PARTICIPATION AGREEMENT
as of September 7, 2001
Franklin Xxxxxxxxx Variable Insurance Products Trust
Franklin Xxxxxxxxx Distributors, Inc.
EquiTrust Life Insurance Company
CONTENTS
SECTION SUBJECT MATTER
1. Parties and Purpose
2. Representations and Warranties
3. Purchase and Redemption of Trust Portfolio Shares
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
5. Voting
6. Sales Material, Information and Trademarks
7. Indemnification
8. Notices
9. Termination
10. Miscellaneous
SCHEDULES TO THIS AGREEMENT
A. The Company
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust;
Investment Advisers
D. Contracts of the Company
E. This schedule not used.
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
1. PARTIES AND PURPOSE
This agreement (the "Agreement") is between certain portfolios,
specified below and in Schedule C, of Franklin Xxxxxxxxx Variable Insurance
Products Trust, an open-end management investment company organized as a
business trust under Massachusetts law (the "Trust"), Franklin Xxxxxxxxx
Distributors, Inc., a California corporation which is the principal underwriter
for the Trust (the "Underwriter," and together with the Trust, "we" or "us") and
the insurance company identified on Schedule A ("you"), 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 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
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maintain such exemption and will notify us immediately upon having a reasonable
basis for believing that such exemption no longer applies or might not apply in
the future.
2.1.6 The Contracts: (i) will be sold by broker-dealers, or
their registered representatives, who are registered with the Securities and
Exchange Commission ("SEC") under the Securities and Exchange Act of 1934, as
amended (the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and (iii) will be sold in compliance in all material respects with
state insurance suitability requirements and NASD suitability guidelines.
2.1.7 Subject to the Trust's compliance with applicable
diversification requirements, 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
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(b) refrain from substituting
shares of another security for
such shares unless the SEC has
approved such substitution in
the manner provided in Section
26 of the 1940 Act, if
required by the 0000 Xxx.
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 does and 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 comply with the diversification
requirements for variable annuity, endowment or life insurance contracts set
forth in Section 817(h) of the Code, and the rules and regulations thereunder,
including without limitation Treasury Regulation 1.817-5. Upon having a
reasonable basis for believing any Portfolio has ceased to comply and will not
be able to comply within the grace period afforded by Regulation 1.817-5, the
Trust will notify you immediately and will take all reasonable steps to
adequately diversify the Portfolio to achieve compliance.
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2.2.9 It currently intends for one or more classes of shares
(each, a "Class") to make payments to finance its distribution expenses,
including service fees, pursuant to a plan ("Plan") adopted under rule 12b-1
under the 1940 Act ("Rule 12b-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.
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.
2.3.3 It is duly organized and in good standing under the laws
of the State of California.
2.3.4 It will sell and distribute the Trust's shares in
accordance with all applicable federal securities laws.
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.
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3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
3.1 We will make shares of the Portfolios available to the Accounts for
the benefit of the Contracts. The shares will be available for purchase at the
net asset value per share next computed after we (or our agent) receive a
purchase order, as established in accordance with the provisions of the then
current prospectus of the Trust. Notwithstanding the foregoing, the Trust's
Board of Trustees ("Trustees") may refuse to sell shares of any Portfolio to any
person, or may suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or if, in the sole discretion of the Trustees, they deem such action to be in
the best interests of the shareholders of such Portfolio. Without limiting the
foregoing, the Trustees have determined that there is a significant risk that
the Trust and its shareholders may be adversely affected by investors whose
purchase and redemption activity follows a market timing pattern, and have
authorized the Trust, the Underwriter and the Trust's transfer agent to adopt
procedures and take other action (including, without limitation, rejecting
specific purchase orders) as they deem necessary to reduce, discourage or
eliminate market timing activity. You agree to cooperate with us to assist us in
implementing the Trust's restrictions on purchase and redemption activity that
follows a market timing pattern.
3.2 We agree that shares of the Trust will be sold only to life
insurance companies which have entered into fund participation agreements with
the 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 This section not used.
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).
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3.6 You shall submit payment for the purchase of shares of a Portfolio
on behalf of an Account no later than the close of business on the next Business
Day after we receive the purchase order. Payment shall be made in federal funds
transmitted by wire to the Trust or to its designated custodian.
3.7 We will redeem any full or fractional shares of any Portfolio, when
requested by you on behalf of an Account, at the net asset value next computed
after receipt by us (or our agent) of the request for redemption, as established
in accordance with the provisions of the then current prospectus of the Trust.
We shall make payment for such shares in the manner we establish from time to
time, but in no event shall payment be delayed for a greater period than is
permitted by the 0000 Xxx.
3.8 Issuance and transfer of the Portfolio shares will be by book entry
only. Stock certificates will not be issued to you or the Accounts. Portfolio
shares purchased from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.
3.9 We shall furnish, on or before the ex-dividend date, notice to you
of any income dividends or capital gain distributions payable on the shares of
any Portfolio. You hereby elect to receive all such income dividends and capital
gain distributions as are payable on shares of a Portfolio in additional shares
of that Portfolio, and you reserve the right to change this election in the
future. We will notify you of the number of shares so issued as payment of such
dividends and distributions.
3.10 Each party to this Agreement agrees that, in the event of a
material error resulting from incorrect information or confirmations, the
parties will seek to comply in all material respects with the provisions of
applicable federal securities laws.
4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS
4.1 We shall pay no fee or other compensation to you under this
Agreement except as provided on Schedule F, if attached.
4.2 We shall prepare and be responsible for filing with the SEC, and
any state regulators requiring such filing, all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
We shall bear the costs of preparation and filing of the documents listed in the
preceding sentence, registration and qualification of the Trust's shares of the
Portfolios.
4.3 We shall use reasonable efforts to provide you, on a timely basis,
with such information about the Trust, the Portfolios and each Adviser, in such
form as you may reasonably require, as you shall reasonably request in
connection with the preparation of disclosure documents and annual and
semi-annual reports pertaining to the Contracts.
4.4 At your option, we shall provide you, at our expense, with either:
(i) for each Contract owner who is invested through the Account in a subaccount
corresponding to a Portfolio ("designated subaccount"), one copy of each of the
following documents on each occasion that such
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document is required by law or regulation to be delivered to such Contract owner
who is invested in a designated subaccount: the Trust's current prospectus,
annual report, semi-annual report and other shareholder communications,
including any amendments or supplements to any of the foregoing, pertaining
specifically to the Portfolios ("Designated Portfolio Documents"); or (ii) a
camera ready copy of such Designated Portfolio Documents in a form suitable for
printing and from which information relating to series of the Trust other than
the Portfolios has been deleted to the extent practicable. In connection with
clause (ii) of this paragraph, we will pay for proportional printing costs for
such Designated Portfolio Documents to the extent necessary to provide one copy
for each Contract owner who is invested in a designated subaccount on each
occasion that such document is required by law or regulation to be delivered to
such Contract owner, and provided the appropriate documentation is provided and
approved by us. We shall provide you with a copy of the Trust's current
statement of additional information, including any amendments or supplements, in
a form suitable for you to duplicate. The expenses of furnishing, including
mailing, to Contract owners the documents referred to in this paragraph shall be
borne by you. For each of the documents provided to you in accordance with
clause (i) of this paragraph 4.4, we shall provide you, upon your request and at
your expense, additional copies. In no event shall we be responsible for the
costs of printing or delivery of Designated Portfolio Documents to potential or
new Contract owners or the delivery of Designated Portfolio Documents to
existing contract owners.
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
8
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 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, telephone directories (other than routine listings) 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,
performance reports or summaries, form letters, telemarketing scripts, seminar
texts, reprints or excerpts or any other advertisement, sales literature or
published article or electronic communication), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees in any media, and disclosure documents,
shareholder reports and proxy materials.
6.2 You shall furnish, or cause to be furnished to us or our designee,
at least one complete copy of each registration statement, prospectus, statement
of additional information, private placement memorandum, retirement plan
disclosure information or other disclosure documents or similar information, as
applicable (collectively "Disclosure Documents"), as well as any report,
solicitation for voting instructions, Sales literature or other Promotional
materials, and all amendments to any of the above that relate to the Contracts
or the Accounts prior to its first use. You shall furnish, or shall cause to be
furnished, to us or our designee each piece of Sales literature or other
Promotional material in which the Trust or an Adviser is named, at least ten
(10) Business Days prior to its proposed use. No such material shall be used
unless we or our designee approve such material and its proposed use.
6.3 You and your agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser, other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and prospectus
may be amended or supplemented from time to time), annual and semi-annual
reports of the Trust, Trust-sponsored proxy statements, or in Sales literature
or other Promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee. You shall send us a complete copy of
each Disclosure Document and item of Sales literature or other Promotional
materials in its final form within twenty (20) days of its first use.
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6.4 We shall not give any information or make any representations or
statements on behalf of you or concerning you, the Accounts or the Contracts
other than information or representations, including naming you as a Trust
shareholder, contained in and accurately derived from Disclosure Documents for
the Contracts (as such Disclosure Documents may be amended or supplemented from
time to time), or in materials approved by you for distribution, including Sales
literature or other Promotional materials, except as required by legal process
or regulatory authorities or with your written permission.
6.5 Except as provided in Section 6.2, you shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Xxxxxxxxx" or any logo or other trademark relating to the Trust or the
Underwriter without prior written consent, and upon termination of this
Agreement for any reason, you shall cease all use of any such name or xxxx as
soon as reasonably practicable.
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.
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
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Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
7.1.1.2 arise out of or result from statements or
representations (other than statements or representations contained in
and accurately derived from Trust Documents as defined below in Section
7.2) or wrongful conduct of you or persons under your control, with
respect to the sale or acquisition of the Contracts or Trust shares; or
7.1.1.3 arise out of or result from any untrue
statement or alleged untrue statement of a material fact contained in
Trust Documents as defined below in Section 7.2 or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on behalf
of you; or
7.1.1.4 arise out of or result from any failure by
you to provide the services or furnish the materials required under the
terms of this Agreement;
7.1.1.5 arise out of or result from any material
breach of any representation and/or warranty made by you in this
Agreement or arise out of or result from any other material breach of
this Agreement by you; 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
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any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.1.3 The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
7.2 INDEMNIFICATION BY THE UNDERWRITER
7.2.1 The Underwriter agrees to indemnify and hold harmless
you, and each of your directors and officers and each person, if any, who
controls you within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually an "Indemnified Party" for purposes of
this Section 7.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition 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
12
7.2.1.4 arise as a result of any failure by us to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the qualification representation specified
above in Section 2.2.7 and the diversification requirements specified
above in Section 2.2.8; or
7.2.1.5 arise out of or result from any material
breach of any representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other material breach
of this Agreement by the Underwriter; as limited by and in accordance
with the provisions of Sections 7.2.2 and 7.2.3 hereof.
7.2.2 The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to you or the
Accounts, whichever is applicable.
7.2.3 The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the Indemnified
Party releases the Underwriter from any further obligations under this Section
7.2, the Underwriter also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2.4 You agree promptly to notify the Underwriter of the
commencement of any litigation or proceedings against you or the Indemnified
Parties in connection with the issuance or sale of the Contracts or the
operation of each Account.
7.3 INDEMNIFICATION BY THE TRUST
7.3.1 The Trust agrees to 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
13
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Trust, and arise out of or result from any
material breach of any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions of
Sections 7.3.2 and 7.3.3 hereof. It is understood and expressly stipulated that
neither the holders of shares of the Trust nor any Trustee, officer, agent or
employee of the Trust shall be personally liable hereunder, nor shall any resort
be had to other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
7.3.2 The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
you, the Trust, the Underwriter or each Account, whichever is applicable.
7.3.3 The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. Unless the Indemnified Party releases
the Trust from any further obligations under this Section 7.3, the Trust also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such party of the
Trust's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Trust
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party 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
or overnight mail through a nationally-recognized delivery service 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.
14
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 all other parties.
9.2 This Agreement shall terminate upon written notice by any party
to all other parties:
9.2.1 upon institution of formal public proceedings against
any party, regarding the duties of that party under this Agreement, by
the NASD, the SEC, or any state securities or insurance commission or
any other regulatory body, or in anticipation of an expected ruling,
judgment or outcome which, in any other party's reasonable judgment
based on a written opinion of its outside counsel (which written
opinion shall be made available to any other party to this Agreement
upon request), would materially impair the ability of the affected
party to perform its duties under this Agreement;
9.2.2 if such terminating party has determined, in its
reasonable judgment exercised in good faith, that any other party or an
Adviser has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
9.2.3 upon the material breach of any provision of this
Agreement, but no termination shall be effective under this Section
9.2.3 until the terminating party has specified the nature of the
material breach in writing to the other parties to this Agreement and
such other parties have been afforded a reasonable opportunity (and no
less than 30 days) to cure the material breach.
9.3 This Agreement shall terminate immediately:
9.3.1 in the event of its assignment by any party without the
prior written approval of the other parties, or as otherwise required
by law.
9.3.2 by written notice from you to the Trust and the
Underwriter if the Trust:
9.3.2.1 ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code; or
9.3.2.2 fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations
thereunder.
9.3.3 by written notice from either the Trust or the
Underwriter to you if:
9.3.3.1 any Contract: (i) ceases to be treated as an
annuity contract or life insurance contract under applicable
provisions of the Code or under any successor or similar
provisions; or (ii) fails to qualify as a
15
"variable contract" within the meaning of such term under
Section 817 of the Code, as amended, or any regulations
thereunder;
9.3.3.2 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.
9.4 If this Agreement is terminated for any reason, except as required
by the Shared Funding Order or pursuant to Section 9.3.3, 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.
9.5 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 9.4, except that we shall have no further obligation
to sell Trust shares with respect to Contracts issued after termination.
9.6 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
or to redeem a Contract owner's investment if it is below contractually minimum
required levels; (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.
16
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 to
the extent practicable and except where a party's respective interests are
adverse to or in conflict with another party's interests.
10.8 Each party shall treat as confidential all information of the
other party which the parties agree in writing is confidential ("Confidential
Information"). Except as permitted by this Agreement or as required by
appropriate governmental authority (including, without limitation, the SEC, the
NASD, or state securities and insurance regulators) the receiving party shall
not disclose or use Confidential Information of the other party before it enters
the public domain, without the express written consent of the party providing
the Confidential Information.
10.9 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties to this Agreement are
entitled to under state and federal laws.
10.10 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
10.11 Neither this Agreement nor any rights or obligations created by
it may be assigned by any party without the prior written approval of the other
parties.
17
10.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, each of the parties have caused their duly
authorized officers to execute this Agreement.
The Company: EQUITRUST LIFE INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
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/ signature illegible
----------------------------------
Name:
Title:
18
SCHEDULE A
THE COMPANY
EquiTrust Life Insurance Company
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxx Xxxxxx, Xxxx 00000
Incorporated in Iowa.
19
SCHEDULE B
ACCOUNTS OF THE COMPANY
1. Name: EquiTrust Life Annuity Account
Date Established: Yes
SEC Registration Number: 811-08665
2. Name: EquiTrust Life Variable Account
Date Established: Yes
SEC Registration Number: 811-08641
3. Name: EquiTrust Life Annuity Account II
Date Established: Yes
SEC Registration Number: 811-08967
4. Name: EquiTrust Life Variable Account II
Date Established: Yes
SEC Registration Number: 811-08981
20
SCHEDULE C
AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS
FRANKLIN XXXXXXXXX VARIABLE INSURANCE PRODUCTS TRUST INVESTMENT ADVISER
---------------------------------------------------- ------------------
Franklin Small Cap Fund, Class 2 Franklin Advisers, Inc.
Franklin Value Securities Fund, Class 2 Franklin Advisory Services, LLC
Franklin U.S. Government Fund, Class 2 Franklin Advisers, Inc.
Mutual Shares Securities Fund, Class 2 Franklin Mutual Advisers, LLC
Templeton Growth Securities Fund, Class 2 Xxxxxxxxx Global Advisors Limited
21
SCHEDULE D
CONTRACTS OF THE COMPANY
INSURANCE PRODUCT NAME SEPARATE ACCOUNT NAME
# COMPANY REGISTERED Y/N REGISTERED Y/N CLASSES OF SHARES AND PORTFOLIOS
1933 ACT #, STATE FORM ID 1940 ACT #
------- ------------ ----------------------------- ------------------------------- ----------------------------------------------
01 EquiTrust Individual Flexible Premium EquiTrust Life Annuity Account CLASS 2 SHARES:
Life Deferred Variable Annuity Yes Franklin Small Cap Fund
Insurance Yes 811-08665 Franklin Value Securities Fund
Company 333-46597 Franklin U.S. Government Fund
Mutual Shares Securities Fund
Xxxxxxxxx Growth Securities Fund
02 EquiTrust Flexible Premium Variable EquiTrust Life Variable CLASS 2 SHARES:
Life Life Insurance Policy Account Franklin Small Cap Fund
Insurance Yes Yes Franklin Value Securities Fund
Company 333-45813 811-08641 Franklin U.S. Government Fund
Mutual Shares Securities Fund
Xxxxxxxxx Growth Securities Fund
03 EquiTrust Flexible Premium Last EquiTrust Life Variable CLASS 2 SHARES:
Life Survivor Variable Life Yes Franklin Small Cap Fund
Insurance Insurance Policy 811-008641 Franklin Value Securities Fund
Company Yes Franklin U.S. Government Fund
333-31482 Mutual Shares Securities Fund
Xxxxxxxxx Growth Securities Fund
04 EquiTrust Individual Flexible Premium EquiTrust Life Annuity CLASS 2 SHARES:
Life Deferred Variable Annuity Account II Franklin Small Cap Fund
Insurance Yes Yes Franklin Value Securities Fund
Company 333-61899 811-08967 Franklin U.S. Government Fund
Mutual Shares Securities Fund
Xxxxxxxxx Growth Securities Fund
05 EquiTrust Flexible Premium Variable EquiTrust Life Variable CLASS 2 SHARES:
Life Life Insurance Policy Account II Franklin Small Cap Fund
Insurance Yes Yes Franklin Value Securities Fund
Company 333-62221 811-08981 Franklin U.S. Government Fund
Mutual Shares Securities Fund
Xxxxxxxxx Growth Securities Fund
06 EquiTrust Flexible Premium Last EquiTrust Life Variable CLASS 2 SHARES:
Life Survivor Variable Life Account II Franklin Small Cap Fund
Insurance Insurance Policy Yes Franklin Value Securities Fund
Company Yes 811-08981 Franklin U.S. Government Fund
333-31446 Mutual Shares Securities Fund
Xxxxxxxxx Growth Securities Fund
22
SCHEDULE E
THIS SCHEDULE NOT USED.
23
SCHEDULE F
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
PORTFOLIO NAME MAXIMUM ANNUAL PAYMENT RATE
-------------- ---------------------------
Franklin Small Cap Fund 0.25%
Franklin Value Securities Fund 0.25%
Franklin U.S. Government Fund 0.25%
Mutual Shares Securities Fund 0.25%
Xxxxxxxxx Growth Securities Fund 0.25%
AGREEMENT PROVISIONS
If the Company, on behalf of any Account, purchases Trust Portfolio
shares ("Eligible Shares") which are subject to a Rule 12b-1 plan adopted
under the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide any activity or service which is primarily
intended to assist in the promotion, distribution or account servicing of
Eligible Shares ("Rule 12b-1 Services") or variable contracts offering
Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Rule 12b-1 Services" may
include, but are not limited to, printing of prospectuses and reports used
for sales purposes, preparing and distributing sales literature and related
expenses, advertisements, education of dealers and their representatives, and
similar distribution-related expenses, furnishing personal services to owners
of Contracts which may invest in Eligible Shares ("Contract Owners"),
education of Contract Owners, answering routine inquiries regarding a
Portfolio, coordinating responses to Contract Owner inquiries regarding the
Portfolios, maintaining such accounts or providing such other enhanced
services as a Trust Portfolio or Contract may require, or providing other
services eligible for service fees as defined under NASD rules. Your
acceptance of such compensation is your acknowledgment that eligible services
have been rendered. All Rule 12b-1 fees, shall be based on the value of
Eligible Shares owned by the Company on behalf of its Accounts, and shall be
calculated on the basis and at the rates set forth in the Compensation
Schedule stated above. The aggregate annual fees paid pursuant to each Plan
shall not exceed the amounts stated as the "annual maximums" in the
Portfolio's prospectus, unless an increase is approved by shareholders as
provided in the Plan. These maximums shall be a specified percent of the
value of a Portfolio's net assets attributable to Eligible Shares owned by
the Company on behalf of its Accounts (determined in the same manner as the
Portfolio uses to compute its net assets as set
24
forth in its effective Prospectus). The Rule 12b-1 fee will be paid to you
within thirty (30) days after the end of the three-month periods ending in
January, April, July and October.
You shall furnish us with such information as shall reasonably be
requested by the Trust's Boards of Trustees ("Trustees") with respect to the
Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the
Trustees, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are
not interested persons of the Trust and who have no financial interest in the
Plans or any related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the Disinterested
Trustees, or by a vote of a majority of the outstanding shares as provided in
the Plan, on sixty (60) days' written notice, without payment of any penalty.
The Plans may also be terminated by any act that terminates the Underwriting
Agreement between the Underwriter and the Trust, and/or the management or
administration agreement between Franklin Advisers, Inc. and its affiliates
and the Trust. Continuation of the Plans is also conditioned on Disinterested
Trustees being ultimately responsible for selecting and nominating any new
Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to request
and evaluate, and persons who are party to any agreement related to a Plan
have a duty to furnish, such information as may reasonably be necessary to an
informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to
implement or continue Plans or the provisions of any agreement relating to
such Plans from year-to-year only if, based on certain legal considerations,
the Trustees are able to conclude that the Plans will benefit each affected
Trust Portfolio and class. Absent such yearly determination, the Plans must
be terminated as set forth above. In the event of the termination of the
Plans for any reason, the provisions of this Schedule F relating to the Plans
will also terminate. You agree that your selling agreements with persons or
entities through whom you intend to distribute Contracts will provide that
compensation paid to such persons or entities may be reduced if a Portfolio's
Plan is no longer effective or is no longer applicable to such Portfolio or
class of shares available under the Contracts.
Any obligation assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the assets of the Trust and no person shall seek
satisfaction thereof from shareholders of the Trust. You agree to waive
payment of any amounts payable to you by Underwriter under a Plan until such
time as the Underwriter has received such fee from the Trust.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule F, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable
statutes, rules and regulations of all rule 12b-1 fees received from us in
the prospectus of the Contracts.
25
SCHEDULE G
ADDRESSES FOR NOTICES
To the Company: EquiTrust Life Insurance Company
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxx Xxxxxx, Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Vice President
To the Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Assistant Vice President
To the Underwriter: Franklin Xxxxxxxxx Distributors, Inc.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Vice President
26
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
27
request, personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m., on October 12, 1999, and should be accompanied by
proof of service on the Applicants in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the nature
of the writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 000 Xxxxx
Xxxxxx, XX, Xxxxxxxxxx, X.X. 00000-0000.
Applicants: Templeton Variable Products Series Fund and Franklin
Xxxxxxxxx Variable Insurance Products Trust, 000 Xxxxxxxx Xxxxxx Xxxxxxxxx,
Xxx Xxxxx, Xxxxxxxxxx 00000, Attn: Xxxxx X. Xxxxxxxx, Esq.
For Further Information Contact: Xxxxx X. XxXxxxx, Senior Counsel, or
Xxxxx X. Xxxxx, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (000) 000-0000.
Supplementary Information: The following is a summary of the
application. The complete application is available for a fee from the SEC's
Public Reference Branch, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000
(tel. (000) 000-0000).
Applicants' Representations:
1. Each of the Funds is registered under the 1940 Act as an open-end
management investment company and was organized as a Massachusetts business
trust. The Templeton Trust currently consists of eight separate series, and
the VIP Trust consists of twenty-five separate series. Each Fund's
Declaration of Trust permits the Trustees to create additional series of
shares at any time. The Funds currently serve as the underlying investment
medium for variable annuity contracts and variable life insurance policies
issued by various insurance companies. The Funds have entered into investment
management agreements with certain investment managers ("Investment
Managers") directly or indirectly owned by Franklin Resources, Inc.
("Resources"), a publicly owned company engaged in the financial services
industry through its subsidiaries.
2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is
the sole insurance company in the Franklin Xxxxxxxxx organization, and
specializes in the writing of variable annuity contracts. The Templeton Trust
has entered into a Fund Administration Agreement with Franklin Xxxxxxxxx
Services, Inc. ("FT Services"), which replaced TFAC in 1998 as administrator,
and FT Services subcontracts certain services to TFAC. FT Services also
serves as administrator to all series of the VIP Trust. TFAC and FT Services
provide certain administrative facilities and services for the VIP and
Templeton Trusts.
28
3. On November 16, 1993, the Commission issued an order granting
exemptive relief to permit shares of the Xxxxxxxxx Trust to be sold to and
held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (Investment Company
Act Release No. 19879, File No. 812-8546) (the "Original Order"). Applicants
incorporate by reference into the application the Application for the
Original Order and each amendment thereto, the Notice of Application for the
Original Order, and the Original Order, to the extent necessary, to
supplement the representations made in the application in support of the
requested relief. Applicants represent that all of the facts asserted in the
Application for the Original Order and any amendments thereto remain true and
accurate in all material respects to the extent that such facts are relevant
to any relief on which Applicants continue to rely. The Original Order allows
the Templeton Trust to offer its shares to insurance companies as the
investment vehicle for their separate accounts supporting variable annuity
contracts and variable life insurance contracts (collectively, the "Variable
Contracts"). Applicants state that the Original Order does not (i) include
the VIP Trust or Future Funds as parties, nor (ii) expressly address the sale
of shares of the Funds or any Future Funds to qualified pension and
retirement plans outside the separate account context including, without
limitation, those trusts, plans, accounts, contracts or annuities described
in Sections 401(a), 403(a), 403(b), 408(b), 408(k), 414(d), 457(b),
501(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
29
the protection of investors, and consistent with the purposes fairly intended
by the policy and provisions of the 1940 Act.
2. The Original Order does not include the VIP Trust or Future Funds as
parties nor expressly address the sale of shares of the Funds or any Future
Funds to Qualified Plans. Applicants propose that the VIP Trust and Future
Funds be added as parties to the Original Order and the Funds and any Future
Funds be permitted to offer and sell their shares to Qualified Plans.
3. Section 6(c) of the 1940 Act provides, in part, that the Commission,
by order upon application, may conditionally or unconditionally exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the rules
or regulations thereunder, if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy and
provisions of the 1940 Act.
4. In connection with the funding of scheduled premium variable life
insurance contracts issued through a separate account registered under the
1940 Act as a unit investment trust ("UIT"), Rule 6e-2(b)(15) provides
partial exemptions from various provisions of the 1940 Act, including the
following: (1) Section 9(a), which makes it unlawful for certain individuals
to act in the capacity of employee, officer, or director for a UIT, by
limiting the application of the eligibility restrictions in Section 9(a) to
affiliated persons directly participating in the management of a registered
management investment company; and (2) Sections 13(a), 15(a) and 15(b) of the
1940 Act to the extent that those sections might be deemed to require
"pass-through" voting with respect to an underlying fund's shares, by
allowing an insurance company to disregard the voting instructions of
contractowners in certain circumstances.
5. These exemptions are available, however, only where the management
investment company underlying the separate account (the "underlying fund")
offers its shares "exclusively to variable life insurance separate accounts
of the life insurer, or of any affiliated life insurance company." Therefore,
Rule 6e-2 does not permit either mixed funding or shared funding because the
relief granted by Rule 6e-2(b)(15) is not available with respect to a
scheduled premium variable life insurance separate account that owns shares
of an underlying fund that also offers its shares to a variable annuity or a
flexible premium variable life insurance separate account of the same company
or of any affiliated life insurance company. Rule 6e-2(b)(15) also does not
permit the sale of shares of the underlying fund to Qualified Plans.
6. In connection with flexible premium variable life insurance contracts
issued through a separate account registered under the 1940 Act as a UIT,
Rule 6e-3(T)(b)(15) also provides partial exemptions from Sections 9(a),
13(a), 15(a) and 15(b) of the 1940 Act. These exemptions, however, are
available only where the separate account's underlying fund offers its shares
"exclusively to separate accounts of the life
30
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 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.
31
11. Applicants state that the relief granted in Rule 6e-2(b)(15) and
6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the
amount of monitoring of an insurer's personnel that would otherwise be
necessary to ensure compliance with Section 9 to that which is appropriate in
light of the policy and purposes of Section 9. Applicants submit that those
Rules recognize that it is not necessary for the protection of investors or
the purposes fairly intended by the policy and provisions of the 1940 Act to
apply the provisions of Section 9(a) to the many individuals involved in an
insurance company complex, most of whom typically will have no involvement in
matters pertaining to investment companies funding the separate accounts.
12. Applicants to the Original Order previously requested and received
relief from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the
extent necessary to permit mixed and shared funding. Applicants maintain that
the relief previously granted from Section 9(a) will in no way be affected by
the proposed sale of shares of the Funds to Qualified Plans. Those
individuals who participate in the management or administration of the Funds
will remain the same regardless of which Qualified Plans use such Funds.
Applicants maintain that more broadly applying the requirements of Section
9(a) because of investment by Qualified Plans would not serve any regulatory
purpose. Moreover, Qualified Plans, unlike separate accounts, are not
themselves investment companies and therefore are not subject to Section 9 of
the 1940 Act.
13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting instructions of
its contractowners with respect to the investments of an underlying fund or
any contract between a fund and its investment adviser, when required to do
so by an insurance regulatory authority (subject to the provisions of
paragraphs (b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules
6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance
company may disregard contractowners' voting instructions if the
contractowners initiate any change in such company's investment policies,
principal underwriter, or any investment adviser (provided that disregarding
such voting instructions is reasonable and subject to the other provisions of
paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) of the Rules).
14. Applicants assert that Qualified Plans, which are not registered as
investment companies under the 1940 Act, have no requirement to pass-through
the voting rights to plan participants. Applicants state that applicable law
expressly reserves voting rights to certain specified persons. Under Section
403(a) of the Employment Retirement Income Security Act ("ERISA"), shares of
a fund sold to a Qualified Plan must be held by the trustees of the Qualified
Plan. Section 403(a) also provides that the trustee(s) must have exclusive
authority and discretion to manage and control the Qualified Plan with two
exceptions: (1) when the Qualified Plan expressly provides that the
trustee(s) are subject to the direction of a named fiduciary who is not a
32
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 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.
33
18. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable contracts held
in an underlying mutual fund. The Code provides that a variable contract
shall not be treated as an annuity contract or life insurance, as applicable,
for any period (and any subsequent period) for which the investments are not,
in accordance with regulations prescribed by the Treasury Department,
adequately diversified.
19. Treasury Department Regulations issued under Section 817(h) provide
that, in order to meet the statutory diversification requirements, all of the
beneficial interests in the investment company must be held by the segregated
asset accounts of one or more insurance companies. However, the Regulations
contain certain exceptions to this requirement, one of which allows shares in
an underlying mutual fund to be held by the trustees of a qualified pension
or retirement plan without adversely affecting the ability of shares in the
underlying fund also to be held by separate accounts of insurance companies
in connection with their variable contracts (Treas. Reg. 1.817-5(f)(3)(iii)).
Thus, Applicants believe that the Treasury Regulations specifically permit
"qualified pension or retirement plans" and separate accounts to invest in
the same underlying fund. For this reason, Applicants have concluded that
neither the Code nor the Treasury Regulations or revenue rulings thereunder
presents any inherent conflict of interest.
20. Applicants note that while there are differences in the manner in
which distributions from Variable Contracts and Qualified Plans are taxed,
these differences will have no impact on the Funds. When distributions are to
be made, and a Separate Account or Qualified Plan is unable to net purchase
payments to make the distributions, the Separate Account and Qualified Plan
will redeem shares of the Funds at their respective net asset value in
conformity with Rule 22c-1 under the 1940 Act (without the imposition of any
sales charge) to provide proceeds to meet distribution needs. A Qualified
Plan will make distributions in accordance with the terms of the Qualified
Plan.
21. Applicants maintain that it is possible to provide an equitable
means of giving voting rights to Participating Separate Account
contractowners and to Qualified Plans. In connection with any meeting of
shareholders, the Funds will inform each shareholder, including each
Participating Insurance Company and Qualified Plan, of information necessary
for the meeting, including their respective share of ownership in the
relevant Fund. Each Participating Insurance Company will then solicit voting
instructions in accordance with Rules 6e-2 and 6e-3(T), as applicable, and
its
participation agreement with the relevant Fund. Shares held by Qualified
Plans will be voted in accordance with applicable law. The voting rights
provided to Qualified Plans with respect to shares of the Funds would be no
different from the voting rights that are provided to Qualified Plans with
respect to shares of funds sold to the general public.
34
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
35
the application is identical to precedent with respect to the conditions
Applicants propose should be imposed on Qualified Plans in connection with
investment in the Funds.
Applicants' Conditions:
If the requested amended order is granted, Applicants consent to the
following conditions:
1. A majority of the Board of each Fund shall consist of persons who are
not "interested persons" thereof, as defined by Section 2(a)(19) of the 1940
Act, and the rules thereunder and as modified by any applicable orders of the
Commission, except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any Board Member or Members,
then the operation of this condition shall be suspended: (a) for a period of
45 days if the vacancy or vacancies may be filled by the remaining Board
Members; (b) for a period of 60 days if a vote of shareholders is required to
fill the vacancy or vacancies; or (c) for such longer period as the
Commission may prescribe by order upon application.
2. The Board will monitor their respective Fund for the existence of any
material irreconcilable conflict among the interests of the Variable Contract
owners of all Separate Accounts investing in the Funds and of the Qualified
Plan participants investing in the Funds. The Board will determine what
action, if any, shall be taken in response to such conflicts. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
action by any state 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
36
owners are disregarded and, if pass-through voting is applicable, an
obligation by each Participating Qualified Plan to inform the Board whenever
it has determined to disregard Qualified Plan participant voting
instructions. The responsibility to report such information and conflicts,
and to assist the Board, will be contractual obligations of all Participating
Insurance Companies investing in the Funds under their agreements governing
participation in the Funds, and such agreements shall provide that these
responsibilities will be carried out with a view only to the interests of the
Variable Contract owners. The responsibility to report such information and
conflicts, and to assist the Board, will be contractual obligations of all
Participating Qualified Plans under their agreements governing participation
in the Funds, and such agreements will provide that their responsibilities
will be carried out with a view only to the interests of Qualified Plan
participants.
4. If it is determined by a majority of the Board of a Fund, or by a
majority of the disinterested Board Members, that a material irreconcilable
conflict exists, the relevant Participating Insurance Companies and
Participating Qualified Plans will, at their own expense and to the extent
reasonably practicable as determined by a majority of the disinterested Board
Members, take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps could include: (a) in the case
of Participating Insurance Companies, withdrawing the assets allocable to
some or all of the Separate Accounts from the Fund or any portfolio thereof
and reinvesting such assets in a different investment medium, including
another portfolio of an Fund or another Fund, or submitting the question as
to whether such segregation should be implemented to a vote of all affected
Variable Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., variable annuity contract owners or variable life
insurance contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Variable
Contract owners the option of making such a change; (b) in the case of
Participating Qualified Plans, withdrawing the assets allocable to some or
all of the Qualified Plans from the Fund and reinvesting such assets in a
different investment medium; and (c) establishing a new registered management
investment company or managed Separate Account. If a material irreconcilable
conflict arises because of a decision by a Participating Insurance Company to
disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, then the
insurer may be required, at the Fund's election, to withdraw the insurer's
Separate Account investment in such Fund, and no charge or penalty will be
imposed as a result of such withdrawal. If a material irreconcilable conflict
arises because of a Participating Qualified Plan's decision to disregard
Qualified Plan participant voting instructions, if applicable, and that
decision represents minority position or would preclude a majority vote, the
Participating Qualified Plan may be required, at the Fund's election, to
withdraw its investment in such Fund, and no charge or penalty will be
imposed as a result of such withdrawal. The responsibility to take remedial
action in the event of a determination by a Board of a material
irreconcilable conflict and to bear the cost of such remedial action will be
a contractual obligation of all Participating Insurance Companies and
37
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
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,
38
notifying Participating Insurance Companies and Participating Qualified Plans
of a conflict, and determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of the meetings
of such Board or other appropriate records, and such minutes or other records
shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that
separate disclosure in their respective Separate Account prospectuses may be
appropriate to advise accounts regarding the potential risks of mixed and
shared funding. Each Fund shall disclose in its prospectus that (a) the Fund
is intended to be a funding vehicle for variable annuity and variable life
insurance contracts offered by various insurance companies and for qualified
pension and retirement plans; (b) due to differences of tax treatment and
other considerations, the interests of various Contract owners participating
in the Fund and/or the interests of Qualified Plans investing in the Fund may
at some time be in conflict; and (c) the Board of such Fund will monitor
events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response
to any such conflict.
10. Each Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders (which, for these purposes, will be the persons having
a voting interest in the shares of the Funds), and, in particular, the Funds
will either provide for annual shareholder meetings (except insofar as the
Commission may interpret Section 16 of the 1940 Act not to require such
meetings) or comply with Section 16(c) of the 1940 Act, although the Funds
are not the type of trust described in Section 16(c) of the 1940 Act, as well
as with Section 16(a) of the 1940 Act and, if and when applicable, Section
16(b) of the 1940 Act. Further, each Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a) with respect
to periodic elections of Board Members and with whatever rules the Commission
may promulgate with respect thereto.
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is
amended, or proposed Rule 6e-3 under the 1940 Act is adopted, to provide
exemptive relief from any provision of the 1940 Act or the rules promulgated
thereunder, with respect to mixed or shared funding on terms and conditions
materially different from any exemptions granted in the order requested in
the application, then the Funds and/or Participating Insurance Companies and
Participating Qualified Plans, as appropriate, shall take such steps as may
be necessary to comply with such Rules 6e-2 and 6e-3(T), as amended, or
proposed Rule 6e-3, as adopted, to the extent that such Rules are applicable.
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
39
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.
40
Xxxxxxxxx Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24079
1999 SEC LEXIS 2177
October 13, 1999
ACTION: Order Granting Exemptions
TEXT: Xxxxxxxxx Variable Products Series Fund ("Xxxxxxxxx Trust"), Franklin
Xxxxxxxxx Variable Insurance Products Trust ("VIP Trust"), Xxxxxxxxx Funds
Annuity Company ("TFAC") or any successor to TFAC, and any future open-end
investment company for which TFAC or any affiliate is the administrator,
sub-administrator, investment manager, adviser, principal underwriter, or
sponsor ("Future Funds") filed an application on July 14, 1999, and an amendment
on September 17, 1999 seeking an amended order of the Commission pursuant to
Section 6(c) of the Investment Company Act of 1940 ("1940 Act") exempting them
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15). The prior order (Rel. No. IC-19879)
granted exemptive relief to permit shares of the Xxxxxxxxx Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies. The proposed relief
would amend the prior order to add as parties to that order the VIP Trust and
any Future Funds and to permit shares of the Xxxxxxxxx Trust, the VIP Trust, and
Future Funds to be issued to and held by qualified pension and retirement plans
outside the separate account context.
A notice of the filing of the application was issued on September 17,
1999 (Rel. No. IC-24018). The notice gave interested persons an opportunity
to request a hearing and stated that an order granting the application would
be issued unless a hearing should be ordered. No request for a hearing has
been filed, and the Commission has not ordered a hearing.
The matter has been considered, and it is found that granting the
requested exemptions is appropriate in the public interest and consistent
with the protection of investors and the purposes intended by the policy and
provisions of the 1940 Act.
Accordingly,
IT IS ORDERED, pursuant to Section 6(c) of the 1940 Act, that the
requested exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940
Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, be, and hereby are,
granted, effective forthwith.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
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