FUND PARTICIPATION AGREEMENT
The Prudential Series Fund, Inc.
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares..........................4
ARTICLE II. Representations and Warranties...............7
ARTICLE III. Prospectuses and Proxy Statements; Voting....9
ARTICLE IV. Sales Material and Information..............10
ARTICLE V. Fees and Expenses...........................11
ARTICLE VI. Diversification and Qualification...........12
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order....14
ARTICLE VIII. Indemnification.............................15
ARTICLE IX. Applicable Law..............................22
ARTICLE X. Termination.................................22
ARTICLE XI. Notices.....................................25
ARTICLE XII. Miscellaneous...............................25
SCHEDULE A Accounts and Contracts......................28
SCHEDULE B Designated Portfolios.......................29
SCHEDULE C Expenses....................................30
2
PARTICIPATION AGREEMENT
-----------------------
AMONG
AETNA LIFE INSURANCE AND ANNUITY COMPANY,
THE PRUDENTIAL SERIES FUND, INC.,
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC,
AND
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
THIS AGREEMENT, made and entered into as of this 27th day of April, 2001,
by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY (hereinafter "ALIAC"), a
Connecticut life insurance company, on its own behalf and on behalf of its
VARIABLE ANNUITY ACCOUNT B and other separate accounts as may be set forth on
Schedule A attached hereto and as may be amended from time to time with the
mutual consent of the parties hereto (hereinafter the "Account(s)"); THE
PRUDENTIAL SERIES FUND, INC., an open-end management investment company
organized under the laws of Maryland (hereinafter the "Fund"); PRUDENTIAL
INVESTMENTS FUND MANAGEMENT LLC, a New York limited liability company
(hereinafter the "Adviser); and PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
(hereinafter the "Distributor"), a Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including ALIAC which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated March 5, 1999 (File No. IC-23728),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a) and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another and qualified
pension
3
and retirement plans ("Qualified Plans") (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, ALIAC has registered certain variable annuity contracts supported
wholly or partially by the Account (the "Contracts") under the 1933 Act and said
Contracts are listed in
Schedule A attached hereto and incorporated herein by reference, as such
Schedule may be
amended from time to time by mutual written agreement; and
WHEREAS, the Account is a duly organized, validly existing, segregated
asset account,
established by resolution of the Board of Directors of ALIAC in 1976 under the
insurance laws of the State of Connecticut, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, ALIAC has registered the Account as a unit investment trust under
the 1940 Act and has registered the securities deemed to be issued by the
Account under the 1933 Act (except for such Accounts for which no such
registration is required); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, ALIAC intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, ALIAC, the Fund,
the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to ALIAC those shares of the Designated
Portfolio(s)
which the Account orders, executing such orders on each Business Day at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the
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Designated Portfolios. For purposes of this Section 1.1, ALIAC shall be the
designee of the Fund for receipt of such orders and receipt by such designee
shall constitute receipt by the Fund, provided that the Fund receives notice of
any such order by 10:00 a.m. Eastern time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Designated Portfolio calculates its net asset value
pursuant to the rules of the SEC.
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by ALIAC and
the Account on those days on which the Fund calculates its Designated
Portfolio(s)' net asset value pursuant to rules of the SEC, and the Fund shall
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Designated Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions the substance of which are the same as Sections 2.1
(except with respect to Connecticut law), 3.5, 3.6, 3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on ALIAC's request, any full or
fractional shares of the Fund held by ALIAC, executing such requests on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
ALIAC shall be the designee of the Fund for receipt of requests for redemption
and receipt by such designee shall constitute receipt by the Fund, provided that
the Fund receives notice of any such request for redemption by 10:00 a.m.
Eastern time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3) and the cash value of
the Contracts may be invested in other investment companies.
1.6. ALIAC shall pay for Fund shares by 3:00 p.m. Eastern Time on the next
Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section
1.1 hereof. Payment shall be in federal funds transmitted by wire and/or by a
credit for any shares redeemed the same day as the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
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1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to ALIAC or the Account. Shares
purchased from the Fund will be recorded in an appropriate title for the Account
or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to ALIAC of any income, dividends or capital
gain distributions payable on the Designated Portfolio(s)' shares. ALIAC hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Designated Portfolio shares in additional shares of that
Designated Portfolio. ALIAC reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify ALIAC by the end of the next following Business Day of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to ALIAC on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify ALIAC as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for an loss (without taking into consideration any positive effect of
such error) and shall reimburse ALIAC for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule C.
If an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
ALIAC for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
ALIAC shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners. In no event shall ALIAC be liable to Contractowners for any such
adjustments or underpayment amounts. A pricing error within categories (b) or
(c) above shall be deemed to be "materially incorrect" or constitute a "material
error" for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the views expressed by the staff of the SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties
6
shall amend the foregoing provisions of this Agreement to comport with the
appropriate applicable standards, on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
------------------------------
2.1. ALIAC represents and warrants that the Contracts and the securities
deemed to be issued by the Account under the Contracts are or will be registered
under the 1933 Act (except for those Contracts for which no such registration is
required); that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. ALIAC further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale of units thereof as a segregated asset account under Connecticut law, and
has registered the Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts and that it will maintain such registration for so long as any
Contracts are outstanding as required by applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 0000 Xxx.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
requirements of the 1940 Act. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4. The Fund represents and warrants that it will make every effort to
ensure that Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State of Delaware and all applicable state insurance and
securities laws. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states if and to the extent required by
applicable law. ALIAC and the Fund will endeavor to mutually cooperate with
respect to the implementation of any modifications necessitated by any change in
state insurance laws, regulations or interpretations of the foregoing that
affect the Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law Change that becomes known to either party. In the event of a
Law Change, the Fund agrees that, except in those circumstances where the Fund
has advised ALIAC that its Board of Directors has determined that implementation
of a particular Law Change is not in the best interest of all of the Fund's
7
shareholders with an explanation regarding why such action is lawful, any action
required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance in all material
respects with the laws of any applicable state and federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bonds shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
2.9. The Fund will provide ALIAC with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
ALIAC in order to implement any such change in an orderly manner, recognizing
the expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred by ALIAC as a
result of actions taken by the Fund, consistent with the allocation of expenses
contained in Schedule C attached hereto and incorporated herein by reference.
2.10. ALIAC represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended (the "Code"), that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Code, and that it will make every effort to maintain such treatment and that it
will notify the Fund, the Distributor and the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future. In addition, ALIAC
represents and warrants that the Account is a "segregated asset account" and
that interests in the 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 Code and the regulations thereunder. ALIAC will use every
effort to continue to meet such definitional requirements, and it will notify
the Fund, the Distributor and the Adviser immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or that they
might not
8
be met in the future. ALIAC represents and warrants that it will not purchase
Fund shares with assets derived from tax-qualified retirement plans except,
indirectly, through Contracts purchased in connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. At least annually, the Adviser or Distributor shall provide ALIAC
with as many copies of the Fund's current prospectus for the Designated
Portfolio(s) as ALIAC may reasonably request for marketing purposes (including
distribution to Contractowners with respect to new sales of a Contract), with
expenses to be borne in accordance with Schedule C hereof. If requested by ALIAC
in lieu thereof, the Adviser, Distributor or Fund shall provide such
documentation (including a camera-ready copy and computer diskette of the
current prospectus for the Designated Portfolio(s)) and other assistance as is
reasonably necessary in order for ALIAC once each year (or more frequently if
the prospectuses for the Designated Portfolio(s) are amended) to have the
prospectus for the Contracts and the Fund's prospectus for the Designated
Portfolio(s) printed together in one document. The Fund and Adviser agree that
the prospectus (and semi-annual and annual reports) for the Designated
Portfolio(s) will describe only the Designated Portfolio(s) and will not name or
describe any other portfolios or series that may be in the Fund unless required
by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the Fund, Distributor and/or the Adviser shall provide
ALIAC with copies of the Fund's SAI or documentation thereof for the Designated
Portfolio(s) in such quantities, with expenses to be borne in accordance with
Schedule C hereof, as ALIAC may reasonably require to permit timely distribution
thereof to Contractowners. The Adviser, Distributor and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests such SAI
from the Fund.
3.3. The Fund, Distributor and/or Adviser shall provide ALIAC with copies
of the Fund's proxy material, reports to stockholders and other communications
to stockholders for the Designated Portfolio(s) in such quantity, with expenses
to be borne in accordance with Schedule C hereof, as ALIAC may reasonably
require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding ALIAC provided in writing by that party, ALIAC shall not be
responsible for the content of the prospectus or SAI for the Designated
Portfolio(s). It is also understood and agreed that, except with respect to
information regarding the Fund, the Distributor, the Adviser or the Designated
Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser,
neither the Fund, the Distributor nor Adviser are responsible for the content of
the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law ALIAC shall:
(a) solicit voting instructions from Contractowners;
9
(b) vote the Designated Portfolio(s) shares held in the Account in
accordance with instructions received from Contractowners; and
(c) vote Designated Portfolio shares held in the Account for which no
instructions have been received in the same proportion as Designated
Portfolio(s) shares for which instructions have been received from
Contractowners, 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. ALIAC reserves the right to vote Fund shares held in any segregated
asset account in its own right, to the extent permitted by law.
3.6. ALIAC shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
as directed by the Fund and agreed to by ALIAC and the Fund. The Fund agrees to
promptly notify ALIAC of any changes of interpretations or amendments of the
Mixed and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the SEC may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information.
------------------------------
4.1. ALIAC shall furnish, or shall cause to be furnished, to the Fund or
its designee, a copy of each piece of sales literature or other promotional
material that ALIAC develops or proposes to use and in which the Fund (or a
Portfolio thereof), its Adviser or one of its subadvisers or the Distributor is
named in connection with the Contracts, at least five (5) Business Days prior to
its use. No such material shall be used if the Fund objects to such use within
three (3) Business Days after receipt of such material.
4.2. ALIAC shall not give any information or make any representations or
statements on behalf of the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement, including the prospectus or SAI for the Fund shares, as the same may
be amended or supplemented from time to time, or in sales literature or other
promotional material approved by the Fund, Distributor or Adviser, except with
the permission of the Fund, Distributor or Adviser.
4.3. The Fund or the Adviser shall furnish, or shall cause to be
furnished, to ALIAC, a copy of each piece of sales literature or other
promotional material in which ALIAC and/or its separate account(s) is named at
least five (5) Business Days prior to its use. No such material shall be used
if ALIAC objects to such use within three (3) Business Days after receipt of
such material.
10
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of ALIAC or concerning ALIAC,
the Account, or the Contracts other than the information or representations
contained in a registration statement, including the prospectus or SAI for the
Contracts, as the same may be amended or supplemented from time to time, or in
sales literature or other promotional material approved by ALIAC or its
designee, except with the permission of ALIAC.
4.5. The Fund will provide to ALIAC at least one complete copy of all
registration statements, prospectuses, SAIs, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolio(s) contemporaneously with the filing of such document(s) with the SEC,
NASD, or other regulatory authority.
4.6. ALIAC will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC, NASD, or other regulatory authority.
4.7. For purposes of Articles IV and VIII, the phrase "sales literature
and other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media; e.g., on-
line networks such as the Internet or other electronic media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and shareholder reports, and proxy materials
(including solicitations for voting instructions) and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act
or the 0000 Xxx.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and the Adviser shall pay no fee or other compensation to
ALIAC under this Agreement, and ALIAC shall pay no fee or other compensation to
the Fund or Adviser under this Agreement, although the parties hereto will bear
certain expenses in accordance with Schedule C, Articles 111, V, and other
provisions of this Agreement.
5.2. All expenses incident to performance by the Fund, the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule C.
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The Fund shall see to it that all shares of the Designated Portfolio(s) are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to owners of Contracts offered by ALIAC in
accordance with Schedule C.
ARTICLE VI. Diversification and Qualification.
---------------------------------
6.1. The Fund, the Distributor and the Adviser represent and warrant that
the Fund will at all times sell its shares and invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity contracts
under the Code, and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund, Distributor and Adviser represent and warrant
that the Fund and each Designated Portfolio thereof will at all times comply
with Section 817(h) of the Code and Treasury Regulation (S)1.817-5, as amended
from time to time, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications or successor provisions to
such Section or Regulations. The Fund, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor and the Adviser represent and warrant that
the Fund and each Designated Portfolio is currently qualified as a Regulated
Investment Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Fund, Distributor or Adviser will notify ALIAC immediately upon
having a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4
hereof and without in any way limiting or restricting any other remedies
available to ALIAC, the Adviser or Distributor will pay all costs associated
with or arising out of any failure, or any anticipated or reasonably foreseeable
failure, of the Fund or any Designated Portfolio to comply with Sections 6.1,
6.2, or 6.3 hereof, including all costs associated with reasonable and
appropriate corrections or responses to any such failure; such costs may
include, but are not limited to, the costs involved in creating, organizing, and
registering a new investment company as a funding medium for the Contracts
and/or the costs of obtaining whatever regulatory authorizations are required to
substitute shares of another investment company for those of the failed
Portfolio (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act).
12
6.6. ALIAC agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of ALIAC or to
ALIAC's knowledge, of any Contractowner that any Designated Portfolio has failed
to comply with the diversification requirements of Section 817(h) of the Code or
ALIAC otherwise becomes aware of any facts that could give rise to any claim
against the Fund, Distributor or Adviser as a result of such a failure or
alleged failure:
(a) ALIAC shall promptly notify the Fund, the Distributor and the Adviser
of such such assertion or potential claim;
(b) ALIAC shall consult with the Fund, the Distributor and the Adviser as
to how to minimize any liability that may arise as a result of such failure or
alleged failure;
(c) ALIAC shall use its best efforts to minimize any liability of the
Fund, the Distributor and the Adviser resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by ALIAC to the IRS, any
Contractowner or any other claimant in connection with any of the foregoing
proceedings or contests (including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2))
shall be provided by ALIAC to the Fund, the Distributor and the Adviser
(together with any supporting information or analysis) within at least two (2)
business days prior to submission;
(e) ALIAC shall provide the Fund, the Distributor and the Adviser with
such cooperation as the Fund, the Distributor and the Adviser shall reasonably
request (including, without limitation, by permitting the Fund, the Distributor
and the Adviser to review the relevant books and records of ALIAC in order to
facilitate review by the Fund, the Distributor and the Adviser of any written
submissions provided to it or its assessment of the validity or amount of any
claim against it arising from such failure or alleged failure;
(f) ALIAC shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund, the Distributor
and the Adviser (i) compromise or settle any claim, (ii) accept any adjustment
on audit, or (iii) forego any allowable administrative or judicial appeals,
without the express written consent of the Fund, the Distributor and the
Adviser, which shall not be unreasonably withheld; provided that, ALIAC shall
not be required to appeal any adverse judicial decision unless the Fund and the
Adviser shall have provided an opinion of independent counsel to the effect that
a reasonable basis exists for taking such appeal; and further provided that the
Fund, the Distributor and the Adviser shall bear the costs and expenses,
including reasonable attorney's fees, incurred by ALIAC in complying with this
clause (f).
13
ARTICLE VII. Potential Conflicts and Compliance With Mixed and
Shared Funding Exemptive Order
------------------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Designated Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners or by contract owners of different Participating
Insurance Companies; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of contract owners. The Board shall promptly
inform ALIAC if it determines that an irreconcilable material conflict exists
and the implications thereof.
7.2. ALIAC will report any potential or existing conflicts of which it is
aware to the Board. ALIAC will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by ALIAC to inform the Board whenever contract owner voting instructions are to
be disregarded. Such responsibilities shall be carried out by ALIAC with a view
only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent
Directors"), that a material irreconcilable conflict exists, ALIAC and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Designated Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contact owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
ALIAC to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, ALIAC may be
required, at the Fund's election, to withdraw the Account's investment in the
Fund and terminate this Agreement; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Any such
14
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Adviser, the Distributor and the Fund shall
continue to accept and implement orders by ALIAC for the purchase (and
redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to ALIAC conflicts with the
majority of other state regulators, then ALIAC will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs ALIAC in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by ALIAC for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
ALIAC shall not be required by Section 7.3 to establish a new funding medium for
the Contracts if an offer to do so has been declined by vote of a majority of
Contractowners affected by the irreconcilable material conflict. In the event
that the Board determines that any proposed action does not adequately remedy
any irreconcilable material conflict, then ALIAC will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs ALIAC in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification by ALIAC
------------------------
(a) ALIAC agrees to indemnify and hold harmless the Fund, the Distributor
and the Adviser and each of their respective officers and directors or trustees
and each person, if any, who controls the Fund, Distributor or Adviser within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all
15
losses, claims, expenses, damages and liabilities (including-amounts paid in
settlement with the written consent of ALIAC) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages or liabilities (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or SAI covering the Contracts or contained in the
Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this Agreement to
--------
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to ALIAC by or on
behalf of the Adviser, Distributor or Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or sales
literature or other promotional material (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature or other promotional material of the Fund
not supplied by ALIAC or persons under its control) or wrongful conduct of
ALIAC or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI, or
sales literature or other promotional material of the Fund, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such a
statement or omission was made in reliance upon information furnished in
writing to the Fund by or on behalf of ALIAC; or
(iv) arise as a result of any failure by ALIAC to provide the services and
furnish the materials under the terms of this Agreement; or
(iv) arise out of or result from any material breach of any representation
and/or warranty made by ALIAC in this Agreement or arise out of or result
from any other material breach of this Agreement by ALIAC, including
without limitation Section 2.10 and Section 6.6 hereof, as limited by and
in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof.
(b) ALIAC shall not be liable under this indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or litigation to
which an Indemnified Party
16
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to any of the Indemnified Parties.
(c) ALIAC 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 ALIAC 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 ALIAC of any such claim shall not relieve ALIAC
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,
except to the extent that ALIAC has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties ALIAC
shall be entitled to participate, at its own expense, in the defense of such
action. ALIAC also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from ALIAC to such
party of ALIAC's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
ALIAC 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.
(d) The Indemnified Parties will promptly notify ALIAC of the commencement
of any litigation or proceedings against them in connection with the issuance or
sale of the Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Adviser.
------------------------------
(a) The Adviser agrees to indemnify and hold harmless ALIAC and its
directors and officers and each person, if any, who controls ALIAC within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or SAI or sales literature or other promotional material of the
Fund prepared by the Fund, the Distributor or the Adviser (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this Agreement to indemnify shall not apply
--------
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the
17
Adviser, the Distributor or the Fund by or on behalf of ALIAC for use in
the registration statement, prospectus or SAI for the Fund or in sales
literature or other promotional material (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or the Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, SAI or sales literature or other promotional material for the
Contracts not supplied by the Adviser or persons under its control) or
wrongful conduct of the Fund, the Distributor or the Adviser or persons
under their control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI, or
sales literature or other promotional material 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
in writing to ALIAC by or on behalf of the Adviser, the Distributor or the
Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor or the
Adviser 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 diversification and other
qualification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund, the Distributor or the Adviser in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Adviser, the Distributor or the Fund; or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting by the Fund, the Distributor or the Adviser of the daily net
asset value per share (subject to Section 1.10 of this Agreement) or
dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
(b) The Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
18
(c) The Adviser shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Adviser in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Adviser of any such claim shall not
relieve the Adviser from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Adviser has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) ALIAC agrees promptly to notify the Adviser of the commencement of any
litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of the
Account.
8.3. Indemnification By the Fund.
---------------------------
(a) The Fund agrees to indemnify and hold harmless ALIAC and its directors
and officers and each person, if any, who controls ALIAC within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.3) against any and all losses, claims, expenses, damages and
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including reasonable legal and other expenses) to which
the Indemnified Parties may be required to pay or become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages, liabilities or expenses (or actions in respect
thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund 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
diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or
warranty made by the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share (subject to Section 1.10
of this Agreement) or dividend or capital gain distribution rate;
19
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or litigation to
which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
(c) The Fund 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 Fund 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 Fund of any such claim shall not relieve it
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,
except to the extent that the Fund has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties, the
Fund will be entitled to participate, at its own expense, in the defense
thereof. The Fund shall also be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Fund to such party of the Fund'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 Fund 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.
(d) ALIAC agrees promptly to notify the Fund of the commencement of any
litigation or proceeding against itself or any of its respective officers or
directors in connection with the Agreement, the issuance or sale of the
Contracts, the operation of the Account, or the sale or acquisition of shares of
the Fund.
8.4. Indemnification by the Distributor.
----------------------------------
(a) The Distributor agrees to indemnify and hold harmless ALIAC and its
directors and officers and each person, if any, who controls ALIAC within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 8.4) against any and all losses, claims, expenses,
damages and liabilities (including amounts paid in settlement with the written
consent of the Distributor) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and;
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or SAI or sales literature or other promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any amendment or
supplement to any of the foregoing), or arise out of
20
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this Agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Adviser, the
Distributor or Fund by or on behalf of ALIAC for use in the registration
statement or SAI or prospectus for the Fund or in sales literature or other
promotional material (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, SAI, sales literature or other promotional material for the
Contracts not supplied by the Distributor or persons under its control) or
wrongful conduct of the Fund, the Distributor or Adviser or persons under
their control, with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI, sales
literature or other promotional material 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
in writing to ALIAC by or on behalf of the Adviser, the Distributor or
Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
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 diversification and other qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund, Adviser or Distributor in this Agreement
or arise out of or result from any other material breach of this Agreement
by the Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share (subject to Section 1.10
of this Agreement) or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Distributor specified in Article VI
hereof.
(b) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such
21
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to any of the Indemnified Parties.
(c) The Distributor 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 Distributor 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 Distributor of
any such claim shall not relieve the Distributor 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, except to the extent that the
Distributor has been prejudiced by such failure to give notice. In case any
such action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor'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 Distributor 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.
(d) ALIAC agrees to promptly notify the Distributor of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of the
Account.
ARTICLE IX. Applicable Law.
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New Jersey,
without regard to the New Jersey Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination.
-----------
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with respect to
some or all Designated Portfolios, upon sixty (60) days advance written notice
delivered to the other parties; provided, however, that such notice shall not be
given earlier than six (6) months following the date of this Agreement; or
22
(b) at the option of ALIAC by written notice to the other parties with
respect to any Designated Portfolio based upon ALIAC's determination that shares
of such Designated Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) at the option of ALIAC by written notice to the other parties with
respect to any Designated Portfolio in the event any of the Designated
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to be issued by
ALIAC; or
(d) at the option of the Fund, Distributor or Adviser in the event that
formal administrative proceedings are instituted against ALIAC by the NASD, the
SEC, the Insurance Commissioner or like official of any state or any other
regulatory body regarding ALIAC's duties under this Agreement or related to the
sale of the Contracts, the operation of any Account, or the purchase of the Fund
shares, if, in each case, the Fund, Distributor or Adviser, as the case may be,
reasonably determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon the
ability of ALIAC to perform its obligations under this Agreement; or
(e) at the option of ALIAC in the event that formal administrative
proceedings are instituted against the Fund, the Distributor or the Adviser by
the NASD, the SEC, or any state securities or insurance department or any other
regulatory body, if ALIAC reasonably determines in its sole judgment exercised
in good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Fund, the Distributor or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of ALIAC by written notice to the Fund with respect to
any Designated Portfolio if ALIAC reasonably believes that the Designated
Portfolio will fail to meet the Section 817(h) diversification requirements or
Subchapter M qualifications specified in Article VI hereof; or
(g) at the option of either the Fund, the Distributor or the Adviser, if
(i) the Fund, Distributor or Adviser, respectively, shall determine, in its sole
judgment reasonably exercised in good faith, that ALIAC has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and that material adverse change or publicity will
have a material adverse impact on ALIAC's ability to perform its obligations
under this Agreement, (ii) the Fund, Distributor or Adviser notifies ALIAC of
that determination and its intent to terminate this Agreement, and (iii) after
---
considering the actions taken by ALIAC and any other changes in circumstances
since the giving of such a notice, the determination of the Fund, Distributor or
Adviser shall continue to apply on the sixtieth (60th) day following the giving
of that notice, which sixtieth day shall be the effective date of termination;
or
(h) at the option of ALIAC if (i) ALIAC shall determine, in its sole
judgment reasonably exercised in good faith, that the Fund, Distributor or
Adviser has suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that material
adverse change or publicity will have a material adverse impact on the Fund's,
Distributor's or Adviser's ability to perform its obligations under this
Agreement, (ii)
23
ALIAC notifies the Fund, Distributor or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement, and (iii) after
---
considering the actions taken by the Fund, Distributor or Adviser and any other
changes in circumstances since the giving of such a notice, the determination of
ALIAC shall continue to apply on the sixtieth (60th) day following the giving of
that notice, which sixtieth day shall be the effective date of termination; or
(i) at the option of any non-defaulting party hereto in the event of a
material breach of this Agreement by any party hereto (the "defaulting party")
other than as described in Section 10.1(a)-(j); provided, that the non-
defaulting party gives written notice thereof to the defaulting party, with
copies of such notice to all other non-defaulting parties, and if such breach
shall not have been remedied within thirty (30) days after such written notice
is given, then the non-defaulting party giving such written notice may terminate
this Agreement by giving thirty (30) days written notice of termination to the
defaulting party; or
(j) at any time upon written agreement of all parties to this Agreement.
10.2 Notice Requirement. No termination of this Agreement shall be
------------------
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination. Furthermore,
(a) in the event any termination is based upon the provisions of Article
VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this Agreement,
the prior written notice shall be given in advance of the effective date of
termination as required by those provisions unless such notice period is
shortened by mutual written agreement of the parties;
(b) in the event any termination is based upon the provisions of Section
10.1(d), 10.1 (e) or 10.1(i) of this Agreement, the prior written notice shall
be given at least sixty (60) days before the effective date of termination; and
(c) in the event any termination is based upon the provisions of Section.
10.1(b), 10.1 (c) or 10.1(f), the prior written notice shall be given in advance
of the effective date of termination, which date shall be determined by the
party sending the notice.
10.3. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, other than as a result of a failure by either the Fund or ALIAC to
meet Section 817(h) of the Code diversification requirements, the Fund, the
Distributor and the Adviser shall, at the option of ALIAC, continue to make
available additional shares of the Designated Portfolio(s) pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Designated
Portfolio(s), redeem investments in the Designated Portfolio(s) and/or invest in
the Designated Portfolio(s) upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 10.3 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
24
10.4. Surviving Provisions. Notwithstanding any termination of this
--------------------
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE XI. Notices.
--------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Fund:
The Prudential Series Fund, Inc.
Gateway Center Three
000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxx, XX 00000-0000
Attention: Secretary
If to the Adviser:
Prudential Investments Fund Management LLC
000 Xxxxxxxx Xxxxxx
Xxxxxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Secretary
If to the Distributor:
Prudential Investment Management Services LLC
Gateway Center Three
000 Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000-0000
Attention: Secretary
If to ALIAC:
Aetna Life Insurance and Annuity Company
000 Xxxxxxxxxx Xxxxxx, XX00
Xxxxxxxx, XX 00000
Attention: Counsel
ARTICLE XII. Miscellaneous.
-------------
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the
25
foregoing, no party hereto shall disclose any information that another party has
designated as proprietary.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. 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.
12.5. Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Connecticut Commissioner of Insurance with any information
or reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of ALIAC are being conducted in a manner consistent with the
Connecticut Variable Annuity Regulations and any other applicable law or
regulations.
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9. ALIAC agrees that the obligations assumed by the Fund, Distributor
and the Adviser pursuant to this Agreement shall be limited in any case to the
Fund, Distributor and Adviser and their respective assets and ALIAC shall not
seek satisfaction of any such obligation from the shareholders of the Fund,
Distributor or the Adviser, the Directors, officers, employees or agents of the
Fund, Distributor or Adviser, or any of them.
12.10. The Fund, the Distributor and the Adviser agree that the
obligations assumed by ALIAC pursuant to this Agreement shall be limited in any
case to ALIAC and its assets and neither the Fund, Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of ALIAC, the
directors, officers, employees or agents of ALIAC, or any of them.
26
12.11. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund, and the Distributor and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By its authorized Officer,
By:
---------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
THE PRUDENTIAL SERIES FUND, INC.
By its authorized Officer,
By: /s/ Xxxxxx X. Xxxxx
-------------------
Title: Vice President
Date: April 27, 2001
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
By its authorized Officer,
By: /s/Xxxxxx X. Xxxxx
------------------
Title: Executive Vice President
Date: April 27, 2001
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
By its authorized Officer,
By: /s/ Xxxxxx X. Xxxxx
-------------------
Title: President
Date: April 27, 2001
27
SCHEDULE A
Accounts
--------
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Contracts
---------
All Deferred Variable Annuity Contracts Issued by Variable Annuity Account B of
Aetna Life Insurance and Annuity Company.
28
SCHEDULE B
Designated Portfolio(s)
-----------------------
Prudential Series Fund, Inc. - Prudential Xxxxxxxx Portfolio (Class II)
Prudential Series Fund, Inc. - XX Xxxxxxxx International Growth Portfolio (Class
II)
29
SCHEDULE C
EXPENSES
--------
The Fund and/or the Distributor and/or Adviser, and ALIAC will coordinate the
functions and pay the costs of completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated to reflect the
Fund's share of the total costs determined according to the number of pages of
the Fund's respective portions of the documents.
-------------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
-------------------------------------------------------------------------------------------------
Mutual Fund Prospectus Printing of combined ALIAC In force - Fund
Prospectuses Prospective - ALIAC
-------------------------------------------------------------------------------------------------
Fund, Distributor or ALIAC Fund, Distributor or
Adviser shall supply Adviser, as applicable
ALIAC with such
numbers of the
Designated
Portfolio(s)
prospectuses(es) as
ALIAC shall reasonably
request
-------------------------------------------------------------------------------------------------
Distribution ALIAC Fund
(including postage) to
New and in force
Clients
-------------------------------------------------------------------------------------------------
Distribution ALIAC ALIAC
(including postage) to
Prospective Clients
-------------------------------------------------------------------------------------------------
Product Prospectus Printing and ALIAC ALIAC
distribution for in
force and Prospective
Clients
-------------------------------------------------------------------------------------------------
Mutual Fund If Required by Fund, Fund, Distributor or Fund, Distributor or
Prospectus Update & Distributor or Adviser Adviser Adviser
Distribution
-------------------------------------------------------------------------------------------------
If Required by ALIAC ALIAC (Fund, ALIAC
Distributor or Adviser
to provide ALIAC with
document in PDF format)
-------------------------------------------------------------------------------------------------
Product Prospectus If Required by Fund, ALIAC Fund, Distributor or
Update & Distribution Distributor or Adviser Adviser
-------------------------------------------------------------------------------------------------
If Required by ALIAC ALIAC ALIAC
-------------------------------------------------------------------------------------------------
30
-------------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
-------------------------------------------------------------------------------------------------
Mutual Fund SAI Printing Fund, Distributor or Fund, Distributor or
Adviser Adviser
-------------------------------------------------------------------------------------------------
Distribution ALIAC Fund
(including postage)
-------------------------------------------------------------------------------------------------
Product SAI Printing ALIAC ALIAC
-------------------------------------------------------------------------------------------------
Distribution ALIAC ALIAC
-------------------------------------------------------------------------------------------------
Proxy Material for Printing if proxy Fund, Distributor or Fund, Distribution or
Mutual Fund required by Law Adviser Adviser
-------------------------------------------------------------------------------------------------
Distribution ALIAC Fund, Distributor or
(including labor) if Adviser
proxy required by Law
-------------------------------------------------------------------------------------------------
Printing & ALIAC ALIAC
distribution if
required by ALIAC
-------------------------------------------------------------------------------------------------
Mutual Fund Annual & Printing of reports Fund, Distributor or Fund, Distributor or
Semi-Annual Report Adviser (Designated Adviser
Portfolio only)
-------------------------------------------------------------------------------------------------
Distribution ALIAC Fund
-------------------------------------------------------------------------------------------------
Other communication If Required by the ALIAC Fund, Distributor or
to New and Fund, Distributor or Adviser
Prospective clients Adviser
-------------------------------------------------------------------------------------------------
If Required by ALIAC ALIAC ALIAC
-------------------------------------------------------------------------------------------------
Other communication Distribution ALIAC Fund, Distributor or
to enforce (including labor and Adviser
printing) if required
by the Fund,
Distributor or Adviser
-------------------------------------------------------------------------------------------------
Distribution ALIAC ALIAC
(including labor and
printing) if required
by ALIAC
-------------------------------------------------------------------------------------------------
Errors in Share Price Cost of error to ALIAC Fund or Adviser
calculation pursuant participants
to Section 1.10
-------------------------------------------------------------------------------------------------
Cost of reasonable ALIAC Fund or Adviser
expenses related to
administrative work to
correct error
-------------------------------------------------------------------------------------------------
31
-------------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
-------------------------------------------------------------------------------------------------
Operations of the Fund All operations and Fund, Distributor or Fund or Adviser
related expenses, Adviser
including the cost of
registration and
qualification of
shares, taxes on the
issuance or transfer
of shares, cost of
management of the
business affairs of
the Fund, and expenses
paid or assumed by the
Fund pursuant to any
Rule 12b-1 plan
-------------------------------------------------------------------------------------------------
Operations of the Federal registration ALIAC ALIAC
Account of units of separate
account (24f-2 fees)
-------------------------------------------------------------------------------------------------
32
