PARTICIPATION AGREEMENT
AMONG
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
FIRST TRANSAMERICA LIFE INSURANCE COMPANY
AND
XXXXXXX XXXXXX & CO., INC.
THIS AGREEMENT, made and entered into as of this 1st day of December, 1994
by and among FIRST TRANSAMERICA LIFE INSURANCE COMPANY (hereinafter "First
Transamerica"), a New York life insurance company, on its own behalf and on
behalf of its Separate Account VA-5 NLNY (the "Account"): INVESCO VARIABLE
INVESTMENT FUNDS INC., a corporation organized under the laws of Maryland
(hereinafter the "Fund"); INVESCO FUNDS GROUP, INC. (hereinafter the "Adviser"),
a Delaware corporation; and XXXXXXX XXXXXX & CO., INC., a California corporation
(hereinafter "Schwab").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements similar to
this Agreement (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws and as a broker-dealer under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, First Transamerica has registered or will register certain
variable annuity contracts supported wholly or partially by the Account (the
"Contracts") under the 1933 Act and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of First
Transamerica on November 10, 1993, to set aside and invest assets attributable
to the Contracts; and
WHEREAS, First Transamerica has registered or will register the Account as
a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, First Transamerica intends to purchase shares in the Portfolios
listed in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios"), on behalf of the Account to
fund the aforesaid Contracts, and the Adviser is authorized to sell such shares
to unit investment trusts such as the Account at net asset value; and
WHEREAS, Schwab will perform certain services in connection with the
Contracts;
NOW, THEREFORE, in consideration of their mutual promises, First
Transamerica, Schwab, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Adviser agrees to sell to First Transamerica those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, First Transamerica shall be the designee of the Fund for receipt of
such orders and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such order by 10:00 a.m. Eastern
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by First Transamerica
and the Account on those days on which the Fund calculates its Designated
Portfolios' net asset value pursuant to rules of the SEC, and the Fund shall
calculate such net asset value on each day which the New York Stock exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of an Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3 The Fund and the Adviser will not sell shares of the Designated
Portfolios to any other insurance company or separate account unless an
agreement containing provisions substantially the same as Sections 2.1, 3.6, 3.7
3.8, and Article VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem for cash, on First Transamerica's request,
any full or fractional shares of the Fund held by First Transamerica, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption. Requests for
redemption identified by First Transamerica, or its agent, as being in
connection with surrenders, annuitizations, or death benefits under Contracts
may be executed within seven (7) calendar days after receipt by the Fund or its
designee of the requests for redemption. If permitted by an order of the SEC
under Section 22(e) of the 1940 Act, the Fund shall be permitted to delay
sending redemption proceeds to First Transamerica beyond the foregoing
deadlines, provided, however, that the Account receives similar relief to defer
paying proceeds to Contract Owners, and further, that the Account is treated no
less favorably than the other shareholders of the Designated Portfolios. This
Section 1.4 may be amended, in writing, by the parties consistent with the
requirements of the 1940 Act and interpretations thereof. For purposes of this
Section 1.4, First Transamerica shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund, provided that the Fund receives notice of any such request for
redemption by 10:00 a.m. Eastern time on the next following Business Day.
1.5 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
1.6 First Transamerica shall pay for Fund shares by 11:00 a.m. Eastern
time on the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase.
1.7 The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to First Transamerica or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate subaccount of the Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to First Transamerica of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. First
Transamerica hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares
of that portfolio. First Transamerica reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify First Transamerica by the end of the next Business Day of
the number of shares so issued as payment of such dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to First Transamerica on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Eastern time. If the Fund provides incorrect share net asset value information,
First Transamerica shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per share (and, if
and to the extend necessary, First Transamerica shall make adjustments to the
number of units credited and/or unit values for the Contracts for the periods
affected). Any error in the calculation or reporting of net asset value per
share, dividend or capital gains information greater than or equal to $.01 per
share shall be reported immediately upon discovery to First Transamerica. Any
error of a lesser amount shall be corrected in the next Business Day's net asset
value per share.
In the event adjustments are required to correct any error in the
computation of a Designated Portfolio's net asset value per share, or dividend
or capital gain distribution, the Adviser or the Fund shall notify Schwab as
soon as possible after discovering the need for such adjustments. Notification
can be made orally, but must be confirmed in writing. If an adjustment is
necessary to correct an error which has caused Contractholders to receive less
than the amount to which they are entitled, the Fund shall make all necessary
adjustments to the number of shares owned by the Account and distribute to the
Account the amount of the underpayment. First Transamerica will adjust the
number of shares of the applicable sub-account of each Contractholder and credit
the appropriate amount of such payment to each Contractholder. In no event shall
Schwab or First Transamerica be liable to Contractholders for any such
adjustments or underpayment amounts. If Contractholders have received amounts in
the excess of the amounts to which they otherwise would have been entitled prior
to an adjustment for an error, First Transamerica and Schwab , when requested by
the Adviser or the Fund, will make a good faith attempt to collect such excess
amounts from the Contractholders. In no event shall Schwab or First Transamerica
be liable to the Fund or the Adviser for any such adjustments or overpayment
amounts.
ARTICLE II. Representations and Warranties
2.1 First Transamerica represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. First Transamerica
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under New York Insurance Law and has registered the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2 The Fund represents and warrants that Designated Portfolio shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 0000 Xxx.
The Fund shall amend the Registration Statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3 The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act (a "12b-1 Plan") and to impose an asset-based or other charge
to finance distribution expenses as permitted by applicable law and regulation.
As of the date of this Agreement, the Fund has no 12b-1 Plan and does not,
directly or indirectly, impose any asset-based or other charge to finance
distribution expenses. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any 12b-1 Plan to finance distribution expenses.
2.4 The Fund represents and warrants that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance and other applicable laws of the State of New York
and any other applicable state to the extent required to perform this Agreement.
The Fund further represents and warrants that Designated Portfolio shares will
be sold in compliance with the insurance laws of the State of New York and all
applicable state securities laws or exemptions therefrom. Without limiting the
generality of the foregoing, the Fund represents and warrants that it is and
shall at all times remain in compliance with the investment objectives, policies
and restrictions of the Fund enumerated in Schedule C hereto, except as to those
items disclosed with prior notice to First Transamerica. First Transamerica
shall disclose such items to the Department of Insurance of the State of New
York, and shall promptly notify the Fund of any objections to any such items by
the Department.
2.5 The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 0000 Xxx.
2.6 The Adviser represents and warrant that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Colorado and any applicable state and
federal securities laws.
2.7 The Fund and the Adviser represent and warrant that all of their
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Fund are, and shall continue to
be at all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.8 Schwab represents and warrants that it has completed, obtained and
performed, in all material respects, all registrations, filings, approvals, and
authorizations, consents and examinations required by any government or
governmental authority as may be necessary to perform this Agreement. Schwab
does and will comply with all applicable laws, rules and regulations in the
performance of its obligations under this Agreement.
2.9 The Fund will provide First Transamerica with as much advance notice
as is reasonably practicable of any material change affecting the Designated
Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with First
Transamerica in order to implement any such change in an orderly manner,
recognizing the expenses of change and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts. The Fund agrees to share equitably in expenses incurred by
First Transamerica as a result of actions taken by the Fund, as set forth in the
allocation of expenses contained in Schedule F.
2.10 First Transamerica represents, assuming that the Fund complies with
Article VI of this Agreement, that the Contracts are currently treated as
annuity contracts under applicable provisions of the Internal Revenue Code of
1986, as amended ("the Code"), and that it will make every effort to maintain
such treatment and that it will notify the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.11 First Transamerica represents and warrants that it will
not purchase Fund Shares with assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in
connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 At least annually, the Adviser, shall provide First Transamerica and
Schwab with as many copies of the Fund's current prospectuses for the Designated
Portfolios as First Transamerica and Schwab may reasonably request for marketing
purposes. If requested by First Transamerica in lieu thereof, the Adviser or
Fund shall provide such documentation (including a final copy of the new
prospectuses for the Designated Portfolios) and other assistance as is
reasonably necessary in order for First Transamerica once each year (or more
frequently if the prospectuses for the Designated Portfolio are amended) to have
the prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolios printed together in one document. The Fund and Adviser
agree that the prospectuses for the Designated Portfolios will describe only the
Designated Portfolios and will not name or describe any other portfolios or
series that may be in the Fund unless, in the reasonable judgment of the Fund's
legal counsel, such disclosure is required by law.
3.2 If applicable state or Federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contract Purchasers, then the Fund shall provide First Transamerica with the
Fund's SAI or documentation thereof for the Designated Portfolios in such
quantities and/or with expenses to be borne in accordance with Schedule F.
3.3 The Fund shall provide First Transamerica and Schwab with as many
copies of the SAI for the Designated Portfolios as each of them may reasonably
request. The Adviser (or the Fund) shall also provide such SAI to any owner of a
contract or prospective owner who requests such SAI (although it is anticipated
that such requests will be made to Schwab).
3.4 The Fund shall provide First Transamerica with copies of its
prospectus, SAI, proxy material, reports to stockholders and other
communications to stockholders for the Designated Portfolios in such quantity as
First Transamerica shall reasonably require for distributing to Contract owners.
3.5 It is understood and agreed that, except with respect to information
regarding First Transamerica or Schwab provided in writing by that party,
neither First Transamerica nor Schwab are responsible for the content of the
prospectus or SAI for the Designated Portfolios. It is also understood and
agreed that, except with respect to information regarding the Fund, Adviser or
the Designated Portfolios provided in writing by the Fund or Adviser, neither
the Fund nor Adviser are responsible for the content of the prospectus or SAI
for the Contracts.
3.6 If and to the extent required by law First Transamerica
shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance
with instructions received from Contract owners;
and
(iii) vote Designated Portfolio shares for which no instructions
have been received in the same proportion as Designated
Portfolio shares for which instructions have been received
from Contract owners, 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.
First Transamerica reserves the right to vote Fund shares
held in any segregated asset account in its own right,
to the extent permitted by law.
3.7 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts holding shares of a Designated Portfolio
calculates voting privileges in the manner required by the Shared Funding
Exemptive Order. First Transamerica shall fulfill its obligations under, and
abide by the terms and conditions of, the Shared Funding Exemptive Order,
including calculating voting privileges as described on Schedule G. The Fund
agrees to promptly notify First Transamerica of any changes of interpretations
or amendments of the Shared Funding Exemptive Order.
3.8 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 First Transamerica and Schwab shall furnish, or shall cause to be
furnished, to the Fund or its designee, a copy of each piece of sales literature
or other promotional material that First Transamerica or Schwab, respectively,
develops or proposes to use and in which the Fund (or a Portfolio thereof), its
investment adviser or one of its sub-advisers or the underwriter for the Fund
shares is named in connection with the Contracts, at least 10 (ten) Business
Days prior to its use. No such material shall be used if the Fund or its
designee objects to such use within 5 (five) Business Days after receipt of such
material.
4.2 First Transamerica and Schwab shall not give any information or make
any representations or statements on behalf of the Fund or concerning the Fund
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund
or its designee or by the Adviser, except with the permission of the Fund or the
Adviser.
4.3 The Fund or Adviser shall furnish, or shall cause to be furnished, to
First Transamerica and Schwab, a copy of each piece of sales literature or other
promotional material in which First Transamerica and/or its separate account(s),
or Schwab is named at least 10 (ten) Business Days prior to its use. No such
material shall be used if First Transamerica or Schwab objects to such use
within 5 (five) Business Days after receipt of such material.
4.4 The Fund and the Adviser shall not give any information or make any
representations on behalf of First Transamerica or concerning First
Transamerica, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports for the Account, or in sales
literature or other promotional materia approved by First Transamerica or its
designee, except with the permission of First Transamerica.
4.5 The Fund and Adviser shall not give any information or make any
representations on behalf of or concerning Schwab, or use Xxxxxx'x name except
with the permission of Schwab.
4.6 The Fund will provide to First Transamerica and Schwab at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests of no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolios, contemporaneously with the filing of such documents(s) with the SEC
NASD or other regulatory authorities.
4.7 First Transamerica or Schwab will provide to the Fund at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or the Account, contemporaneously with the filing of
such document(s) with the SEC, NASD, or other regulatory authority.
4.8 For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any writer communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
4.9 At the request of any party to this Agreement, each other
party will make available to the other party's independent
auditors and/or representatives of the appropriate regulatory
agencies, all records, data and access to operating procedures
that may be reasonably requested in connection with compliance and
regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Adviser shall pay no fee or other compensation to
First Transamerica under this Agreement, and First Transamerica shall pay no fee
or other compensation to the Fund or Adviser under this Agreement, although the
parties hereto will bear certain expenses in accordance with Schedule F,
Articles III, V, and other provisions of this Agreement. In the event that First
Transamerica or Schwab agrees with any other mutual fund or investment adviser
to any provision for bearing expenses that is more favorable to such fund or
investment adviser than the provisions applicable to the Fund and the Adviser in
this Agreement or the Schedules hereto, this Agreement shall be automatically
amended to give the Fund and the Advisor the benefits of such more favorable
provisions.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, as further provided in Schedule F. The Fund shall see
to it that all shares of the Designated Portfolios are registered and authorized
for issuance in accordance with applicable federal law and, if and to the extent
required, in accordance with applicable state laws prior to their sale.
5.3 The parties shall bear the expenses of routine annual distribution of
the Fund's prospectus and distributing the Fund's proxy materials and reports to
owners of Contracts offered by First Transamerica, as provided in Schedule F.
5.4 The Fund and Adviser acknowledge that a principal feature of the
Contracts is the Contract owner's ability to choose from a number of
unaffiliated mutual funds (and portfolios or series thereof), including the
Designated Portfolios ("Unaffiliated Funds"), and to transfer the Contract's
cash value between funds and portfolios. The Fund and Advisor agree
to cooperate with First Transamerica and Schwab in facilitating the operation of
the Account and the Contracts as intended, including but not limited to
cooperation in facilitating transfers between Unaffiliated Funds.
5.5 Schwab agrees to provide certain administrative services, specified in
Schedule D hereto, in connection with the arrangements contemplated by this
Agreement. The parties acknowledge and agree that the services referred to in
this Section 5.5 are recordkeeping, shareholder communication, and other
transaction facilitation and processing, and related administrative services
only and are not the services of an underwriter or a principal underwriter of
the Fund and that Schwab is not an underwriter for the shares of the Designated
Portfolios, within the meaning of the 1933 Act or the 0000 Xxx.
5.6 As compensation for the services specified in Schedule D hereto, the
Advisor agrees to pay Schwab a monthly Administrative Service Fee based on the
percentage per annum on Schedule D hereto applied to the average daily value of
the shares of the Designated Portfolios held in the Account with respect to
Contracts sold by Schwab. This monthly Administrative Service Fee is due and
payable before the 15th (fifteenth) day following the last day of the month to
which it relates.
ARTICLE VI. Diversification and Qualification
6.1 The Fund and Adviser represent and warrant that the Fund will at all
times sell its shares and invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code, and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund and Adviser represent and warrant that the Fund and each Designated
Portfolio thereof will at all times comply with Section 817(h) of the Code and
Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications or successor provisions to such Section or Regulations. The
Fund and the Advisor agree that shares of the Designated Portfolios will be sold
only to Participating Insurance Companies and their separate accounts.
6.2 No shares of any series or portfolio of the Fund will be sold to the
general public.
6.3 The Fund and Adviser represent and warrant that the Fund and each
Designated Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of the Code, and that it will remain such qualification
(under Subchapter M or any successor or similar provisions) as long as this
Agreement is in effect.
6.4 The Fund or Adviser will notify First Transamerica immediately upon
having a reasonable basis for believing that the Fund or any Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification or Subchapter
M qualification requirements or is likely not to so comply in the future.
6.5 The Fund and Adviser acknowledge that full compliance with the
requirements referred to in Sections 6.1, 6.2, and 6.3 hereof is absolutely
essential because any failure to meet those requirements could result in the
Contracts not being treated as annuity contracts for federal income tax
purposes, which could have adverse tax consequences for Contract owners and
could also adversely affect First Transamerica's corporate tax liability. The
Fund and Adviser also acknowledge that it is solely within their power and
control to meet those requirements. Accordingly, without in any way limiting the
effect of Sections 8.3 and 8.4 hereof and without in any way limiting or
restricting any other remedies available to First Transamerica, the Adviser will
pay all costs associated with reasonable and appropriate corrections or
responses to any failure of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof. The parties shall use their best efforts to
mitigate any such costs, but acknowledge that the costs associated with a
failure to comply with sections 6.1, 6.2 or 6.3 could include, but may not be
limited to, the costs involved in creating, organizing, and registering a new
investment company as a funding medium for the Contracts and/or the costs of
obtaining whatever regulatory authorizations are required to substitute shares
of another investment company for those of the failed Portfolio (including but
not limited to an order pursuant to Section 26(b) of the 1940 Act); such costs
are to include , but are not limited to, reasonable fees and expenses of legal
counsel to First Transamerica and any federal income taxes or tax penalties (or
"toll charges" or exactments or amounts paid in settlement) incurred by First
Transamerica with respect to itself or owners of its Contracts in connection
with any such failure.
6.6 The Fund shall provide First Transamerica or its designee with reports
demonstrating compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements, at the times provided for and
substantially in the form attached hereto as Schedule E provided, however, that
providing such reports does not relieve the Fund or Adviser of their
responsibility for such compliance or of their liability for any non-compliance.
ARTICLE VII. Potential Conflicts and Compliance with Shared
Funding Exemptive Order
7.1 The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of contract owners. The Board shall promptly
inform First Transamerica if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2 First Transamerica will report any potential or existing
conflicts of which it is aware to the Board. First Transamerica
will assist the Board in carrying out its responsibilities under
the Shared Funding Exemptive Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by First Transamerica to inform the Board
whenever contract owner voting instructions are to be disregarded. Such
responsibilities shall be carried out by First Transamerica with a view only to
the interests of its Contract Owners.
7.3 If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the Portfolios (the "Independent Directors"), that a
material irreconcilable conflict exists, First Transamerica and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
First Transamerica to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, First
Transamerica may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision is
being implemented, and until the end of that six month period the Adviser and
the Fund shall continue to accept and implement orders by First Transamerica for
the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to First Transamerica conflicts with
the majority of other state regulators, then First Transamerica will withdraw
the Account's investment in the Fund and terminate this Agreement within six
months after the Board informs First Transamerica in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Adviser and the Fund shall continue to accept
and implement orders by First Transamerica for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts. First
Transamerica shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then
First Transamerica will withdraw the Account's investment in the Fund and
terminate this Agreement within six (6) months after the Board informs First
Transamerica in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
Independent Directors.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended and Rule 6e-3, as adopted, to the extent such rules are applicable:
and (b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By First Transamerica
8.1(a). First Transamerica agrees to indemnify and hold harmless the
Fund, its officers, each member of its Board, and the Adviser (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of First Transamerica) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus or SAI for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to First
Transamerica or Schwab by or on behalf of the Adviser or Fund for use
in the registration statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
First Transamerica or persons under its control) or wrongful conduct
of First Transamerica or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished in writing to the Fund by
or on behalf of First Transamerica; or
(iv) arise as a result of any failure by First Transamerica to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by First Transamerica in this Agreement or arise
out of a result from any other material breach of this Agreement by
First Transamerica,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). First Transamerica shall not be liable under this
indemnification provision with respect to any losses, claims, expenses, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to the Fund, whichever is applicable.
8.1(c). First Transamerica 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 First Transamerica 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). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve First Transamerica of its obligations hereunder except to the extent
that First Transamerica has been prejudiced by such failure to give notice. In
addition, any failure to notify First Transamerica of any such claim shall not
relieve First Transamerica 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, First Transamerica shall be entitled to participate, at
its own expense, in the defense of such action. First Transamerica also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from First Transamerica to such party of First
Transamerica's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
First Transamerica will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify First
Transamerica of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Fund Shares or the Contracts or
the operation of the Fund.
8.2. Indemnification by Schwab
8.2(a). Schwab agrees to indemnify and hold harmless the Fund, its
officers, each member of its Board, and the Adviser (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of Schwab) or litigation (including legal
and other expenses),to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of Xxxxxx'x dissemination of information regarding the Fund
that is both (A) materially incorrect and (B) that was not either
contained in the Fund's registration statement or sales literature or
provided in writing to Schwab, or approved in writing, by or on behalf
of the Fund or the Adviser; or
(ii) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in sales literature for the
Contracts or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, PROVIDED that this Agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to First Transamerica
or Schwab by or on behalf of the Adviser or Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts; or
(iii)arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
Schwab or persons under its control) or wrongful conduct of Schwab or
persons under its control, with respect to the sale or distribution of
the Contracts; or
(iv) arise as a result of any failure by Schwab to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by Schwab in this Agreement or arise out of or
result from any other material breach of this Agreement by Schwab;
as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). Schwab shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.2(c) Schwab 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 Schwab 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). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve Schwab of its obligations hereunder except to the extent that Schwab has
been prejudiced by such failure to give notice. In addition, any failure to
notify Schwab of any such claim shall not relieve Schwab 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. Notwithstanding the
foregoing, the failure of any Indemnified Party to give notice as provided
herein shall not relieve First Transamerica, of its obligations hereunder except
to the extent that First Transamerica has been prejudiced by such failure to
give notice. In case any such action is brought against the Indemnified Parties,
Schwab shall be entitled to participate, at its own expense, in the defense of
such action. Schwab also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from Schwab
to such party of Xxxxxx'x election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Schwab will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Indemnified Parties will promptly notify
Schwab of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund Shares or the Contracts
or the operation of the Fund.
8.3 Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless First
Transamerica and Schwab and each of their directors and officers and each
person, if any, who controls First Transamerica or Schwab within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.3) against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, PROVIDED that this Agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the
Adviser or Fund by or on behalf of First Transamerica or Schwab for
use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not
supplied by the Adviser or persons under its control) or wrongful
conduct of the Fund or Adviser or persons under their control, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus 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
in writing to First Transamerica or Schwab by or on behalf of the
Adviser or Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund or Adviser in this Agreement or arise
out of or result from any other material breach of this Agreement by
the Adviser;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
First Transamerica or to Schwab or the Account, whichever is applicable.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Adviser of its obligations hereunder except to the extent that the
Adviser has been prejudiced by such failure to give notice. In addition, any
failure to notify the Adviser of any such claim shall not relieve the Adviser
from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
the Adviser will be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Adviser to such party of the Adviser's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3(d). First Transamerica and Schwab agree promptly to notify the
Adviser of the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale of the
contracts or the operation of the Account.
8.4 Indemnification By the Fund
8.4(a). The Fund agrees to indemnify and hold harmless First
Transamerica and Schwab and each of their directors and officers and each
person, if any, who controls First Transamerica or Schwab within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.4) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other expenses) to which
the Indemnified Parties may be required to pay or may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements, result from the gross negligence, bad faith or willful misconduct
of the Board or any member thereof, are related to the operations of the Fund
and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
First Transamerica, Schwab, the Fund, the Adviser or the Account, whichever is
applicable.
8.4(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Fund of its obligations hereunder except to the extent that the Fund
has been prejudiced by such failure to give notice. In addition, any failure to
notify the Fund of any such claim shall not relieve the Fund 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 Fund will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.4(d). First Transamerica and Schwab each agree promptly to notify
the Fund of the commencement of any litigation or proceeding against itself or
any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2 This Agreement shall be subject to the provisions
of the 1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the Securities and Exchange Commission may
grant (including, but not limited to, the Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party with or without cause, with
respect to some or all Portfolios, upon one (1) year advance
written notice delivered to the other parties; provided,
however, that such notice shall not be given earlier than
one year following the date of this Agreement; or (b) at the
option of First Transamerica by written notice to the other
parties with respect to any Portfolio based upon First
Transamerica's determination that shares of such Portfolio
are not reasonably available to meet the requirements of the
Contracts; or (c) at the option of First Transamerica by
written notice to the other parties with respect to any
Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of
such shares as the underlying investment media of the
Contracts issued or to be issued by First Transamerica; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against First
Transamerica or Schwab by the NASD, the SEC, the Insurance
Commissioner or like official of any state or any other
regulatory body regarding First Transamerica's or Xxxxxx'x
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that the Fund determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of First Transamerica or Schwab to
perform its obligations under this Agreement; or (e) at the
option of First Transamerica in the event that formal
administrative proceedings are instituted against the Fund
or Adviser by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided,
however, that First Transamerica determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Fund or Adviser to perform
its obligations under this Agreement; or (f) at the option
of First Transamerica by written notice to the Fund and the
Adviser with respect to any Portfolio if First Transamerica
reasonably believes that the Portfolio will fail to meet the
Section 817(h) diversification requirements or Subchapter M
qualifications specified in Article VI hereof; or
(g) at the option of either the Fund or the Adviser, if (i)
the Fund or Adviser, respectively, shall determine, in their
sole judgment reasonably exercised in good faith, that
either First Transamerica or Schwab has suffered a material
adverse change in their business or financial condition or
is the subject of material adverse publicity and the
material adverse change or publicity will have a material
adverse impact on First Transamerica's or Xxxxxx'x ability
to perform its obligations under this Agreement, (ii) the
Fund or Adviser notifies First Transamerica or Schwab, as
appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by First Transamerica or Schwab and any other
changes in circumstances since the giving of such notice,
the determination of the Fund or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of
that notice, which sixtieth day shall be the effective date
of termination; or
(h) at the option of either First Transamerica or Schwab, if
(i) First Transamerica or Schwab, respectively, shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Fund or the Adviser has suffered a
material adverse change in its business or financial
condition or is the subject of material adverse publicity
and that material adverse change or publicity will have a
material adverse impact on the Fund's or Adviser's ability
to perform its obligations under this Agreement, (ii) First
Transamerica or Schwab notifies the Fund or Adviser, as
appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the Fund or Adviser and any other changes
in circumstances since the giving of such a notice, the
determination of First Transamerica or Schwab shall continue
to apply on the sixtieth (60th) day following the giving of
that notice, which sixtieth day shall be the effective date
of termination; or
(i) at the option of First Transamerica in the event that
formal administrative proceedings are instituted against
Schwab by the NASD, the Securities and Exchange Commission,
or any state securities or insurance department or any other
regulatory body regarding Xxxxxx'x duties under this
Agreement or related to the sale of the Fund's shares or the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that First Transamerica
determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a
material adverse effect upon the ability of Schwab to
perform its obligations related to the Contracts.
10.2 Notice Requirement No termination of this Agreement shall
be effective unless and until the party terminating this Agreement
gives prior written notice to all other parties of its intent to
terminate, which notice shall set forth the basis for the
termination. Furthermore,
(a) in the event that any termination is based upon the provisions
of Article VII, or the provisions of Section 10.1 (a), 10.1 (g) or
10.1 (h) of this Agreement, the
prior written notice shall be given in advance of the effective date
of termination as required by those provisions; (b) in the event
that any termination is based upon the provisions of Section 10.1
(d), 10.1 (e) or 10.1 (i) of this Agreement, the prior written
notice shall be given at least sixty (60) days before the effective
date of termination; and (c) in the event that any termination is
based upon the provisions of Section 10.1 (b), 10.1 (c) or 10.1 (f),
the prior written notice shall be given in advance of the effective
date of termination, which date shall be determined by the party
sending the notice.
10.3 Effect of Termination Notwithstanding any termination of this
Agreement, the Fund and the Adviser shall, at the option of First Transamerica,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.3 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.4 Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
10.5 Survival of Agreement. A termination by Schwab shall terminate this
Agreement only as to that party, and this Agreement shall remain in effect as to
the other parties; provided, however, that in the event of a terminating by
Schwab, the other parties shall have the option to terminate this Agreement upon
60 (sixty) days notice, rather than the one (1) year specified in Section 10.1
(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
INVESCO Variable Investment Funds, Inc.
0000 Xxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: General Counsel
If to First Transamerica:
First Transamerica Life Insurance Company
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: President
If to the Adviser:
INVESCO Funds Group, Inc.
0000 Xxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: General Counsel
If to Schwab:
Xxxxxxx Xxxxxx & Co., Inc.
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the New York Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable annuity operations of First Transamerica are
being conducted in a manner consistent with the New York Variable Annuity
Regulations and any other applicable law or regulations.
12.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.8 IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as to the date
specified below.
First Transamerica:
FIRST TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY
By its authorized officer
By:/s/------------------------
Title:------------------------
Date:-------------
Fund:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By:/s/ Xxxxxx X. Xxxxxx
----------------------------
Title:Treasurer
----------------------------
Date:November 15, 1994
-------------------
Adviser:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By:/s/ Xxxxxx X. Xxxxxx
------------------------------
Title:Senior Vice President & Treasurer
--------------------------------
Date:November 15, 1994
-----------------
Schwab:
XXXXXXX XXXXXX & CO., INC.
By its authorized officer,
By:/s/-------------------------
Title:VP Variable Annuities
-------------------------
Date:12/1/94
------------------
Schwab Investment Advantage, A Variable Annuity
SCHEDULE A
Contracts Form Numbers
--------- ------------
First Transamerica Life Insurance Company
Group Annuity Contract Form No. FTGP-501-193
Dollar Cost Averaging Endorsement Form No. FTGE-003-193
Automatic Payout Option Endorsement Form No. FTGE-004-193
Systematic Withdrawal Option Endorsement Form No. FTGE-005-193
Acceptance of Group Annuity Contract Form No. FTGA-003-193
Modification of Allocation of Net Purchase Payments Provision
Form No. FTGE-007-194
Variable Annuity Application Form No. FTGA-004-194 (6/94)
Certificate of Participation Form No. FTCG-101-193
XXX Endorsement Form No. FTCE-005-193
Benefit Distribution Endorsement Form No. FTCE-006-193
Dollar Cost Averaging Endorsement Form No. FTCE-007-193
Automatic Payout Option Endorsement Form No. FTCE-008-193
Systematic Withdrawal Option Endorsement Form No. FTCE-009-193
Annuity Rate Table Endorsement Form No. FTCE-010-193
Unisex Annuity Rate Tables Endorsement Form No. FTCE-010-193
Modification of Allocation of Net Purchase Payments Provision
Form No. FTCE-011-194
SCHEDULE B
Designated Portfolios
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
SCHEDULE C
INVESCO Industrial Income Fund, INVESCO Total Return Fund, and
INVESCO High Yield Fund
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company which offers shares of
common stock of four diversified investment portfolios (the "Funds"), the
INVESCO VIF - Industrial Income Portfolio (the "Industrial Income Fund"), the
INVESCO VIF - Total Return Portfolio (the "Total Return Fund"), the INVESCO VIF
- High Yield Portfolio (the "High Yield Fund"), and the INVESCO VIF - Utilities
Portfolio (the "Utilities Fund"). The Utilities Fund is not part of this Xxxxxxx
Xxxxxx Variable Annuity. The Company's shares are not offered directly to the
public, but are sold exclusively to life insurance companies ("Participating
Insurance Companies") as a pooled funding vehicle for variable annuity and
variable life insurance contracts issued by separate accounts of Participating
Insurance Companies.
Pursuant to an agreement with the Company, INVESCO Funds Group, Inc.
("INVESCO"), 0000 X. Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxx, serves as the Funds'
investment adviser. INVESCO is primarily responsible for providing the Fund with
various administrative services and supervising one Funds' daily business
affairs. These services are subject to review by the Company's board of
directors. INVESCO holds all of the outstanding shares of each Fund, and thus
should be regarded as a control person of each Fund. INVESCO is an indirect
wholly-owned subsidiary of INVESCO PLC, a financial holding company which,
through its subsidiaries, engages in the business of investment management on an
international basis. INVESCO was established in 1932 and, as of June 30, 1993,
managed ten mutual funds, consisting of 25 separate portfolios, with combined
assets of approximately $8.4 billion on behalf of over 821,000 shareholders.
Pursuant to agreements with INVESCO, INVESCO Trust Company ("INVESCO
Trust") serves as the sub-adviser of the Industrial Income and High Yield and
INVESCO Capital Management, Inc. ("ICM") serves as the sub-adviser of the Total
Return Fund. Although the Company is not a party to either sub-advisory
agreement, each agreement has been approved for each Fund affected by that
agreement by the Company's board of directors. In addition, each agreement has
been approved as to each affected Fund by the initial shareholder of that Fund.
The address of INVESCO Trust is 0000 X. Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxx and
the address of ICM is 0000 Xxxxxxxxx Xxxxxx, X.X., Xxxxxxx, Xxxxxxx. Subject to
the supervision of INVESCO and review by the Company's board of directors,
INVESCO Trust is primarily responsible for selecting and managing the
investments of the Industrial Income and High Yield. ICM is primarily
responsible for selecting and managing the Investments of the Total Return Fund.
INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that managed 21 investment portfolios as of June 30, 1993,
including 19 portfolios in the INVESCO group, a closed-end investment company,
and a Canadian open-end investment fund trust. These 21 portfolios had aggregate
assets of approximately $7.7 billion as of June 30, 1993. In addition, INVESCO
Trust provides Investment management services to private clients including
employee benefit plans that may be invested in a collective trust sponsored by
INVESCO Trust, having total assets of approximately $244 million as of June 30,
1993.
ICM is an indirect, wholly owned subsidiary of INVESCO PLC that, as of
June 30, 1993, managed approximately $25.3 billion of tax-exempt accounts (such
as pension and profit-sharing funds for corporations and state and local
governments) and acted as investment adviser or sub-adviser to 18 investment
portfolios of 5 other investment companies with combined assets of approximately
$732 million.
Dividends paid by each Fund will be based solely on the income earned by
that Fund. The Company's policy with respect to each Fund is to distribute
substantially all of this income, less expenses, to shareholders of that Fund.
Dividend distributions for each Fund are customarily declared and paid
quarterly, at the end of March, June, September and December. Dividends are
automatically reinvested in additional shares of the Fund making the dividend
distribution at its net asset value, unless an election is made on behalf of a
separate account to receive distributions in cash.
Investment Objectives and Policies
The investment objective of each Fund, as described below, is fundamental
and may be changed only by vote of a majority of the outstanding shares of that
Fund. There is no assurance that any Fund will achieve its investment objective.
Any investment policy of a Fund may be changed by the Company's board of
directors without shareholder approval unless the policy is one required by the
Fund's fundamental investment restrictions set forth in the Statement of
Additional Information.
Industrial Income Fund
The investment objective of the Industrial Income Fund is to seek the best
possible current income while following sound investment practices. Capital
growth potential is an additional, but secondary, consideration in the selection
of portfolio securities. The Fund seeks to achieve its objective by investing in
securities which will provide a relatively high yield and stable return and
which, over a period of years, also may provide capital appreciation.
The Industrial Income Fund normally invests between 60% and 75% of its
assets in dividend-paying common stocks. The Fund also may invest in convertible
bonds, preferred stocks and straight debt securities ("debt securities"). In
periods of uncertain market and economic conditions, as determined by the fund's
investment advisers, the Fund may depart from its basic investment objective and
assume a defensive position with a large portion of its assets temporarily
invested in high quality corporate bonds, or notes and government issues, or
held in cash.
The Industrial Income Fund may invest no more than 15% of its total assets
in debt securities that are rated below BBB by Standard & Poor's Corporation
("Standard & Poor's"), or Baa by Xxxxx'x Investors Service, Inc. ("Xxxxx"s"),
and in no event will the Fund ever invest in a debt security rated below CCC by
Standard & Poor's or Caa by Xxxxx'x. Generally, bonds rated in one of the top
four rating categories are considered "investment grade." However, those in the
fourth highest category (Standard & Poor's BBB or Moody's Baa) may have
speculative characteristics and a weaker ability to pay interest or repay
principal under adverse economic conditions or changing circumstances.
Total Return Fund
The investment objective of the Total Return Fund is to seek a high total
return on investment through capital appreciation and current income. The Fund
seeks to accomplish its objective by investing in a combination of equity
securities and fixed income securities. Although there is no limitation on the
maturity of the Total Return Fund's investments in fixed income securities,
the dollar-weighted average maturity of such investments normally will be from
three to ten years.
The equity securities to be acquired by the Total Return Fund consist of
common stocks and, to a lesser extent, securities convertible into common
stocks. Such securities generally will be issued by companies which are listed
on a national securities exchange (such as the New York Stock Exchange) and
which usually pay regular dividends. However, the Fund also may invest in
securities traded on regional stock exchanges or in the over-the-counter market.
The Company has not established any minimum investment standards (such as an
issuer's asset level, earnings history, type of industry, dividend payment
history, etc.) with respect to the Fund's investments in common stocks. Because
smaller companies may be subject to more significant losses, as well as have the
potential for more substantial growth, than larger, more established companies,
the Fund's investments may consist in part of securities that may be deemed to
be speculative.
The income securities to be acquired by the Total Return Fund will include
obligations of the United States government and government agencies. These
United States government obligations consist of direct obligations of the U.S.
government, such as U.S. Treasury Bills, Notes and Bonds, obligations guaranteed
by the U.S. government, such as Government National Mortgage Association
obligations, and obligations of U.S. government authorities, agencies and
instrumentalities, which are supported only by the assets of the Issuer, such as
the Federal National Mortgage Association, Federal Home Loan Bank, Federal
Financing Bank and Federal Farm Credit Bank. In the case of securities not
backed by the full faith and credit of the United States, the Fund must look
principally to the agency Issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
The Fund will invest in securities of such instrumentalities only when the
fund's investment advisers is satisfied that the credit risk with respect to any
such instrumentality is minimal.
The Total Return Fund also may invest in corporate debt obligations which
are rated in one of the four highest ratings of corporate obligations by Moody's
(Aaa, Aa, A and Baa) or by Standard & Poor's (AAA, AA, A and BBB), or, if not
rated, which in the fund's investment advisers' opinion have investment
characteristics similar to those described in such ratings. The investment
characteristics of the securities rated Baa by Moody's or BBB by Standard &
Poor's are discussed above in the description of the investment policies of the
Industrial Income Fund.
Typically, at least 30% of the Total Return Fund's investment portfolio
will be comprised of equities and at least 30% fixed and variable income
securities. The remaining 40% of the portfolio will vary in asst allocation
according to the fund's investment adviser's assessment of business, economic,
and market conditions. The analytical process associated with making allocation
decisions is based upon a combination of demonstrated historic financial
results, current prices for stocks, and the current yield to maturity available
in the market for bonds. The return available from one category relative to the
other determines the actual asset deployment. The fund's investment advisers's
asset allocation process is based on current information rather than forecasted
change. The Fund seeks reasonably consistent returns over a variety of market
cycles.
The Total Return Fund also may enter into interest rate futures contracts
and forward delivery contracts, may purchase options on interest rate futures
contracts or debt securities, and may write covered call options and
cash-secured puts.
High Yield Fund
The investment objective of the High Yield Fund is to seek a high level of
current income by investing substantially all of its assets in lower rated bonds
and other debt securities and in preferred stock. Accordingly, the Fund invests
primarily in bonds and other debt securities, including state and local
municipal obligations and convertible and non-convertible issues, and in
preferred stocks rated in medium and lower categories by Xxxxx'x or S&P (Ba or
lower by Xxxxx'x, XX or lower by S&P). The Fund does not invest in securities
rated lower than Caa by Xxxxx'x or CCC by S&P; these ratings are applied to
issues which are predominantly speculative and may be in default or as to which
there may be present elements of danger with respect to principal or interest.
The Fund does not invest in issues which are in default. The Fund may invest in
unrated securities where the Fund's investment adviser believes that the
financial condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Fund rated in medium and lower categories by Xxxxx'x or S&P
(between Ba and Caa ratings by Xxxxx'x, and between BB and CCC ratings by S&P).
The High Yield Fund also may hold cash or invest all or a portion of its
assets in securities issued or guaranteed by the U.S. government or its agencies
(which may or may not be backed by the full faith and credit of the United
States) and bank certificates of deposit, if the fund's investment advisers
determines it to be appropriate for purposes of preserving liquidity or capital
in light of prevailing market or economic conditions. The Fund also may invest
in corporate short-term notes rated at the time of purchase at least A-I by S&P
or Prime- I by Xxxxx'x, and municipal short-term notes rated at the time of
purchase at least A-1 by S&P or MIG-1 by Xxxxx'x the highest rating category for
such notes, indicating a very strong capacity to make timely payments of
principal and interest).
Potential capital appreciation is a factor in the selection of investments,
but is secondary to the High Yield Fund's primary objective. The securities in
which the Fund invests offer a wide range of maturities (from less than one year
to thirty years) and yields. These securities include short-term bonds or notes
(maturing in less than three years), intermediate-term bonds or notes (maturing
in three to ten years), and long-term bonds (maturing in more than ten years).
The fund's investment advisers will seek to adjust the portfolio of securities
held by the Fund to maximize current income consistent with the preservation of
principal.
There are no limitations on the average maturity of the securities in the
High Yield Fund. Securities will be selected on the basis of the fund's
investment advisers's assessment of interest rate trends an the liquidity of
various instruments under prevailing market conditions. As a matter of policy,
which may be changed without a vote of shareholders, under normal circumstances,
at least 65% of the value of the total assets of the Fund will be invested in
debt securities having maturities at the time of issuance of at least three
years. As a temporary defensive measure, the Fund may hold cash or invest more
than 35% of its assets in debt securities having maturities of less than three
years at the time of issuance if the fund's investment advisers determines it to
be appropriate for purposes of enhancing liquidity or preserving capital in
light of prevailing market or economic conditions. The Investment return to
shareholders of the Fund is based solely upon the income earned and gains
realized on the securities held by the Fund.
Securities in which the High Yield Fund invests may at times be purchased
or sold on a delayed delivery or a when issued basis (i.e., securities may be
purchased or sold by the Fund with settlement taking place in the future, often
a month or more later). The High Yield Fund may invest up to 10% of its net
assets in when issued securities. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Fund enters
into a purchase commitment. Between the date of purchase and the settlement
date, the value of the securities is subject to market fluctuations, and no
interest is payable to the Fund prior to the settlement date. When the Fund
purchases securities on a when issued basis, its custodian bank will place cash
or liquid debt securities in a separate account of the Fund in an amount equal
to the amount of the purchase obligation.
Investment Restrictions
The Funds operate under certain investment restrictions which are
fundamental and may not be changed with respect to a particular Fund without the
prior approval of the holders of a majority, as defined in the Investment
Company Act of 1940, of the outstanding voting securities of that Fund. For
purposes of the following limitations, all percentage limitations apply
immediately after a purchase or initial investment. Any subsequent change in a
particular percentage resulting from fluctuations in value does not require
elimination of any security from a Fund.
Each Fund may not:
1. With respect to seventy-five percent (75%) of its total assets,
purchase the securities of any one issuer (except cash items and
government securities" as defined under the Investment Company Act of
1940, as amended (the "1940 Act")), if the purchase would cause the
Fund to have more than 5% of the value of its total assets invested in
the securities of such issuer or to own more than 10% of the
outstanding voting securities of such issuer;
2. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of the
value of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of the Fund's total assets by reason of a
decline in net assets will be reduced within three business days to
the extent necessary to comply with the 33 1/3% limitation. This
restriction shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures,
options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
3. Invest more than 25% of the value of its total assets in any
particular industry (other than government securities).
4. Invest directly in real estate or interest in real estate; however,
the Fund may own debt or equity securities issued by companies engaged
in those businesses.
5. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall
not prevent the Fund from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
6. Lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
7. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
8. Each Fund may, notwithstanding any other investment policy or
limitation (whether or not fundamental), invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental Investment objectives, policies and
limitations as the Fund.
Furthermore, the board of directors has adopted additional investment
restrictions for each Fund. These restrictions are operating policies of each
Fund and may be changed by the board of directors without shareholder approval.
The additional investment restrictions adopted by the board of directors to date
include the following:
(a) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on the New York or
American Stock Exchanges. Warrants acquired by the Fund in units or
attached to securities shall be deemed to be without value.
(b) The Fund will not (i) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the
Fund and premiums paid on outstanding options on futures contracts,
after taking into account unrealized profits and losses, would exceed
5% of the market value of the total assets of the Fund, or (ii) enter
into any futures contracts if the aggregate net amount of the Fund's
commitments under outstanding futures contracts positions of the Fund
would exceed the market value of the total assets of the Fund.
(c) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short without the payment of
any additional consideration therefor, and provided that transactions
in options, swaps and forward futures contracts are not deemed to
constitute selling securities short.
(d) The Fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments and other deposits in connection with transactions in
options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
(e) The Fund does not currently intend to (i) purchase securities of
closed end investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (ii)
purchase or retain securities issued by other open-end investment
companies. Limitations (i) and (ii) do not apply to money market funds
or to securities received as dividends, through offers of exchange, or
as a result of a reorganization, consolidation, or merger. If the Fund
invests in a money market fund, the Fund's investment adviser will
reduce its advisory fee by the amount of any investment advisory and
administrative services fees paid to the investment manager of the
money market fund.
(f) The Fund may not mortgage or pledge any securities owned or held
by the Fund in amounts that exceed, in the aggregate, 15% of the
Fund's net asset value, provided that this limitation does not apply
to reverse repurchase agreements or in the case of assets deposited to
margin or guarantee positions in futures, options, swaps or forward
contracts or placed in a segregated account in connection with such
contracts.
(g) The Fund does not currently intend to purchase securities of any
issuer (other than U.S. government agencies and instrumentalities or
instruments guaranteed by an entity with a record of more than three
years' continuous operation, including that of predecessors) with a
record of less than three years' continuous operation (including that
of predecessors) if such purchase would cause the Fund's investments
in all such issuers to exceed 5% of the Fund's total assets taken at
market value at the time of such purchase.
(h) The Fund does not currently intend to invest directly in oil, gas, or
other mineral development or exploration programs or leases; however,
the Fund may own debt or equity securities of companies engaged in
those businesses.
(i) The Fund does not currently intend to purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the
holder to payment of principal and interest within seven days.
SCHEDULE D
Administrative Services
To be performed by Xxxxxxx Xxxxxx & Co., Inc.
X. Xxxxxx will provide the properly registered and licensed personnel and
systems needed for all customer servicing and support - for both fund and
annuity information and questions including:
delivery of prospectuses - both fund and annuity;
entry of initial and subsequent orders;
transfer of cash to insurance company and/or funds;
explanations of fund objectives and characteristics;
entry of transfers between funds;
fund balance and allocation inquiries;
mail fund prospectuses;
X. Xxxxxx will calculate on a daily basis for each fund the number of shares and
the asset balance on which the fee is to be paid pursuant to this agreement.
Also provided will be a monthly summary of the reports, expressed in both shares
and dollar amounts.
X. Xxxxxx will communicate all purchase, withdrawal, and exchange orders it
receives form its customers to First Transamerica who will retransmit them to
each fund.
D. For the services, Schwab shall receive a fee of 9.20% per annum applied to
the average daily value of the shares of the fund held by Xxxxxx'x customers,
payable by the Adviser directly to Schwab, such payments being due and payable
and payable within 15 (fifteen) days after the last day of the month to which
such payments relates.
SCHEDULE E
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the asset diversification requirements of Section 817(h) and Subchapter M
under the Internal Revenue Code (the "Code") and the regulations thereunder, the
Fund shall provide within twenty (20) Business Days of the close of the calendar
quarter a report in the attached Forms E.1 and E.2 regarding the status under
such sections of the Code of the Designated Portfolios, and if necessary,
identification of any remedial action to be taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the gross income requirements of Subchapter M of the Code, referred to
hereinafter as "RIC status", the Fund will provide the reports on the following
basis: the year-end report in the attached Form E.3 will be provided 45 days
after the end of the calendar year, but prior thereto, the Fund will provide the
additional interim and supplemental reports, described below.
The additional reports are as follows:
1. A report in the usual reporting format and content, as of November 30, of the
fiscal year ending the following December 31. The report will be provided under
cover of a letter from the Adviser stating that the Fund is in full compliance
with the requirements of Section 817(h) and Subchapter M of the Code. Assuming
such satisfactory report, the Fund will not provide any additional interim
reports. The report will be delivered by facsimile by the twentieth day of
December.
2. In the alternative, if a problem, as defined below, is identified in the
November report or its accompanying transmittal letter, additional interim
reports, on a weekly basis, starting on the 15th of December and through the
30th of December, also will be supplied ("additional interim reports"). The
additional interim reports will not follow the format of the regular reports,
but will specifically address the problem identified in the November 30 report.
If any interim report, thereafter, memorializes the cure of the problem,
subsequent additional reports will not be required.
With regard to delivery of the additional reports, they will be transmitted by
facsimile on the next Business Day, subject to the following schedule of special
dates: if the 15th of December is a Saturday, the required report date will be
accelerated to the 14th of December, if the 15th of December is a Sunday the
report will be transmitted on the 16th of December.
3. A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety-five percent of gross income is derived from sources
of income specified in Section 851(b)(2);
(b) Twenty-five percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Fifty-five percent or less of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) Twenty percent or more of the value of total assets is invested in the
securities of one issuer, as that requirement is set forth in Section
851(b)(4)(B).
E.1
817(h) Test
Fund Name------------------------ Date of Report--------------------
First Second Third Fourth
Asset Diversification Test Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------
Total Assets
===============================================
Cash
-----------------------------------------------
Cash Items (Incl.
receivables)
-----------------------------------------------
Government Securities
-----------------------------------------------
Securities of Other RIC's
-----------------------------------------------
Subtotal
-----------------------------------------------
-----------------------------------------------
Percentage < or = to 55%
-----------------------------------------------
Fund Name------------------------ Date of Report--------------------
First Second Third Fourth
Asset Diversification Test Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------
Total Assets ======= ======= ======= =======
List fund's four largest
investment in descending
order of value
Name/Account
1. ======= ======= ======= =======
2. ======= ======= ======= =======
3. ======= ======= ======= =======
4. ======= ======= ======= =======
Percentages:
1/Total Net Assets ------- ------- ------- -------
1+2/Total Net Assets ------- ------- ------- -------
1+2+3/Total Net Assets ------- ------- ------- -------
1+2+3+4/Total Net Assets ------- ------- ------- -------
Test:
Is % at A< or = 55% ------- ------- ------- -------
Is % at B< or = 70% ------- ------- ------- -------
Is % at C< or = 80% ------- ------- ------- -------
Is % at D< or = 90% ------- ------- ------- -------
E.2
RIC Test
Fund Name------------------------ Date of Report--------------------
QUARTERLY ASSET DIVERSIFICATION TEST
1. Computations: 1st 2nd 0xx 0xx
Xxxxxxx Xxxxxxx Xxxxxxx Xxxxxxx
a. Total net assets:
cash, receivable,
securities and total
other assets $------ $------ $------ $------
5% of TNA ======== ======= ======= =======
b. Qualifying assets,
sum of:
1. Cash, receivables,
govt. securities
and securities of
other regulated
Investment Companies $------ $------ $------ $------
2. Other securities
not including: (a)
securities of any one
issuer having a value
in excess of 5% of
line 1a; or (b)
securities representing
more than 10% of
the outstanding voting
securities of any one
issuer (See attached
for detail.) $------ $------ $------ $------
3. Total qualifying
assets: sum of (1) +
(2) $------ $------ $------ $------
4. Total nonqualifying $------ $------ $------ $------
5. Total net assets
should equal a.)
sum of (3) + (4) $====== $====== $====== $======
Fund Name------------------------ Date of Report--------------------
2.Requirements (Answer Yes/No)
a. Are total qualifying
assets equal to or
greater than 50% of
total assets ------- ------- ------- -------
b. Is not more than 25%
of total assets
invested in the
securities (other
than U.S. government
securities or the
securities of other
RICs) of any one
issuer? ------- ------- ------- -------
c. Are total non-
qualifying asset
over 25% ------- ------- ------- -------
d. If yes, are securities
qualifying at date of
purchase? (See
attached for detail.) ------- ------- ------- -------
Fund Name------------------------ Date of Report--------------------
A. Securities of any one issuer having a value in excess of 5% of
line 1a:
QTR SECURITY MARKET VALUE % OF MKT VAL > 5% OF TNA
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B. Securities representing more than 10% of the outstanding
voting securities of any one issuer.
0xx Xxxxxxx 0xx Xxxxxxx 0xx Xxxxxxx 0xx Quarter
-------- -------- -------- --------
Fund Name------------------------ Date of Report--------------------
QUARTERLY ASSET DIVERSIFICATION TEST
Nonqualifying assets: client appraisals
a. Securities of issuer w/value > 5% of total asset
PRIOR MKT VALUE
PRIOR DAY'S AT TIME
ACQUISITION PURCHASES NAV OF LAST
QUARTER SECURITY DATE VALUE COST VALUE PURCHASE
------- -------- ---------- --------- ------- ----- --------
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= + / =
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= + / =
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= + / =
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Fund Name------------------------ Date of Report--------------------
TAX COMPUTATION OF INVESTMENT
COMPANY FISCAL YEAR INCOME GROSS
INCOME TESTS (ANNUAL)
UTI
---------------------------------------------
BOOK TAX ADJ TAX BASIS
---------------------------------------------
1. Interest and dividend income
---------------------------------------------
2. Gross gains on stock or
securities held Three months or
More (exclude each sale at a
loss)
---------------------------------------------
3. Gross gains on options,
futures or forward contracts
held for Three months or More
related to stock or securities
(exclude each transaction
generating a loss).
---------------------------------------------
4. Gains from foreign currencies
which are directly related to the
Fund's principal business of
investing in stock or securities
(or options and futures
with respect to stock or
securities).
---------------------------------------------
5. Other income (describe)
related to Fund's business of
investing in stock or
securities.
---------------------------------------------
6. Other income (describe) NOT
related to Fund's business of
investing in stock or
securities.
---------------------------------------------
7. Gains from foreign currencies
NOT directly related to the Fund's
principal business of investing
in stock or securities (or options
and futures with respect to stock
and securities) held Three Months
or MORE.
---------------------------------------------
8. Gains from foreign currencies
NOT directly related to the fund's
principal business of investing
in stock or securities (or
options and futures with
respect to stock and securities)
held Less than Three Months.
---------------------------------------------
9. Gross gains from stock or
securities held Less than Three
Months (exclude each sale at a
loss).
---------------------------------------------
10.Gross gains on options,
futures and forward contracts
held for Less than Three Months
related to stock or securities
(exclude each transaction
generating a loss).
---------------------------------------------
11.Gross Income (Sum of 1-10)
---------------------------------------------
12.Requirements (1=YES 0=NO)
---------------------------------------------
a. Is other income (lines
6+7+8) not related to Fund's
business less than or equal to
10 percent of gross income
(line 10)?
---------------------------------------------
b. Are gross gains on
securities held less than three
months (line 8+9+10) less than
30 percent of gross Income
(line 11)?
---------------------------------------------
SCHEDULE F
EXPENSES
1. The Fund and First Transamerica will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs
that reflects the Fund's share of the total costs determined according to
the number of pages of the parties' and other funds' respective portions
of the documents.
2. The Adviser and First Transamerica will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs
that reflects the Adviser's share of the total costs determined according
to the number of pages of the parties' and other funds' respective
portions of the documents.
================================================================================
RESPONSIBLE
ITEM FUNCTION PARTY
================================================================================
PROSPECTUS
--------------------------------------------------------------------------------
Annual Update Printing 1
Distribution 1
--------------------------------------------------------------------------------
New Sales:
Marketing (supply and distribution 2
of prospectuses to persons who
have not yet invested in a
Designated Portfolio)
Delivery of prospectuses to
satisfy legal prospectus delivery
requirements (e.g., copies sent 1
with confirmations of sales)
--------------------------------------------------------------------------------
Existing Owners: Supply quantities described in 1
Section 3.4
Distribution 1
--------------------------------------------------------------------------------
Interim Updates
--------------------------------------------------------------------------------
New Sales: Marketing (supply and distribution 2
of prospectuses to persons who
have not yet invested in a
Designated Portfolio)
Deliver of propsectuses to satisfy 1
legal prospectus delivery
requirements (e.g., copies sent
with conformations of sales
If required by Participating PIC
Insurance Company (PIC)
If required by Schwab Schwab
--------------------------------------------------------------------------------
Existing Owners: If required by Fund or Adviser: Fund
If required by PIC: PIC
IF required by Schwab Schwab
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
--------------------------------------------------------------------------------
PROXY MATERIALS Printing Fund
OF THE FUND
Distribution
Fund
(a) If required by law:
(B) If required by participating
insurance company: PIC
(c) If required by Schwab Schwab
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ANNUAL REPORTS & Printing Fund
OTHER
COMMUNICATIONS
WITH SHAREHOLDERS Distribution 1
OF THE FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OPERATIONS OF All operations and related Fund
FUND expenses, including the cost of
registration and qualification
of the Fund's shares, preparation
and filing of the Fund's prospectus
and registration statement, proxy
materials and reports, the
preparation of all statements and
notices required by any federal or
state law and all taxes on the issuance
of the Fund's shares, and all costs of
management of the business affairs of the Fund.
--------------------------------------------------------------------------------
* Schwab will advise the Adviser and the Fund of the allocation of the foregoing
expenses among the parties as soon as possible after such allocations are
determined.
SCHEDULE G
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities of the
handling of proxies relating to the Fund by the Adviser, the Fund and First
Transamerica. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "First Transamerica" shall also
include the department or third party assigned by First Transamerica to perform
the steps delineated below.
1. The number of proxy proposals is given to First Transamerica by the
Adviser as early as possible before the date set by the Fund for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Adviser will inform First Transamerica of the
Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, First Transamerica will perform a "tape
run," or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Contract Owners") as of the Record Date. Allowance should be made
for account adjustments made after this date that could affect the status
of the Contract Owners' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. First Transamerica will use its best efforts to call
in the number of Contract Owners to the Adviser, as soon as possible, but
no later than one week after the Record Date.
3. The Fund's Annual Report must be sent to each Contract Owner by First
Transamerica either before or together with the Contract Owner's receipt
of a proxy statement. The Adviser will provide at least one copy of the
last Annual Report to First Transamerica.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to First Transamerica by the Fund. First Transamerica
shall produce and personalize the Voting Instruction cards. The Legal
Department of the Adviser ("Adviser Legal") must approve the Card before
it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
5. During this time, Adviser Legal will develop and produce the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Insurance Fund for insertion into envelopes
(envelopes and return envelopes are provided and paid for by First
Transamerica). Contents of envelope sent to Contract Owners by First
Transamerica will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid) addressed to First
Transamerica or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a
small single sheet of paper that requests Contract Owners
to vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. Cover letter - optional, supplied by First Transamerica and
reviewed and approved in advance by Adviser Legal.
6. The above contents should be received by First Transamerica approximately
3-5 business days before mail date. Individual in charge at First
Transamerica reviews and approves the contents of the mailing package to
ensure correctness and completeness. Copy of this approval sent to Adviser
Legal.
7. Package mailed by First Transamerica.
* The Fund must allow at least a 15-day solicitation time
to First Transamerica as the shareowner. (A 5-week period
is recommended.) Solicitation time is calculated as
calendar days from (but not including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
9. If cards are mutilated, or for any reason are illegible or are
not signed properly, they are sent back to the Contract Owner
with an explanatory letter, a new Card and return envelope.
The mutilated or illegible Card is disregarded and considered
to be NOT RECEIVED for purposes of vote tabulation. Such
mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
10. There are various control procedures used to ensure proper
tabulation of votes and accuracy of the tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the
vote is progressing may then be calculated. If the initial
estimates and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a
recount.
11. The actual tabulation of votes is done in units which are then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Adviser Legal
must review and approve tabulation format.
12. Final tabulation in shares is verbally given by First Transamerica to
Adviser Legal on the morning of the meeting not later than 10:00 am.
Denver time. Adviser Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
13. A Certificate of Mailing and Authorization to Vote Shares will
be required from First Transamerica as well as an original
copy of the final vote. Adviser Legal will provide a standard
form for each Certification.
14. First Transamerica will be required to box and archive the Cards received
from the Contract Owners. In the event that any vote is challenged or is
otherwise necessary for legal, regulatory, or accounting purposes, Adviser
Legal will be permitted reasonable access to such Cards.
15. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
