PARTICIPATION AGREEMENT
as of [ , ] 2000
Franklin Xxxxxxxxx Variable Insurance Products Trust
Franklin Xxxxxxxxx Distributors, Inc.
[Company]
CONTENTS
Section Subject Matter
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1. Parties and Purpose
2. Representations and Warranties
3. Purchase and Redemption of Trust Portfolio Shares
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
5. Voting
6. Sales Material, Information and Trademarks
7. Indemnification
8. Notices
9. Termination
10. Miscellaneous
SCHEDULES TO THIS AGREEMENT
A. The Company
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust; Investment Advisers
D. Contracts of the Company
E. Other Portfolios Available under the Contracts
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
1. PARTIES AND PURPOSE
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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
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2.1 REPRESENTATIONS AND WARRANTIES BY YOU
You represent and warrant that:
2.1.1 You are an insurance company duly organized and in good standing under the laws of
your state of incorporation.
2.1.2 All of your directors, officers, employees, and other individuals or entities dealing
with the money and/or securities of the Trust are and shall be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust, in an amount not less than $5 million. Such bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding company. You agree to make all
reasonable efforts to see that this bond or another bond containing such provisions is always in effect, and you
agree to notify us in the event that such coverage no longer applies.
2.1.3 Each Account is a duly organized, validly existing segregated asset account under
applicable insurance law and interests in each Account are offered exclusively through the purchase of or
transfer into a "variable contract" within the meaning of such terms under Section 817 of the Internal Revenue
Code of 1986, as amended ("Code") and the regulations thereunder. You will use your best efforts to continue to
meet such definitional requirements, and will notify us immediately upon having a reasonable basis for believing
that such requirements have ceased to be met or that they might not be met in the future.
2.1.4 Each Account either: (i) has been registered or, prior to any issuance or sale of the
Contracts, will be registered as a unit investment trust under the Investment Company Act of 1940 ("1940 Act");
or (ii) has not been so registered in proper reliance upon an exemption from registration under Section 3(c) of
the 1940 Act; if the Account is exempt from registration as an investment company under Section 3(c) of the
1940 Act, you will use your best efforts to maintain such exemption and will notify us immediately upon having a
reasonable basis for believing that such exemption no longer applies or might not apply in the future.
2.1.5 The Contracts or interests in the Accounts: (i) are or, prior to any issuance or sale
will be, registered as securities under the Securities Act of 1933, as amended (the "1933 Act"); or (ii) are not
registered because they are properly exempt from registration under Section 3(a)(2) of the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration under Section 4(2) or Regulation D
of the 1933 Act, in which case you will make every effort to maintain such exemption and will notify us
immediately upon having a reasonable basis for believing that such exemption no longer applies or might not apply
in the future.
2.1.6 The Contracts: (i) will be sold by broker-dealers, or their registered
representatives, who are registered with the Securities and Exchange Commission ("SEC") under the Securities and
Exchange Act of 1934, as amended (the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and sold in compliance in all material
respects with all applicable federal and state laws; and (iii) will be sold in compliance in all material
respects with state insurance suitability requirements and NASD suitability guidelines.
2.1.7 The Contracts currently are and will be treated as annuity contracts or life insurance
contracts under applicable provisions of the Code and you will use your best efforts to maintain such treatment;
you will notify us immediately upon having a reasonable basis for believing that any of the Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.1.8 The fees and charges deducted under each Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the risks assumed by you.
2.1.9 You will use shares of the Trust only for the purpose of funding benefits of the
Contracts through the Accounts.
2.1.10 Contracts will not be sold outside of the United States.
2.1.11 With respect to any Accounts which are exempt from registration under the 1940 Act in
reliance on 3(c)(1) or Section 3(c)(7) thereof:
2.1.11.1 the principal underwriter for each such Account and any subaccounts thereof is
a registered broker-dealer with the SEC under the 1934 Act;
2.1.11.2 the shares of the Portfolios of the Trust are and will continue to be the only
investment securities held by the corresponding subaccounts; and
2.1.11.3 with regard to each Portfolio, you, on behalf of the corresponding subaccount,
will:
(a) vote such shares held by it in the same proportion as the
vote of all other holders of such shares; and
(b) refrain from substituting shares of another security for
such shares unless the SEC has approved such substitution in
the manner provided in Section 26 of the 1940 Act.
2.2 REPRESENTATIONS AND WARRANTIES BY THE TRUST
The Trust represents and warrants that:
2.2.1 It is duly organized and in good standing under the laws of the State of Massachusetts.
2.2.2 All of its directors, officers, employees and others dealing with the money and/or
securities of a Portfolio are and shall be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Trust in an amount not less that the minimum coverage required by Rule 17g-1 or other
regulations under the 1940 Act. Such bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
2.2.3 It is registered as an open-end management investment company under the 0000 Xxx.
2.2.4 Each class of shares of the Portfolios of the Trust is registered under the 0000 Xxx.
2.2.5 It will amend its registration statement under the 1933 Act and the 1940 Act from time
to time as required in order to effect the continuous offering of its shares.
2.2.6 It will comply, in all material respects, with the 1933 and 1940 Acts and the rules
and regulations thereunder.
2.2.7 It is currently qualified as a "regulated investment company" under Subchapter M of
the Code, it will make every effort to maintain such qualification, and will notify you immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future.
2.2.8 The Trust will use its best efforts to comply with the diversification requirements
for variable annuity, endowment or life insurance contracts set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury Regulation 1.817-5. Upon having a
reasonable basis for believing any Portfolio has ceased to comply and will not be able to comply within the grace
period afforded by Regulation 1.817-5, the Trust will notify you immediately and will take all reasonable steps
to adequately diversify the Portfolio to achieve compliance.
2.2.9 It currently intends for one or more classes of shares (each, a "Class") to make
payments to finance its distribution expenses, including service fees, pursuant to a plan ("Plan") adopted under
rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may determine to discontinue such practice in the
future. To the extent that any Class of the Trust finances its distribution expenses pursuant to a Plan adopted
under rule 12b-1, the Trust undertakes to comply with any then current SEC interpretations concerning rule 12b-1
or any successor provisions.
2.3 REPRESENTATIONS AND WARRANTIES BY THE UNDERWRITER
The Underwriter represents and warrants that:
2.3.1 It is registered as a broker dealer with the SEC under the 1934 Act, and is a member
in good standing of the NASD.
2.3.2 Each investment adviser listed on Schedule C (each, an "Adviser") is duly registered
as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state
securities law.
2.4 WARRANTY AND AGREEMENT BY BOTH YOU AND US
We received an order from the SEC dated November 16, 1993 (file no. 812-8546), which was amended by a
notice and an order we received on September 17, 1999 and October 13, 1999, respectively (file no. 812-11698)
(collectively, the "Shared Funding Order," attached to this Agreement as Schedule H). The Shared Funding Order
grants exemptions from certain provisions of the 1940 Act and the regulations thereunder to the extent necessary
to permit shares of the Trust to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and qualified pension and retirement plans
outside the separate account context. You and we both warrant and agree that both you and we will comply with
the "Applicants' Conditions" prescribed in the Shared Funding Order as though such conditions were set forth
verbatim in this Agreement, including, without limitation, the provisions regarding potential conflicts of
interest between the separate accounts which invest in the Trust and regarding contract owner voting privileges.
In order for the Trust's Board of Trustees to perform its duty to monitor for conflicts of interest, you agree to
inform us of the occurrence of any of the events specified in condition 2 of the Shared Funding Order to the
extent that such event may or does result in a material conflict of interest as defined in that order.
3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
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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 You agree that all net amounts available under the Contracts shall be invested in: (i) the
Company's general account; (ii) investment companies currently available as funding vehicles for the Contracts
and appearing on Schedule E of this Agreement; or (iii) other investment companies, provided that you shall have
given the Trust and the Underwriter thirty (30) days' advance written notice of your intention to add such other
investment companies.
3.4 You shall be the designee for us for receipt of purchase orders and requests for redemption
resulting from investment in and payments under the Contracts ("Instructions"). The Business Day on which such
Instructions are received in proper form by you and time stamped by the close of trading will be the date as of
which Portfolio shares shall be deemed purchased, exchanged, or redeemed as a result of such Instructions.
Instructions received in proper form by you and time stamped after the close of trading on any given Business Day
shall be treated as if received on the next following Business Day. You warrant that all orders, Instructions
and confirmations received by you which will be transmitted to us for processing on a Business Day will have been
received and time stamped prior to the Close of Trading on that Business Day. Instructions we receive after 9
a.m. Eastern Time shall be processed on the next Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Trust calculates its net asset value pursuant to the
rules of the SEC and its current prospectus.
3.5 We shall calculate the net asset value per share of each Portfolio on each Business Day, and
shall communicate these net asset values to you or your designated agent on a daily basis as soon as reasonably
practical after the calculation is completed (normally by 6:30 p.m. Eastern time).
3.6 You shall submit payment for the purchase of shares of a Portfolio on behalf of an Account no
later than the close of business on the next Business Day after we receive the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or to its designated custodian.
3.7 We will redeem any full or fractional shares of any Portfolio, when requested by you on behalf
of an Account, at the net asset value next computed after receipt by us (or our agent) of the request for
redemption, as established in accordance with the provisions of the then current prospectus of the Trust. We
shall make payment for such shares in the manner we establish from time to time, but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act. Payments for the purchase or redemption of
shares by you may be netted against one another on any Business Day for the purpose of determining the amount of
any wire transfer on that Business Day.
3.8 Issuance and transfer of the Portfolio shares will be by book entry only. Stock certificates
will not be issued to you or the Accounts. Portfolio shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each Account.
3.9 We shall furnish, on or before the ex-dividend date, notice to you of any income dividends or
capital gain distributions payable on the shares of any Portfolio. You hereby elect to receive all such income
dividends and capital gain distributions as are payable on shares of a Portfolio in additional shares of that
Portfolio, and you reserve the right to change this election in the future. We will notify you of the number of
shares so issued as payment of such dividends and distributions.
4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS
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4.1 We shall pay no fee or other compensation to you under this Agreement except as provided on
Schedule F, if attached.
4.2 We shall prepare and be responsible for filing with the SEC, and any state regulators requiring
such filing, all shareholder reports, notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information of the Trust. We shall bear the
costs of preparation and filing of the documents listed in the preceding sentence, registration and qualification
of the Trust's shares of the Portfolios.
4.3 We shall use reasonable efforts to provide you, on a timely basis, with such information about
the Trust, the Portfolios and each Adviser, in such form as you may reasonably require, as you shall reasonably
request in connection with the preparation of disclosure documents and annual and semi-annual reports pertaining
to the Contracts.
4.4 At your option, we shall provide you, at our expense, with either: (i) for each Contract owner
who is invested through the Account in a subaccount corresponding to a Portfolio ("designated subaccount"), one
copy of each of the following documents on each occasion that such document is required by law or regulation to
be delivered to such Contract owner who is invested in a designated subaccount: the Trust's current prospectus,
annual report, semi-annual report and other shareholder communications, including any amendments or supplements
to any of the foregoing, pertaining specifically to the Portfolios ("Designated Portfolio Documents"); or (ii) a
camera ready copy of such Designated Portfolio Documents in a form suitable for printing and from which
information relating to series of the Trust other than the Portfolios has been deleted to the extent
practicable. In connection with clause (ii) of this paragraph, we will pay for proportional printing costs for
such Designated Portfolio Documents in order to provide one copy for each Contract owner who is invested in a
designated subaccount on each occasion that such document is required by law or regulation to be delivered to
such Contract owner, and provided the appropriate documentation is provided and approved by us. We shall provide
you with a copy of the Trust's current statement of additional information, including any amendments or
supplements, in a form suitable for you to duplicate. The expenses of furnishing, including mailing, to Contract
owners the documents referred to in this paragraph shall be borne by you. For each of the documents provided to
you in accordance with clause (i) of this paragraph 4.4, we shall provide you, upon your request and at your
expense, additional copies. In no event shall we be responsible for the costs of printing or delivery of
Designated Portfolio Documents to potential or new Contract owners or the delivery of Designated Portfolio
Documents to existing contract owners.
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
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5.1 All Participating Insurance Companies shall have the obligations and responsibilities regarding
pass-through voting and conflicts of interest corresponding to those contained in the Shared Funding Order.
5.2 If and to the extent required by law, you shall: (i) solicit voting instructions from Contract
owners; (ii) vote the Trust shares in accordance with the instructions received from Contract owners; and
(iii) vote Trust shares for which no instructions have been received in the same proportion as Trust shares of
such Portfolio for which instructions have been received; so long as and to the extent that the SEC continues to
interpret the 1940 Act to require pass-through voting privileges for variable contract owners. You reserve the
right to vote Trust shares held in any Account in your own right, to the extent permitted by law.
5.3 So long as, and to the extent that, the SEC interprets the 1940 Act to require pass-through
voting privileges for Contract owners, you shall provide pass-through voting privileges to Contract owners whose
Contract values are invested, through the Accounts, in shares of one or more Portfolios of the Trust. We shall
require all Participating Insurance Companies to calculate voting privileges in the same manner and you shall be
responsible for assuring that the Accounts calculate voting privileges in the manner established by us. With
respect to each Account, you will vote shares of each Portfolio of the Trust held by an Account and for which no
timely voting instructions from Contract owners are received in the same proportion as those shares held by that
Account for which voting instructions are received. You and your agents will in no way recommend or oppose or
interfere with the solicitation of proxies for Portfolio shares held to fund the Contracts without our prior
written consent, which consent may be withheld in our sole discretion.
6. SALES MATERIAL, INFORMATION AND TRADEMARKS
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6.1 For purposes of this Section 6, "Sales literature or other Promotional material" includes, but
is not limited to, portions of the following that use any logo or other trademark related to the Trust, or
Underwriter or its affiliates, or refer to the Trust: advertisements (such as material published or designed for
use in a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, electronic communication or other public media), sales literature
(i.e., any written communication distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts or any
other advertisement, sales literature or published article or electronic communication), educational or training
materials or other communications distributed or made generally available to some or all agents or employees in
any media, and disclosure documents, shareholder reports and proxy materials.
6.2 You shall furnish, or cause to be furnished to us or our designee, at least one complete copy
of each registration statement, prospectus, statement of additional information, private placement memorandum,
retirement plan disclosure information or other disclosure documents or similar information, as applicable
(collectively "Disclosure Documents"), as well as any report, solicitation for voting instructions, Sales
literature or other Promotional materials, and all amendments to any of the above that relate to the Contracts or
the Accounts prior to its first use. You shall furnish, or shall cause to be furnished, to us or our designee
each piece of Sales literature or other Promotional material in which the Trust or an Adviser is named, at least
fifteen (15) Business Days prior to its proposed use. No such material shall be used unless we or our designee
approve such material and its proposed use.
6.3 You and your agents shall not give any information or make any representations or statements on
behalf of the Trust or concerning the Trust, the Underwriter or an Adviser, other than information or
representations contained in and accurately derived from the registration statement or prospectus for the Trust
shares (as such registration statement and prospectus may be amended or supplemented from time to time), annual
and semi-annual reports of the Trust, Trust-sponsored proxy statements, or in Sales literature or other
Promotional material approved by the Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee. You shall send us a complete copy of
each Disclosure Document and item of Sales literature or other Promotional materials in its final form within
twenty (20) days of its first use.
6.4 We shall not give any information or make any representations or statements on behalf of you or
concerning you, the Accounts or the Contracts other than information or representations, including naming you as
a Trust shareholder, contained in and accurately derived from Disclosure Documents for the Contracts (as such
Disclosure Documents may be amended or supplemented from time to time), or in materials approved by you for
distribution, including Sales literature or other Promotional materials, except as required by legal process or
regulatory authorities or with your written permission.
6.5 Except as provided in Section 6.2, you shall not use any designation comprised in whole or
part of the names or marks "Franklin" or "Xxxxxxxxx" or any logo or other trademark relating to the Trust or the
Underwriter without prior written consent, and upon termination of this Agreement for any reason, you shall cease
all use of any such name or xxxx as soon as reasonably practicable.
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
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7.1 INDEMNIFICATION BY YOU
7.1.1 You agree to indemnify and hold harmless the Underwriter, the Trust and each of its
Trustees, officers, employees and agents and each person, if any, who controls the Trust within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually the "Indemnified Party" for
purposes of this Section 7) against any and all losses, claims, damages, liabilities (including amounts paid in
settlement with your written consent, which consent shall not be unreasonably withheld) or expenses (including
the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of shares of the Trust or the Contracts and
7.1.1.1 arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a Disclosure Document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by you on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the
purposes of this Section 7), or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance upon and was accurately
derived from written information furnished to you by or on behalf of the Trust for use in Company
Documents or otherwise for use in connection with the sale of the Contracts or Trust shares; or
7.1.1.2 arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from Trust Documents as defined below
in Section 7.2) or wrongful conduct of you or persons under your control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
7.1.1.3 arise out of or result from any untrue statement or alleged untrue statement
of a material fact contained in Trust Documents as defined below in Section 7.2 or the omission or
alleged omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on behalf of you; or
7.1.1.4 arise out of or result from any failure by you to provide the services or
furnish the materials required under the terms of this Agreement;
7.1.1.5 arise out of or result from any material breach of any representation and/or
warranty made by you in this Agreement or arise out of or result from any other material breach of this
Agreement by you; or
7.1.1.6 arise out of or result from a Contract failing to be considered a life
insurance policy or an annuity Contract, whichever is appropriate, under applicable provisions of the
Code thereby depriving the Trust of its compliance with Section 817(h) of the Code.
7.1.2 You shall not be liable under this indemnification provision with respect to any
Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Trust or
Underwriter, whichever is applicable. You shall also not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified you in
writing within a reasonable time after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify you of any such claim shall not
relieve you from any liability which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such action is brought against the
Indemnified Parties, you shall be entitled to participate, at your own expense, in the defense of such action.
Unless the Indemnified Party releases you from any further obligations under this Section 7.1, you also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice
from you to such party of the your election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and you will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
7.1.3 The Indemnified Parties will promptly notify you of the commencement of any litigation
or proceedings against them in connection with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust.
7.2 INDEMNIFICATION BY THE UNDERWRITER
7.2.1 The Underwriter agrees to indemnify and hold harmless you, and each of your directors
and officers and each person, if any, who controls you within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually an "Indemnified Party" for purposes of this
Section 7.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter, which consent shall not be unreasonably withheld) or expenses (including
the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of the shares of the Trust or the Contracts and:
7.2.1.1 arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement, prospectus or sales literature
of the Trust (or any amendment or supplement to any of the foregoing) (collectively, the "Trust
Documents") or arise out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement
or omission of such alleged statement or omission was made in reliance upon and in conformity with
information furnished to us by or on behalf of you for use in the Registration Statement or prospectus
for the Trust or in sales literature (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
7.2.1.2 arise out of or as a result of statements or representations (other than
statements or representations contained in the Disclosure Documents or sales literature for the
Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with respect to the sale or distribution
of the Contracts or Trust shares; or
7.2.1.3 arise out of any untrue statement or alleged untrue statement of a material
fact contained in a Disclosure Document or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon information furnished to you by or on behalf of
the Trust; or
7.2.1.4 arise as a result of any failure by us to provide the services and furnish the
materials under the terms of this Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the qualification representation specified above in Section 2.2.7 and the
diversification requirements specified above in Section 2.2.8; or
7.2.1.5 arise out of or result from any material breach of any representation and/or
warranty made by the Underwriter in this Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of
Sections 7.2.2 and 7.2.3 hereof.
7.2.2 The Underwriter shall not be liable under this indemnification provision with respect
to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to you or
the Accounts, whichever is applicable.
7.2.3 The Underwriter shall not be liable under this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter
in writing within a reasonable time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to notify the Underwriter of any such
claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification provision. In case any such action
is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense,
in the defense thereof. Unless the Indemnified Party releases the Underwriter from any further obligations under
this Section 7.2, the Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election
to assume the defense thereof, the Indemnified Party shall bear the expenses of any additional counsel retained
by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense thereof other than reasonable
costs of investigation.
7.2.4 You agree promptly to notify the Underwriter of the commencement of any litigation or
proceedings against you or the Indemnified Parties in connection with the issuance or sale of the Contracts or
the operation of each Account.
7.3 INDEMNIFICATION BY THE TRUST
7.3.1 The Trust agrees to indemnify and hold harmless you, and each of your directors and
officers and each person, if any, who controls you within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written consent of the Trust, which consent
shall not be unreasonably withheld) or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence,
bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Trust,
and arise out of or result from any material breach of any representation and/or warranty made by the Trust in
this Agreement or arise out of or result from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Sections 7.3.2 and 7.3.3 hereof. It is understood and
expressly stipulated that neither the holders of shares of the Trust nor any Trustee, officer, agent or employee
of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall be liable.
7.3.2 The Trust shall not be liable under this indemnification provision with respect to any
losses, claims, damages, liabilities or litigation incurred or assessed against any Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to you, the Trust, the Underwriter or each Account, whichever is applicable.
7.3.3 The Trust shall not be liable under this indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving information of the nature of the
claims shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Trust will be entitled to participate, at its own expense, in the defense thereof.
Unless the Indemnified Party releases the Trust from any further obligations under this Section 7.3, the Trust
also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust to such party of the Trust's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Trust will
not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than reasonable costs of investigation.
7.3.4 You agree promptly to notify the Trust of the commencement of any litigation or
proceedings against you or the Indemnified Parties in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of the Account, or the sale or acquisition of shares of the Trust.
8. NOTICES
-------
Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of
such party set forth in Schedule G below or at such other address as such party may from time to time specify in writing
to the other party.
9. TERMINATION
-----------
9.1 This Agreement may be terminated by any party in its entirety or with respect to one, some or
all Portfolios for any reason by sixty (60) days advance written notice delivered to the other parties. This
Agreement shall terminate immediately in the event of its assignment by any party without the prior written
approval of the other parties, or as otherwise required by law.
9.2 This Agreement may be terminated immediately by us upon written notice to you if:
9.2.1 you notify the Trust or the Underwriter that the exemption from registration under
Section 3(c) of the 1940 Act no longer applies, or might not apply in the future, to the unregistered
Accounts, or that the exemption from registration under Section 4(2) or Regulation D promulgated under
the 1933 Act no longer applies or might not apply in the future, to interests under the unregistered
Contracts; or
9.2.2 either one or both of the Trust or the Underwriter respectively, shall determine, in
their sole judgment exercised in good faith, that you have suffered a material adverse change in your
business, operations, financial condition or prospects since the date of this Agreement or are the
subject of material adverse publicity; or
9.2.3 you give us the written notice specified above in Section 3.3 and at the same time you
give us such notice there was no notice of termination outstanding under any other provision of this
Agreement; provided, however, that any termination under this Section 9.2.3 shall be effective
forty-five (45) days after the notice specified in Section 3.3 was given.
9.3 If this Agreement is terminated for any reason, except as required by the Shared Funding Order
or pursuant to Section 9.2.1, above, we shall, at your option, continue to make available additional shares of
any Portfolio and redeem shares of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this Agreement. If this Agreement is
terminated as required by the Shared Funding Order, its provisions shall govern.
9.4 The provisions of Sections 2 (Representations and Warranties) and 7 (Indemnification) shall
survive the termination of this Agreement. All other applicable provisions of this Agreement shall survive the
termination of this Agreement, as long as shares of the Trust are held on behalf of Contract owners in accordance
with Section 9.3, except that we shall have no further obligation to sell Trust shares with respect to Contracts
issued after termination.
9.5 You shall not redeem Trust shares attributable to the Contracts (as opposed to Trust shares
attributable to your assets held in the Account) except: (i) as necessary to implement Contract owner initiated
or approved transactions; (ii) as required by state and/or federal laws or regulations or judicial or other legal
precedent of general application (hereinafter referred to as a "Legally Required Redemption"); or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request, you shall promptly
furnish to us the opinion of your counsel (which counsel shall be reasonably satisfactory to us) to the effect
that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases
where permitted under the terms of the Contracts, you shall not prevent Contract owners from allocating payments
to a Portfolio that was otherwise available under the Contracts without first giving us ninety (90) days notice
of your intention to do so.
10. MISCELLANEOUS
-------------
10.1 The captions in this Agreement are included for convenience of reference only and in no way
define or delineate any of the provisions of this Agreement or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more counterparts, all of which taken
together shall constitute one and the same instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of the Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and its provisions interpreted under and in accordance with
the laws of the State of California. It shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder, to any orders of the SEC on behalf of the Trust granting it exemptive
relief, and to the conditions of such orders. We shall promptly forward copies of any such orders to you.
10.5 The parties to this Agreement acknowledge and agree that all liabilities of the Trust arising,
directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out
of the assets of the Trust and that no Trustee, officer, agent or holder of shares of beneficial interest of the
Trust shall be personally liable for any such liabilities.
10.6 The parties to this Agreement agree that the assets and liabilities of each Portfolio of the
Trust are separate and distinct from the assets and liabilities of each other Portfolio. No Portfolio shall be
liable or shall be charged for any debt, obligation or liability of any other Portfolio.
10.7 Each party to this Agreement shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
10.8 Each party to this Agreement shall treat as confidential all information reasonably identified
as confidential in writing by any other party to this Agreement, and, except as permitted by this Agreement or as
required by legal process or regulatory authorities, shall not disclose, disseminate, or use such names and
addresses and other confidential information until such time as they may come into the public domain, without the
express written consent of the affected party to this Agreement. Without limiting the foregoing, no party to
this Agreement shall disclose any information that such party has been advised is proprietary, except such
information that such party is required to disclose by any appropriate governmental authority (including, without
limitation, the SEC, the NASD, and state securities and insurance regulators).
10.9 The rights, remedies and obligations contained in this Agreement are cumulative and are in
addition to any and all rights, remedies and obligations, at law or in equity, which the parties to this
Agreement are entitled to under state and federal laws.
10.10 The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive
in any respect, except as provided above in Section 3.3.
10.11 Neither this Agreement nor any rights or obligations created by it may be assigned by any party
without the prior written approval of the other parties.
10.12 No provisions of this Agreement may be amended or modified in any manner except by a written
agreement properly authorized and executed by both parties.
IN WITNESS WHEREOF, each of the parties have caused their duly authorized officers to execute this
Agreement.
The Company:
By:
Name:
Title:
The Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
----------------------------------------------------
ONLY ON BEHALF OF EACH
PORTFOLIO LISTED ON
SCHEDULE C HEREOF.
By:
Name: Xxxxx X. Xxxxxxxx
Title: Assistant Vice President
The Underwriter: Franklin Xxxxxxxxx Distributors, Inc.
-------------------------------------
By:
Name:
Title:
SCHEDULE A
THE COMPANY
[name]
[address]
[state of incorporation]
SCHEDULE B
ACCOUNTS OF THE COMPANY
1. Name: [name]
Date Established: [date]
SEC Registration Number: 811-____
2. Name: [name]
Date Established: [date]
SEC Registration Number: 811-____
SCHEDULE C
AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS
Franklin Xxxxxxxxx Variable Insurance Products Trust Investment Adviser
---------------------------------------------------- ------------------
SCHEDULE D
CONTRACTS OF THE COMPANY
--------------------------- ------------------------------- -------------------------------- -------------------------------
CONTRACT 1 CONTRACT 2 CONTRACT 3
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
CONTRACT/PRODUCT NAME
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
REGISTERED (Y/N)
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
SEC REGISTRATION NUMBER
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
REPRESENTATIVE FORM
NUMBERS
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
SEPARATE ACCOUNT
NAME/DATE ESTABLISHED
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
SEC REGISTRATION NUMBER
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
PORTFOLIOS AND CLASSES
-ADVISER
--------------------------- ------------------------------- -------------------------------- -------------------------------
SCHEDULE D CONT.
CONTRACTS OF THE COMPANY
--------------------------- ------------------------------- -------------------------------- -------------------------------
CONTRACT 4 CONTRACT 5 CONTRACT 6
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
CONTRACT/PRODUCT NAME
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
REGISTERED (Y/N)
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
SEC REGISTRATION NUMBER
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
REPRESENTATIVE FORM
NUMBERS
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
SEPARATE ACCOUNT
NAME/DATE ESTABLISHED
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
SEC REGISTRATION NUMBER
--------------------------- ------------------------------- -------------------------------- -------------------------------
--------------------------- ------------------------------- -------------------------------- -------------------------------
PORTFOLIOS AND CLASSES
-ADVISER
--------------------------- ------------------------------- -------------------------------- -------------------------------
SCHEDULE E
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
[names of other portfolios]
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
-------------- ---------------------------
AGREEMENT PROVISIONS
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio shares ("Eligible Shares") which are
subject to a Rule 12b-1 plan adopted under the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees (collectively "you") provide any
activity or service which is primarily intended to assist in the promotion, distribution or account servicing of
Eligible Shares ("Rule 12b-1 Services") or variable contracts offering Eligible Shares, the Underwriter, the
Trust or their affiliates (collectively, "we") may pay you a Rule 12b-1 fee. "Rule 12b-1 Services" may include,
but are not limited to, printing of prospectuses and reports used for sales purposes, preparing and distributing
sales literature and related expenses, advertisements, education of dealers and their representatives, and
similar distribution-related expenses, furnishing personal services to owners of Contracts which may invest in
Eligible Shares ("Contract Owners"), education of Contract Owners, answering routine inquiries regarding a
Portfolio, coordinating responses to Contract Owner inquiries regarding the Portfolios, maintaining such accounts
or providing such other enhanced services as a Trust Portfolio or Contract may require, or providing other
services eligible for service fees as defined under NASD rules. Your acceptance of such compensation is your
acknowledgment that eligible services have been rendered. All Rule 12b-1 fees, shall be based on the value of
Eligible Shares owned by the Company on behalf of its Accounts, and shall be calculated on the basis and at the
rates set forth in the Compensation Schedule stated above. The aggregate annual fees paid pursuant to each Plan
shall not exceed the amounts stated as the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a specified percent of the value of a
Portfolio's net assets attributable to Eligible Shares owned by the Company on behalf of its Accounts (determined
in the same manner as the Portfolio uses to compute its net assets as set forth in its effective Prospectus).
The Rule 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.
SCHEDULE G
ADDRESSES FOR NOTICES
To the Company: [ ] Insurance Company
[address]
[address]
Attention: [name, title]
To the Trust: Franklin Xxxxxxxxx Variable Insurance Products Trust
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
[title]
To the Underwriter: Franklin Xxxxxxxxx Distributors, Inc.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: [name, title]
SCHEDULE H
SHARED FUNDING ORDER
Templeton Variable Products Series Fund, et al.
File No. 812-11698
SECURITIES AND EXCHANGE COMMISSION
Release No. IC-24018
1999 SEC LEXIS 1887
September 17, 1999
ACTION: Notice of application for an amended order of exemption pursuant to Section 6(c) of the Investment
Company Act of 1940 (the "1940 Act") from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.
TEXT: Summary of Application: Templeton Variable Products Series Fund (the "Templeton Trust"), Franklin Xxxxxxxxx
Variable Insurance Products Trust (formerly Franklin Valuemark Funds) (the "VIP Trust," and together with the
Templeton Trust, the "Funds"), Xxxxxxxxx Funds Annuity Company ("TFAC") or any successor to TFAC, and any future
open-end investment company for which TFAC or any affiliate is the administrator, sub-administrator, investment
manager, adviser, principal underwriter, or sponsor ("Future Funds") seek an amended order of the Commission to
(1) add as parties to that order the VIP Trust and any Future Funds and (2) permit shares of the Funds and Future
Funds to be issued to and held by qualified pension and retirement plans outside the separate account context.
Applicants: Templeton Variable Products Series Fund, Franklin Xxxxxxxxx Variable Insurance Products Trust,
Xxxxxxxxx Funds Annuity Company or any successor to TFAC, and any future open-end investment company for which
TFAC or any affiliate is the administrator, sub-administrator, investment manager, adviser, principal
underwriter, or sponsor (collectively, the "Applicants").
Filing Date: The application was filed on July 14, 1999, and amended and restated on September 17, 1999.
Hearing or Notification of Hearing: An order granting the application will be issued unless the Commission
orders a hearing. Interested persons may request a hearing by writing to the Secretary of the Commission and
serving Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m., on October 12, 1999, and should be accompanied by proof of service on the Applicants in
the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of
the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a
hearing may request notification by writing to the Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 000 Xxxxx Xxxxxx, XX, Xxxxxxxxxx, X.X. 00000-0000.
Applicants: Templeton Variable Products Series Fund and Franklin Xxxxxxxxx Variable Insurance Products Trust,
000 Xxxxxxxx Xxxxxx Xxxxxxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000, Attn: Xxxxx X. Xxxxxxxx, Esq.
For Further Information Contact: Xxxxx X. XxXxxxx, Senior Counsel, or Xxxxx X. Xxxxx, Branch Chief, Office of
Insurance Products, Division of Investment Management, at (000) 000-0000.
Supplementary Information: The following is a summary of the application. The complete application is
available for a fee from the SEC's Public Reference Branch, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000
(tel. (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.
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 the protection of investors, and consistent
with the purposes fairly intended by the policy and provisions of the 1940 Act.
2. The Original Order does not include the VIP Trust or Future Funds as parties nor expressly address the sale
of shares of the Funds or any Future Funds to Qualified Plans. Applicants propose that the VIP Trust and Future
Funds be added as parties to the Original Order and the Funds and any Future Funds be permitted to offer and sell
their shares to Qualified Plans.
3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by order upon application, may
conditionally or unconditionally exempt any person, security or transaction, or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act or the rules or regulations thereunder, if and to
the extent that such exemption is necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy and provisions of the 1940 Act.
4. In connection with the funding of scheduled premium variable life insurance contracts issued through a
separate account registered under the 1940 Act as a unit investment trust ("UIT"), Rule 6e-2(b)(15) provides
partial exemptions from various provisions of the 1940 Act, including the following: (1) Section 9(a), which
makes it unlawful for certain individuals to act in the capacity of employee, officer, or director for a UIT, by
limiting the application of the eligibility restrictions in Section 9(a) to affiliated persons directly
participating in the management of a registered management investment company; and (2) Sections 13(a), 15(a) and
15(b) of the 1940 Act to the extent that those sections might be deemed to require "pass-through" voting with
respect to an underlying fund's shares, by allowing an insurance company to disregard the voting instructions of
contractowners in certain circumstances.
5. These exemptions are available, however, only where the management investment company underlying the
separate account (the "underlying fund") offers its shares "exclusively to variable life insurance separate
accounts of the life insurer, or of any affiliated life insurance company." Therefore, Rule 6e-2 does not permit
either mixed funding or shared funding because the relief granted by Rule 6e-2(b)(15) is not available with
respect to a scheduled premium variable life insurance separate account that owns shares of an underlying fund
that also offers its shares to a variable annuity or a flexible premium variable life insurance separate account
of the same company or of any affiliated life insurance company. Rule 6e-2(b)(15) also does not permit the sale
of shares of the underlying fund to Qualified Plans.
6. In connection with flexible premium variable life insurance contracts issued through a separate account
registered under the 1940 Act as a UIT, Rule 6e-3(T)(b)(15) also provides partial exemptions from Sections 9(a),
13(a), 15(a) and 15(b) of the 1940 Act. These exemptions, however, are available only where the separate
account's underlying fund offers its shares "exclusively to separate accounts of the life insurer, or of any
affiliated life insurance company, offering either scheduled contracts or flexible contracts, or both; or which
also offer their shares to variable annuity separate accounts of the life insurer or of an affiliated life
insurance company." Therefore, Rule 6e-3(T) permits mixed funding but does not permit shared funding and also
does not permit the sale of shares of the underlying fund to Qualified Plans. As noted above, the Original Order
granted the 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.
11. Applicants state that the relief granted in Rule 6e-2(b)(15) and 6e-3(T)(b)(15) from the requirements of
Section 9 limits, in effect, the amount of monitoring of an insurer's personnel that would otherwise be necessary
to ensure compliance with Section 9 to that which is appropriate in light of the policy and purposes of Section
9. Applicants submit that those Rules recognize that it is not necessary for the protection of investors or the
purposes fairly intended by the policy and provisions of the 1940 Act to apply the provisions of Section 9(a) to
the many individuals involved in an insurance company complex, most of whom typically will have no involvement in
matters pertaining to investment companies funding the separate accounts.
12. Applicants to the Original Order previously requested and received relief from Section 9(a) and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) to the extent necessary to permit mixed and shared funding. Applicants maintain
that the relief previously granted from Section 9(a) will in no way be affected by the proposed sale of shares of
the Funds to Qualified Plans. Those individuals who participate in the management or administration of the Funds
will remain the same regardless of which Qualified Plans use such Funds. Applicants maintain that more broadly
applying the requirements of Section 9(a) because of investment by Qualified Plans would not serve any regulatory
purpose. Moreover, Qualified Plans, unlike separate accounts, are not themselves investment companies and
therefore are not subject to Section 9 of the 1940 Act.
13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide exemptions from the
pass-through voting requirement with respect to several significant matters, assuming the limitations on mixed
and shared funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that the insurance
company may disregard the voting instructions of its contractowners with respect to the investments of an
underlying fund or any contract between a fund and its investment adviser, when required to do so by an insurance
regulatory authority (subject to the provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules
6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contractowners' voting instructions if the contractowners initiate any change in such company's investment
policies, principal underwriter, or any investment adviser (provided that disregarding such voting instructions
is reasonable and subject to the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) of the
Rules).
14. Applicants assert that Qualified Plans, which are not registered as investment companies under the 1940
Act, have no requirement to pass-through the voting rights to plan participants. Applicants state that applicable
law expressly reserves voting rights to certain specified persons. Under Section 403(a) of the Employment
Retirement Income Security Act ("ERISA"), shares of a fund sold to a Qualified Plan must be held by the trustees
of the Qualified Plan. Section 403(a) also provides that the trustee(s) must have exclusive authority and
discretion to manage and control the Qualified Plan with two exceptions: (1) when the Qualified Plan expressly
provides that the trustee(s) are subject to the direction of a named fiduciary who is not a trustee, in which
case the trustees are subject to proper directions made in accordance with the terms of the Qualified Plan and
not contrary to ERISA; and (2) when the authority to manage, acquire or dispose of assets of the Qualified Plan
is delegated to one or more investment managers pursuant to Section 402(c)(3) of ERISA. Unless one of the two
above exceptions stated in Section 403(a) applies, Qualified Plan trustees have the exclusive authority and
responsibility for voting proxies. Where a named fiduciary to a Qualified Plan appoints an investment manager,
the investment manager has the responsibility to vote the shares held unless the right to vote such shares is
reserved to the trustees or the named fiduciary. Where a Qualified Plan does not provide participants with the
right to give voting instructions, Applicants do not see any potential for material irreconcilable conflicts of
interest between or among variable contract holders and Qualified Plan investors with respect to voting of the
respective Fund's shares. Accordingly, Applicants state that, unlike the case with insurance company separate
accounts, the issue of the resolution of material irreconcilable conflicts with respect to voting is not present
with respect to such Qualified Plans since the Qualified Plans are not entitled to pass-through voting
privileges.
15. Even if a Qualified Plan were to hold a controlling interest in one of the Funds, Applicants believe that
such control would not disadvantage other investors in such Fund to any greater extent than is the case when any
institutional shareholder holds a majority of the voting securities of any open-end management investment
company. In this regard, Applicants submit that investment in a Fund by a Qualified Plan will not create any of
the voting complications occasioned by mixed funding or shared funding. Unlike mixed or shared funding, Qualified
Plan investor voting rights cannot be frustrated by veto rights of insurers or state regulators.
16. Applicants state that some of the Qualified Plans, however, may provide for the trustee(s), an investment
adviser (or advisers), or another named fiduciary to exercise voting rights in accordance with instructions from
participants. Where a Qualified Plan provides participants with the right to give voting instructions, Applicants
see no reason to believe that participants in Qualified Plans generally or those in a particular Qualified Plan,
either as a single group or in combination with participants in other Qualified Plans, would vote in a manner
that would disadvantage Variable Contract holders. In sum, Applicants maintain that the purchase of shares of the
Funds by Qualified Plans that provide voting rights does not present any complications not otherwise occasioned
by mixed or shared funding.
17. Applicants do not believe that the sale of the shares of the Funds to Qualified Plans will increase the
potential for material irreconcilable conflicts of interest between or among different types of investors. In
particular, Applicants see very little potential for such conflicts beyond that which would otherwise exist
between variable annuity and variable life insurance contractowners.
18. As noted above, Section 817(h) of the Code imposes certain diversification standards on the underlying
assets of variable contracts held in an underlying mutual fund. The Code provides that a variable contract shall
not be treated as an annuity contract or life insurance, as applicable, for any period (and any subsequent
period) for which the investments are not, in accordance with regulations prescribed by the Treasury Department,
adequately diversified.
19. Treasury Department Regulations issued under Section 817(h) provide that, in order to meet the statutory
diversification requirements, all of the beneficial interests in the investment company must be held by the
segregated asset accounts of one or more insurance companies. However, the Regulations contain certain
exceptions to this requirement, one of which allows shares in an underlying mutual fund to be held by the
trustees of a qualified pension or retirement plan without adversely affecting the ability of shares in the
underlying fund also to be held by separate accounts of insurance companies in connection with their variable
contracts (Treas. Reg. 1.817-5(f)(3)(iii)). Thus, Applicants believe that the Treasury Regulations specifically
permit "qualified pension or retirement plans" and separate accounts to invest in the same underlying fund. For
this reason, Applicants have concluded that neither the Code nor the Treasury Regulations or revenue rulings
thereunder presents any inherent conflict of interest.
20. Applicants note that while there are differences in the manner in which distributions from Variable
Contracts and Qualified Plans are taxed, these differences will have no impact on the Funds. When distributions
are to be made, and a Separate Account or Qualified Plan is unable to net purchase payments to make the
distributions, the Separate Account and Qualified Plan will redeem shares of the Funds at their respective net
asset value in conformity with Rule 22c-1 under the 1940 Act (without the imposition of any sales charge) to
provide proceeds to meet distribution needs. A Qualified Plan will make distributions in accordance with the
terms of the Qualified Plan.
21. Applicants maintain that it is possible to provide an equitable means of giving voting rights to
Participating Separate Account contractowners and to Qualified Plans. In connection with any meeting of
shareholders, the Funds will inform each shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the meeting, including their respective share of ownership in the
relevant Fund. Each Participating Insurance Company will then solicit voting instructions in accordance with
Rules 6e-2 and 6e-3(T), as applicable, and its participation agreement with the relevant Fund. Shares held by
Qualified Plans will be voted in accordance with applicable law. The voting rights provided to Qualified Plans
with respect to shares of the Funds would be no different from the voting rights that are provided to Qualified
Plans with respect to shares of funds sold to the general public.
22. Applicants have concluded that even if there should arise issues with respect to a state insurance
commissioner's veto powers over investment objectives where the interests of contractowners and the interests of
Qualified Plans are in conflict, the issues can be almost immediately resolved since the trustees of (or
participants in) the Qualified Plans can, on their own, redeem the shares out of the Funds. Applicants note that
state insurance commissioners have been given the veto power in recognition of the fact that insurance companies
usually cannot simply redeem their separate accounts out of one fund and invest in another. Generally,
time-consuming, complex transactions must be undertaken to accomplish such redemptions and transfers. Conversely,
the trustees of Qualified Plans or the participants in participant-directed Qualified Plans can make the decision
quickly and redeem their interest in the Funds and reinvest in another funding vehicle without the same
regulatory impediments faced by separate accounts or, as is the case with most Qualified Plans, even hold cash
pending suitable investment.
23. Applicants also state that they do not see any greater potential for material irreconcilable conflicts
arising between the interests of participants under Qualified Plans and contractowners of Participating Separate
Accounts from possible future changes in the federal tax laws than that which already exist between variable
annuity contractowners and variable life insurance contractowners.
24. Applicants state that the sale of shares of the Funds to Qualified Plans in addition to separate accounts
of Participating Insurance Companies will result in an increased amount of assets available for investment by the
Funds. This may benefit variable contractowners by promoting economies of scale, by permitting increased safety
of investments through greater diversification, and by making the addition of new portfolios more feasible.
25. Applicants assert that, regardless of the type of shareholders in each Fund, each Fund's Investment
Manager is or would be contractually and otherwise obligated to manage the Fund solely and exclusively in
accordance with that Fund's investment objectives, policies and restrictions as well as any guidelines
established by the Board of Trustees of such Fund (the "Board"). The Investment Manager works with a pool of
money and (except in a few instances where this may be required in order to comply with state insurance laws)
does not take into account the identity of the shareholders. Thus, each Fund will be managed in the same manner
as any other mutual fund. Applicants therefore see no significant legal impediment to permitting the sale of
shares of the Funds to Qualified Plans.
26. Applicants state that the Commission has permitted the amendment of a substantially similar original order
for the purpose of adding a party to the original order and has permitted open-end management investment
companies to offer their shares directly to Qualified Plan in addition to separate accounts of affiliated or
unaffiliated insurance companies which issue either or both variable annuity contracts or variable life insurance
contracts. Applicants state that the amended order sought in the application is identical to precedent with
respect to the conditions Applicants propose should be imposed on Qualified Plans in connection with investment
in the Funds.
Applicants' Conditions:
If the requested amended order is granted, Applicants consent to the following conditions:
1. A majority of the Board of each Fund shall consist of persons who are not "interested persons" thereof, as
defined by Section 2(a)(19) of the 1940 Act, and the rules thereunder and as modified by any applicable orders of
the Commission, except that if this condition is not met by reason of the death, disqualification or bona fide
resignation of any Board Member or Members, then the operation of this condition shall be suspended: (a) for a
period of 45 days if the vacancy or vacancies may be filled by the remaining Board Members; (b) for a period of
60 days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as
the Commission may prescribe by order upon application.
2. The Board will monitor their respective Fund for the existence of any material irreconcilable conflict
among the interests of the Variable Contract owners of all Separate Accounts investing in the Funds and of the
Qualified Plan participants investing in the Funds. The Board will determine what action, if any, shall be taken
in response to such conflicts. A material irreconcilable conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance,
tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretive
letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the investments of the Funds are being
managed; (e) a difference in voting instructions given by variable annuity contract owners, variable life
insurance contract owners, and trustees of Qualified Plans; (f) a decision by an insurer to disregard the voting
instructions of Variable Contract owners; or (g) if applicable, a decision by a Qualified Plan to disregard the
voting instructions of Qualified Plan participants.
3. Participating Insurance Companies, the Investment Managers, and any Qualified Plan that executes a fund
participation agreement upon becoming an owner of 10 percent or more of the assets of an Fund (a "Participating
Qualified Plan"), will report any potential or existing conflicts of which it becomes aware to the Board of any
relevant Fund. Participating Insurance Companies, the Investment Managers and the Participating Qualified Plans
will be responsible for assisting the Board in carrying out its responsibilities under these conditions by
providing the Board with all information reasonably necessary for the Board to consider any issues raised. This
responsibility includes, but is not limited to, an obligation by each Participating Insurance Company to inform
the Board whenever voting instructions of Contract owners are disregarded and, if pass-through voting is
applicable, an obligation by each Participating Qualified Plan to inform the Board whenever it has determined to
disregard Qualified Plan participant voting instructions. The responsibility to report such information and
conflicts, and to assist the Board, will be contractual obligations of all Participating Insurance Companies
investing in the Funds under their agreements governing participation in the Funds, and such agreements shall
provide that these responsibilities will be carried out with a view only to the interests of the Variable
Contract owners. The responsibility to report such information and conflicts, and to assist the Board, will be
contractual obligations of all Participating Qualified Plans under their agreements governing participation in
the Funds, and such agreements will provide that their responsibilities will be carried out with a view only to
the interests of Qualified Plan participants.
4. If it is determined by a majority of the Board of a Fund, or by a majority of the disinterested Board
Members, that a material irreconcilable conflict exists, the relevant Participating Insurance Companies and
Participating Qualified Plans will, at their own expense and to the extent reasonably practicable as determined
by a majority of the disinterested Board Members, take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps could include: (a) in the case of Participating Insurance
Companies, withdrawing the assets allocable to some or all of the Separate Account s from the Fund or any
portfolio thereof and reinvesting such assets in a different investment medium, including another portfolio of an
Fund or another Fund, or submitting the question as to whether such segregation should be implemented to a vote
of all affected Variable Contract owners and, as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity contract owners or variable life insurance contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the affected Variable Contract
owners the option of making such a change; (b) in the case of Participating Qualified Plans, withdrawing the
assets allocable to some or all of the Qualified Plans from the Fund and reinvesting such assets in a different
investment medium; and (c) establishing a new registered management investment company or managed Separate
Account. If a material irreconcilable conflict arises because of a decision by a Participating Insurance Company
to disregard Variable Contract owner voting instructions, and that decision represents a minority position or
would preclude a majority vote, then the insurer may be required, at the Fund's election, to withdraw the
insurer's Separate Account investment in such Fund, and no charge or penalty will be imposed as a result of such
withdrawal. If a material irreconcilable conflict arises because of a Participating Qualified Plan's decision to
disregard Qualified Plan participant voting instructions, if applicable, and that decision represents minority
position or would preclude a majority vote, the Participating Qualified Plan may be required, at the Fund's
election, to withdraw its investment in such Fund, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take remedial action in the event of a determination by a Board of a material
irreconcilable conflict and to bear the cost of such remedial action will be a contractual obligation of all
Participating Insurance Companies and Participating Qualified Plans under their agreements governing
participation in the Funds, and these responsibilities will be carried out with a view only to the interest of
Variable Contract owners and Qualified Plan participants.
5. For purposes of Condition 4, a majority of the disinterested Board Members of the applicable Board will
determine whether or not any proposed action adequately remedies any material irreconcilable conflict, but in no
event will the relevant Fund or the Investment Managers be required to establish a new funding medium for any
Contract. No Participating Insurance Company shall be required by Condition 4 to establish a new funding medium
for any Variable Contract if any offer to do so has been declined by vote of a majority of the Variable Contract
owners materially and adversely affected by the material irreconcilable conflict. Further, no Participating
Qualified Plan shall be required by Condition 4 to establish a new funding medium for any Participating Qualified
Plan if (a) a majority of Qualified Plan participants materially and adversely affected by the irreconcilable
material conflict vote to decline such offer, or (b) pursuant to governing Qualified Plan documents and
applicable law, the Participating Qualified Plan makes such decision without a Qualified Plan participant vote.
6. The determination of the Board of the existence of a material irreconcilable conflict and its implications
will be made known in writing promptly to all Participating Insurance Companies and Participating Qualified
Plans.
7. Participating Insurance Companies will provide pass-through voting privileges to Variable Contract owners
who invest in registered Separate Accounts so long as and to the extent that the Commission continues to
interpret the 1940 Act as requiring pass-through voting privileges for Variable Contract owners. As to Variable
Contracts issued by unregistered Separate Accounts, pass-through voting privileges will be extended to
participants to the extent granted by issuing insurance companies. Each Participating Insurance Company will also
vote shares of the Funds held in its Separate Accounts for which no voting instructions from Contract owners are
timely received, as well as shares of the Funds which the Participating Insurance Company itself owns, in the
same proportion as those shares of the Funds for which voting instructions from contract owners are timely
received. Participating Insurance Companies will be responsible for assuring that each of their registered
Separate Accounts participating in the Funds calculates voting privileges in a manner consistent with other
Participating Insurance Companies. The obligation to calculate voting privileges in a manner consistent with all
other registered Separate Accounts investing in the Funds will be a contractual obligation of all Participating
Insurance Companies under their agreements governing their participation in the Funds. Each Participating
Qualified Plan will vote as required by applicable law and governing Qualified Plan documents.
8. All reports of potential or existing conflicts received by the Board of a Fund and all action by such Board
with regard to determining the existence of a conflict, notifying Participating Insurance Companies and
Participating Qualified Plans of a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the meetings of such Board or other appropriate records,
and such minutes or other records shall be made available to the Commission upon request.
9. Each Fund will notify all Participating Insurance Companies that separate disclosure in their respective
Separate Account prospectuses may be appropriate to advise accounts regarding the potential risks of mixed and
shared funding. Each Fund shall disclose in its prospectus that (a) the Fund is intended to be a funding vehicle
for variable annuity and variable life insurance contracts offered by various insurance companies and for
qualified pension and retirement plans; (b) due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Fund and/or the interests of Qualified Plans investing
in the Fund may at some time be in conflict; and (c) the Board of such Fund will monitor events in order to
identify the existence of any material irreconcilable conflicts and to determine what action, if any, should be
taken in response to any such conflict.
10. Each Fund will comply with all provisions of the 1940 Act requiring voting by shareholders (which, for
these purposes, will be the persons having a voting interest in the shares of the Funds), and, in particular, the
Funds will either provide for annual shareholder meetings (except insofar as the Commission may interpret Section
16 of the 1940 Act not to require such meetings) or comply with Section 16(c) of the 1940 Act, although the Funds
are not the type of trust described in Section 16(c) of the 1940 Act, as well as with Section 16(a) of the 1940
Act and, if and when applicable, Section 16(b) of the 1940 Act. Further, each Fund will act in accordance with
the Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of Board
Members and with whatever rules the Commission may promulgate with respect thereto.
11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is amended, or proposed Rule 6e-3 under the
1940 Act is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated
thereunder, with respect to mixed or shared funding on terms and conditions materially different from any
exemptions granted in the order requested in the application, then the Funds and/or Participating Insurance
Companies and Participating Qualified Plans, as appropriate, shall take such steps as may be necessary to comply
with such Rules 6e-2 and 6e-3(T), as amended, or proposed Rule 6e-3, as adopted, to the extent that such Rules
are applicable.
12. The Participating Insurance Companies and Participating Qualified Plans and/or the Investment Managers, at
least annually, will submit to the Board such reports, materials or data as the Board may reasonably request so
that the Board may fully carry out obligations imposed upon it by the conditions contained in the application.
Such reports, materials and data will be submitted more frequently if deemed appropriate by the Board. The
obligations of the Participating Insurance Companies and Participating Qualified Plans to provide these reports,
materials and data to the Board, when the Board so reasonably requests, shall be a contractual obligation of all
Participating Insurance Companies and Participating Qualified Plans under their agreements governing
participation in the Funds.
13. If a Qualified Plan should ever become a holder of ten percent or more of the assets of a Fund, such
Qualified Plan will execute a participation agreement with the Fund that includes the conditions set forth herein
to the extent applicable. A Qualified Plan will execute an application containing an acknowledgment of this
condition upon such Qualified Plan's initial purchase of the shares of any Fund.
Conclusion:
Applicants assert that, for the reasons summarized above, the requested exemptions are appropriate in the
public interest and consistent with the protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
41
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.
