moreover,
Qualified Plans, unlike separate accounts, are not themselves investment
companies and therefore are not subject to Section 9 of the 1940 Act.
13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting instructions of its
29
contractowners with respect to the investments of an underlying fund or any
contract between a fund and its investment adviser, when required to do so by an
insurance regulatory authority (subject to the provisions of paragraphs
(b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules 6e-2(b)(15)(iii)(B) and
6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contractowners' voting instructions if the contractowners initiate any change in
such company's investment policies, principal underwriter, or any investment
adviser (provided that disregarding such voting instructions is reasonable and
subject to the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and
(C) of the Rules).
14. Applicants assert that Qualified Plans, which are not registered as
investment companies under the 1940 Act, have no requirement to pass-through the
voting rights to plan participants. Applicants state that applicable law
expressly reserves voting rights to certain specified persons. Under Section
403(a) of the Employment Retirement Income Security Act ("ERISA"), shares of a
fund sold to a Qualified Plan must be held by the trustees of the Qualified
Plan. Section 403(a) also provides that the trustee(s) must have exclusive
authority and discretion to manage and control the Qualified Plan with two
exceptions: (1) when the Qualified Plan expressly provides that the trustee(s)
are subject to the direction of a named fiduciary who is not a trustee, in which
case the trustees are subject to proper directions made in accordance with the
terms of the Qualified Plan and not contrary to ERISA; and (2) when the
authority to manage, acquire or dispose of assets of the Qualified Plan is
delegated to one or more investment managers pursuant to Section 402(c)(3) of
ERISA. Unless one of the two above exceptions stated in Section 403(a) applies,
Qualified Plan trustees have the exclusive authority and responsibility for
voting proxies. Where a named fiduciary to a Qualified Plan appoints an
investment manager, the investment manager has the responsibility to vote the
shares held unless the right to vote such shares is reserved to the trustees or
the named fiduciary. Where a Qualified Plan does not provide participants with
the right to give voting instructions, Applicants do not see any potential for
material irreconcilable conflicts of interest between or among variable contract
holders and Qualified Plan investors with respect to voting of the respective
Fund's shares. Accordingly, Applicants state that, unlike the case with
insurance company separate accounts, the issue of the resolution of material
irreconcilable conflicts with respect to voting is not present with respect to
such Qualified Plans since the Qualified Plans are not entitled to pass-through
voting privileges.
15. Even if a Qualified Plan were to hold a controlling interest in one of
the Funds, Applicants believe that such control would not disadvantage other
investors in such Fund to any greater extent than is the case when any
institutional shareholder holds a majority of the voting securities of any
open-end management investment company. In this regard, Applicants submit that
investment in a Fund by a Qualified Plan will not create any of the voting
complications occasioned by mixed funding or shared funding. Unlike mixed or
shared funding, Qualified Plan investor voting rights cannot be frustrated by
veto rights of insurers or state regulators.
16. Applicants state that some of the Qualified Plans, however, may provide
for the trustee(s), an investment adviser (or advisers), or another named
fiduciary to exercise voting rights in accordance with instructions from
participants. Where a Qualified Plan provides participants with the right to
give voting instructions, Applicants see no reason to believe that participants
in Qualified Plans generally or those in a particular Qualified Plan, either as
a single group or in combination with
30
participants in other Qualified Plans, would vote in a manner that would
disadvantage Variable Contract holders. In sum, Applicants maintain that the
purchase of shares of the Funds by Qualified Plans that provide voting rights
does not present any complications not otherwise occasioned by mixed or shared
funding.
17. Applicants do not believe that the sale of the shares of the Funds to
Qualified Plans will increase the potential for material irreconcilable
conflicts of interest between or among different types of investors. In
particular, Applicants see very little potential for such conflicts beyond that
which would otherwise exist between variable annuity and variable life insurance
contractowners.
18. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable contracts held in
an underlying mutual fund. The Code provides that a variable contract shall not
be treated as an annuity contract or life insurance, as applicable, for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the Treasury Department, adequately
diversified.
19. Treasury Department Regulations issued under Section 817(h) provide that,
in order to meet the statutory diversification requirements, all of the
beneficial interests in the investment company must be held by the segregated
asset accounts of one or more insurance companies. However, the Regulations
contain certain exceptions to this requirement, one of which allows shares in an
underlying mutual fund to be held by the trustees of a qualified pension or
retirement plan without adversely affecting the ability of shares in the
underlying fund also to be held by separate accounts of insurance companies in
connection with their variable contracts (Treas. Reg. 1.817-5(f)(3)(iii)). Thus,
Applicants believe that the Treasury Regulations specifically permit "qualified
pension or retirement plans" and separate accounts to invest in the same
underlying fund. For this reason, Applicants have concluded that neither the
Code nor the Treasury Regulations or revenue rulings thereunder presents any
inherent conflict of interest.
20. Applicants note that while there are differences in the manner in which
distributions from Variable Contracts and Qualified Plans are taxed, these
differences will have no impact on the Funds. When distributions are to be made,
and a Separate Account or Qualified Plan is unable to net purchase payments to
make the distributions, the Separate Account and Qualified Plan will redeem
shares of the Funds at their respective net asset value in conformity with Rule
22c-1 under the 1940 Act (without the imposition of any sales charge) to provide
proceeds to meet distribution needs. A Qualified Plan will make distributions in
accordance with the terms of the Qualified Plan.
21. Applicants maintain that it is possible to provide an equitable means of
giving voting rights to Participating Separate Account contractowners and to
Qualified Plans. In connection with any meeting of shareholders, the Funds will
inform each shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the meeting, including their
respective share of ownership in the relevant Fund. Each Participating Insurance
Company will then solicit voting instructions in accordance with Rules 6e-2 and
6e-3(T), as applicable, and its participation agreement with the relevant Fund.
Shares held by Qualified Plans will be voted in accordance with applicable law.
The voting rights provided to Qualified Plans with respect to shares
31
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.
32
Applicants' Conditions:
If the requested amended order is granted, Applicants consent to the
following conditions:
1. A majority of the Board of each Fund shall consist of persons who are not
"interested persons" thereof, as defined by Section 2(a)(19) of the 1940 Act,
and the rules thereunder and as modified by any applicable orders of the
Commission, except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any Board Member or Members, then
the operation of this condition shall be suspended: (a) for a period of 45 days
if the vacancy or vacancies may be filled by the remaining Board Members; (b)
for a period of 60 days if a vote of shareholders is required to fill the
vacancy or vacancies; or (c) for such longer period as the Commission may
prescribe by order upon application.
2. The Board will monitor their respective Fund for the existence of any
material irreconcilable conflict among the interests of the Variable Contract
owners of all Separate Accounts investing in the Funds and of the Qualified Plan
participants investing in the Funds. The Board will determine what action, if
any, shall be taken in response to such conflicts. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Funds are being managed; (e) a difference in voting
instructions given by variable annuity contract owners, variable life insurance
contract owners, and trustees of Qualified Plans; (f) a decision by an insurer
to disregard the voting instructions of Variable Contract owners; or (g) if
applicable, a decision by a Qualified Plan to disregard the voting instructions
of Qualified Plan participants.
3. Participating Insurance Companies, the Investment Managers, and any
Qualified Plan that executes a fund participation agreement upon becoming an
owner of 10 percent or more of the assets of an Fund (a "Participating
Qualified Plan"), will report any potential or existing conflicts of which it
becomes aware to the Board of any relevant Fund. Participating Insurance
Companies, the Investment Managers and the Participating Qualified Plans will
be responsible for assisting the Board in carrying out its responsibilities
under these conditions by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This responsibility
includes, but is not limited to, an obligation by each Participating Insurance
Company to inform the Board whenever voting instructions of Contract owners are
disregarded and, if pass-through voting is applicable, an obligation by each
Participating Qualified Plan to inform the Board whenever it has determined to
disregard Qualified Plan participant voting instructions. The responsibility to
report such information and conflicts, and to assist the Board, will be
contractual obligations of all Participating Insurance Companies investing in
the Funds under their agreements governing participation in the Funds, and such
agreements shall provide that these responsibilities will be carried out with a
view only to the interests of the Variable Contract owners. The responsibility
to report such information and conflicts, and to assist the Board, will be
contractual obligations of all Participating Qualified Plans under their
agreements governing participation in the Funds, and such
33
agreements will provide that their responsibilities will be carried out with a
view only to the interests of Qualified Plan participants.
4. If it is determined by a majority of the Board of a Fund, or by a majority
of the disinterested Board Members, that a material irreconcilable conflict
exists, the relevant Participating Insurance Companies and Participating
Qualified Plans will, at their own expense and to the extent reasonably
practicable as determined by a majority of the disinterested Board Members, take
whatever steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps could include: (a) in the case of Participating Insurance
Companies, withdrawing the assets allocable to some or all of the Separate
Account s from the Fund or any portfolio thereof and reinvesting such assets in
a different investment medium, including another portfolio of an Fund or another
Fund, or submitting the question as to whether such segregation should be
implemented to a vote of all affected Variable Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contract owners or variable life insurance contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; (b) in the case of Participating Qualified Plans, withdrawing the assets
allocable to some or all of the Qualified Plans from the Fund and reinvesting
such assets in a different investment medium; and (c) establishing a new
registered management investment company or managed Separate Account. If a
material irreconcilable conflict arises because of a decision by a Participating
Insurance Company to disregard Variable Contract owner voting instructions, and
that decision represents a minority position or would preclude a majority vote,
then the insurer may be required, at the Fund's election, to withdraw the
insurer's Separate Account investment in such Fund, and no charge or penalty
will be imposed as a result of such withdrawal. If a material irreconcilable
conflict arises because of a Participating Qualified Plan's decision to
disregard Qualified Plan participant voting instructions, if applicable, and
that decision represents minority position or would preclude a majority vote,
the Participating Qualified Plan may be required, at the Fund's election, to
withdraw its investment in such Fund, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take remedial action in
the event of a determination by a Board of a material irreconcilable conflict
and to bear the cost of such remedial action will be a contractual obligation of
all Participating Insurance Companies and Participating Qualified Plans under
their agreements governing participation in the Funds, and these
responsibilities will be carried out with a view only to the interest of
Variable Contract owners and Qualified Plan participants.
5. For purposes of Condition 4, a majority of the disinterested Board Members
of the applicable Board will determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the relevant Fund or the Investment Managers be required to establish a new
funding medium for any Contract. No Participating Insurance Company shall be
required by Condition 4 to establish a new funding medium for any Variable
Contract if any offer to do so has been declined by vote of a majority of the
Variable Contract owners materially and adversely affected by the material
irreconcilable conflict. Further, no Participating Qualified Plan shall be
required by Condition 4 to establish a new funding medium for any Participating
Qualified Plan if (a) a majority of Qualified Plan participants materially and
adversely affected by the irreconcilable material conflict vote to decline such
offer, or (b) pursuant to governing Qualified
34
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
35
the Commission may interpret Section 16 of the 1940 Act not to require such
meetings) or comply with Section 16(c) of the 1940 Act, although the Funds are
not the type of trust described in Section 16(c) of the 1940 Act, as well as
with Section 16(a) of the 1940 Act and, if and when applicable, Section 16(b) of
the 1940 Act. Further, each Fund will act in accordance with the Commission's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of Board Members and with whatever rules the Commission may promulgate
with respect thereto.
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is amended,
or proposed Rule 6e-3 under the 1940 Act is adopted, to provide exemptive relief
from any provision of the 1940 Act or the rules promulgated thereunder, with
respect to mixed or shared funding on terms and conditions materially different
from any exemptions granted in the order requested in the application, then the
Funds and/or Participating Insurance Companies and Participating Qualified
Plans, as appropriate, shall take such steps as may be necessary to comply with
such Rules 6e-2 and 6e-3(T), as amended, or proposed Rule 6e-3, as adopted, to
the extent that such Rules are applicable.
12. The Participating Insurance Companies and Participating Qualified Plans
and/or the Investment Managers, at least annually, will submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out obligations imposed upon it by the conditions contained in
the application. Such reports, materials and data will be submitted more
frequently if deemed appropriate by the Board. The obligations of the
Participating Insurance Companies and Participating Qualified Plans to provide
these reports, materials and data to the Board, when the Board so reasonably
requests, shall be a contractual obligation of all Participating Insurance
Companies and Participating Qualified Plans under their agreements governing
participation in the Funds.
13. If a Qualified Plan should ever become a holder of ten percent or more of
the assets of a Fund, such Qualified Plan will execute a participation agreement
with the Fund that includes the conditions set forth herein to the extent
applicable. A Qualified Plan will execute an application containing an
acknowledgment of this condition upon such Qualified Plan's initial purchase of
the shares of any Fund.
Conclusion:
Applicants assert that, for the reasons summarized above, the requested
exemptions are appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy and
provisions of the 1940 Act.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
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)(15). The prior order (Rel. No. IC-19879)
granted exemptive relief to permit shares of the Xxxxxxxxx Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies. The proposed relief
would amend the prior order to add as parties to that order the VIP Trust and
any Future Funds and to permit shares of the Xxxxxxxxx Trust, the VIP Trust, and
Future Funds to be issued to and held by qualified pension and retirement plans
outside the separate account context.
A notice of the filing of the application was issued on September 17, 1999
(Rel. No. IC-24018). The notice gave interested persons an opportunity to
request a hearing and stated that an order granting the application would be
issued unless a hearing should be ordered. No request for a hearing has been
filed, and the Commission has not ordered a hearing.
The matter has been considered, and it is found that granting the requested
exemptions is appropriate in the public interest and consistent with the
protection of investors and the purposes intended by the policy and provisions
of the 1940 Act.
Accordingly,
IT IS ORDERED, pursuant to Section 6(c) of the 1940 Act, that the requested
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, be, and hereby are, granted,
effective forthwith.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
38
