As filed with the Securities and Exchange Commission on October
29 , 1996
Registration No. 333-01153
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(X)
PRE-EFFECTIVE AMENDMENT NO. 2
(X)
POST-EFFECTIVE AMENDMENT NO. ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
(X)
Amendment No. 2
(X)
(Check appropriate box or boxes)
VARIABLE ANNUITY-1 SERIES ACCOUNT
(Exact name of Registrant)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Name of Depositor)
8515 East Orchard Road
Englewood, Colorado 80111
(Address of Depositor's Principal Executive Offices) (Zip
Code)
Depositor's Telephone Number, including Area Code:
(800) 537-2033
William T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copy to:
James F. Jorden, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the effective
date of
this Registration Statement
It is proposed that this filing will become effective on October
31, 1996.
The Registrant has chosen to register an indefinite number of
securities in
accordance with Rule 24f-2.
The Registrant hereby amends this registration statement on such
date or
dates as may be necessary to delay its effective date until the
Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with
Section 8(a) of the Securities Act of 1933 or until the
registration
statement shall become effective on such date as the Commission
acting
pursuant to said Section 8(a) may determine.<PAGE>
VARIABLE ANNUITY-1 SERIES ACCOUNT
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form N-4
FORM N-4 ITEM PROSPECTUS
CAPTION
1. Cover Page.......................... Cover Page
2. Definitions......................... Glossary of
Special Terms
3. Synopsis............................ Fee Table;
Questions and
Answers about the
Series
Account Variable
Annuity
4. Condensed Financial Information..... Condensed
Financial
Information
5. General Description of
Registrant, Depositor and
Portfolio Companies............... Great-West Life
& Annuity
Insurance
Company;
Variable
Annuity-1
Series Account;
Investments
of the Series
Account;
Voting Rights
6. Deductions.......................... Administrative
Charges;
Risk Charges,
Premium
Taxes and Other
Deductions;
Appendix A;
Distribution of
the
Contracts
7. General Description of
Variable Annuity Contracts........ The Contracts;
Investments
of the Series
Account;
Statement of
Additional
Information
8. Annuity Period...................... Annuity Options
9. Death Benefit....................... The
Contracts-Accumulation
Period - Death
Benefit;
Prior to
Retirement Date;
Annuity Payments<PAGE>
10. Purchases and Contract Value........ The
Contracts-General;
The Contracts-
Accumulation
Period;
Distribution of
the
Contracts; Cover
Page;
Great-West Life
& Annuity
Insurance Company
11. Redemptions......................... The Contracts-
Accumulation
Period -
Total and Partial
Surrenders;
Return
Privilege
12. Taxes............................... Federal Tax
Consequences
13. Legal Proceedings................... Legal Proceedings
14. Table of Contents of
Statement of Additional
Information....................... Statement of
Additional
Information
<PAGE>
STATEMENT OF
ADDITIONAL
FORM N-4 ITEM INFORMATION
CAPTION
15. Cover Page.......................... Cover Page
16. Table of Contents................... Table of Contents
17. General Information and
History........................... Not Applicable
18. Services............................ Custodian and
Accountants
19. Purchase of Securities
Being Offered..................... Not Applicable
20. Underwriters........................ Underwriter
21. Calculation of
Performance Data.................. Calculation of
Performance
Data
22. Annuity Payments.................... Not Applicable
23. Financial Statements................ Financial
Statements<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF
ANY SUCH STATE.
THE SCHWAB VARIABLE ANNUITY TM
A FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY
Distributed by
CHARLES SCHWAB & CO., INC.
_____________________________________________
Issued by
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
This prospectus describes interests under a flexible premium
deferred annuity
contract, The Schwab Variable Annuity (the "Contract"). The
Contract is
issued either on a group basis or as individual contracts by
Great-West Life
& Annuity Insurance Company (the "Company"). Participation in a
group
contract will be accounted for by the issuance of a certificate
showing an
interest under the group contract. The certificate and the
individual
contract are hereafter both referred to as the "Contract."
Your investment in the Contract may be allocated among
twenty-one
Investment
Divisions of the Variable Annuity-1 Series Account ("Series
Account") and the
available Guarantee Periods under the Guarantee Period Fund. The
Investment
Divisions invest in various underlying funds (open-end investment
companies)
offered by fund families such as Federated, INVESCO, Janus,
Lexington, Alger,
Schwab Funds, Stein Roe, Strong, Montgomery, Twentieth Century and
Van Eck.
You also have the option of allocating some or all of your
investment in the
Contract to the Guarantee Period Fund which allows you to select
one or more
Guarantee Periods, each of which offers you a specified interest
rate for a
specified period. There may be a market value adjustment on the
amounts
withdrawn from the Guarantee Period Fund.
The minimum initial investment is $5,000 ($2,000 if an IRA) or
$1,000 if made
under an Automatic Contribution Plan ("ACP"). The minimum
subsequent
Contribution is $500 (or $100 per month if made under an ACP).
There are no sales charges, redemption, surrender or withdrawal
charges. The
Contract provides a Free Look Period of 10 days from your receipt
of the
Contract (or longer, if required by state law), during which time
you may
cancel your investment in the Contract. During the Free Look
Period, all
Contributions allocated to an Investment Division will be allocated
first to
the Schwab Money Market Investment Division and will remain there
until the
next Transaction Date following the end of the Free Look Period.
Contributions to the Guarantee Period Fund will be allocated
immediately into
the specified Guarantee Period(s).
Your Variable Account Value will increase or decrease based on the
investment
performance of the options you select. You bear the entire
investment risk
under the Contract prior to the annuity commencement date for all
amounts in
your Variable Sub-Accounts . While there is a guaranteed
death
benefit, there
is no guaranteed or minimum Variable Account Value on amounts
allocated to
Investment Divisions. Therefore, the Annuity Account Value you
receive could
be less than the total amount of your Contributions.
Amounts allocated to the Guarantee Period Fund may be subject to a
Market
Value Adjustment which could result in receipt of less than your
Contributions if you surrender, Transfer, make a partial
withdrawal, apply
amounts to purchase an annuity or take a distribution upon the
death of the
Owner or Annuitant before a Guarantee Period Maturity Date.
Whether such a
result actually occurs depends on the timing of the transaction,
the amount
of the Market Value Adjustment and the interest rate credited. The
interest
rate in subsequent Guarantee Periods may be more or less than the
rate of a
previous Guarantee Period.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY
IS A CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO
GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE
CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS
PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE. PLEASE READ THIS PROSPECTUS AND
KEEP IT
FOR FUTURE REFERENCE.
Prospectus Dated November 1, 1996
The Contracts are not deposits of, or guaranteed or endorsed by any
bank, nor
are the Contracts federally insured by the Federal Deposit
Insurance
Corporation, the Federal Reserve Board or any other government
agency. The
Contracts involve certain investment risks, including possible loss
of
principal.
To Place Orders and for Account Information: Contact the Schwab
Annuity
Service Center at 800-838-0650 or P.O. Box 7666, San Francisco,
California
94120-7666.
About This Prospectus: This Prospectus concisely presents
important
information you should have before investing in the Contract.
Please read it
carefully and retain it for future reference. You can find more
detailed
information pertaining to the Contract in the Statement of
Additional
Information dated November 1, 1996 (as may be amended from time to
time), and
filed with the Securities and Exchange Commission. The Statement
of
Additional Information is incorporated by reference into this
Prospectus, and
may be obtained without charge by contacting the Schwab Annuity
Service
Center at 800-838-0650 or P.O. Box 7666, San Francisco, California
94120-
7666.
TABLE OF CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .iv
KEY FEATURES OF THE ANNUITY . . . . . . . . . . . . . . . . . . .
. . . . 1
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT . . . . . . . . . . . . . . . .
. . . . 7
THE ELIGIBLE FUNDS. . . . . . . . . . . . . . . . . . . . . . . .
. . . . 8
THE GUARANTEE PERIOD FUND . . . . . . . . . . . . . . . . . . . .
. . . .12
THE MARKET VALUE ADJUSTMENT . . . . . . . . . . . . . . . . . . .
. . . .15
APPLICATION AND CONTRIBUTIONS . . . . . . . . . . . . . . . . . .
. . . 16
ANNUITY ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . .
. . . .17
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .18
CASH WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . .
. . . .21
TELEPHONE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .
. . . .22
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .22
CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . .
. . . .25
PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .27
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . .
. . . .31
ASSIGNMENTS OR PLEDGES. . . . . . . . . . . . . . . . . . . . . .
. . . .36
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . .
. . . .36
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . .
. . . .37
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . .
. . . .38
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 48
RIGHTS RESERVED BY THE COMPANY. . . . . . . . . . . . . . . . . .
. . . .49
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . .
. . . .49
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .49
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .50
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . .
. . . .50
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . .
. . . F-1
_________________________________________________________________
_________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER,
SALESPERSON, OR
OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED ON.
_________________________________________________________________
_________
The Contract is not available in all states.
<PAGE>
_________________________________________________________________
_________
DEFINITIONS
_________________________________________________________________
_________
Accumulation Period - The period between the Effective Date and the
Payment
Commencement Date.
Annuitant - The person named in the application upon whose life the
payment
of an annuity is based and who will receive annuity payments. If
a
Contingent Annuitant is named, then the Annuitant will be
considered the
Primary Annuitant. While the Annuitant is living and at least 30
days prior
to the annuity commencement date, the Owner may, by Request, change
the
Annuitant.
Annuity Account - An account established by the Company in the name
of the
Owner that reflects all account activity under this Contract.
Annuity Account Value - The sum of the Variable and Fixed
Sub-Accounts
credited to the Owner under the Annuity Account; less Transfers,
partial
withdrawals, amounts applied to an annuity option, periodic
withdrawals,
charges deducted under the Contract and, less Premium Tax, if any.
Annuity Payment Period - The period beginning on the annuity
commencement
date and continuing until all annuity payments have been made under
the
Contract.
Annuity Unit - An accounting measure used to determine the dollar
value of
any variable annuity payment after the first annuity payment is
made.
Automatic Contribution Plan ("ACP") - A plan which allows for
automatic
periodic Contributions. The Contribution amount will be withdrawn
from a
designated pre-authorized account and automatically credited to the
Annuity
Account.
Beneficiary - The person(s) designated by the Owner, in the
application, or
as subsequently changed by the Owner by Request, to receive any
death benefit
which may become payable under the terms of the Contract. If the
surviving
spouse of an Owner is the surviving Joint Owner, the surviving
spouse will
become the Beneficiary upon such Owner's death and may elect to
take the
death benefit, if any, or elect to continue the Contract in force.
Company - Great-West Life & Annuity Insurance Company, the issuer
of this
annuity, located at 8515 East Orchard Road, Englewood, Colorado
80111.
Contingent Annuitant - The person named in the application, unless
later
changed by the Owner by Request while the Annuitant is alive and
before
annuity payments have commenced, who becomes the Annuitant when the
Primary
Annuitant dies. No new Contingent Annuitant may be designated
after the
death of the Primary Annuitant.
Contributions - Purchase amounts received under the Contract and
allocated to
the Fixed or Variable Sub-Account(s) prior to any Premium Tax or
other
deductions.
Effective Date - The date on which the first Contribution is
credited to the
Annuity Account.
Eligible Fund - A registered management investment company, or
portfolio
thereof, in which the assets of the Series Account may be invested.
Fixed Sub-Accounts - The subdivision(s) of the Owner's Annuity
Account
reflecting the value of Contributions made to a fixed interest
investment
option available under the Contract and any Fixed Sub-Account
Riders.
Guarantee Period - One of the periods of time available in the
Guarantee
Period Fund during which the Company will credit a stated rate of
interest.
The Company may stop offering any term at any time for new
Contributions.
Amounts allocated to one or more Guaranteed Periods may be subject
to a
Market Value Adjustment.
Guarantee Period Fund - A Fixed Sub-Account in which amounts
allocated will
be credited a stated rate of interest for the applicable Guarantee
Period(s).
Guarantee Period Maturity Date - The last day of any Guarantee
Period.
Guaranteed Interest Rate - The minimum interest rate applicable to
each Fixed
Sub-Account equal to an annual effective rate in effect at the time
the
Contribution is made and as reflected in written confirmation of
the
Contribution. This is the minimum rate allowed by law and is
subject to
change in accordance with changes in applicable law.
Individual Retirement Annuity (IRA) - An annuity contract used in
a
retirement savings program that is intended to satisfy the
requirements of
Section 408 of the Internal Revenue Code of 1986, as amended.
Investment Division - A division of the Series Account containing
the shares
of an Eligible Fund. There is an Investment Division for each
Eligible Fund.
Market Value Adjustment - An adjustment which may be made to
amounts paid out
before the Guarantee Period Maturity Date due to surrenders,
partial
withdrawals, Transfers, amounts applied to the periodic withdrawal
option or
to purchase an annuity, and distributions resulting from death of
the Owner
or Annuitant, as applicable. The Market Value Adjustment may
increase or
decrease the amount payable on one of the above-described
distributions. A
negative adjustment may result in an effective interest rate lower
than the
applicable Guaranteed Interest Rate and the value of the
Contribution(s)
allocated to the Guarantee Period being less than the
Contribution(s) made.
The Market Value Adjustment is detailed on page 15.
Non-Qualified Annuity Contract - An annuity contract which is not
intended to
be part of a qualified retirement plan and is not intended to
satisfy the
requirements of Section 408 of the Internal Revenue Code of 1986,
as amended.
Owner (Joint Owner) or You - The person(s), while the Annuitant is
living,
named in the Contract Data Page who is entitled to exercise all
rights and
privileges under the Contract. Joint Owners must be husband and
wife as of
the date the Contract is issued. The Annuitant will be the Owner
unless
otherwise indicated in the application. If a Contract is purchased
as an
IRA, the Owner and the Annuitant must be the same individual and no
Joint
Owner may be named. Any reference to Owner in the singular tense
shall
include the plural, and vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments or
periodic
withdrawals commence under a payment option. The Payment
Commencement Date
must be at least one year after the Effective Date of the Contract.
If a
Payment Commencement Date is not shown on the Contract Data Page,
annuity
payments will commence on the first day of the month of the
Annuitant's 91st
birthday. The Payment Commencement Date may be changed by the
Owner within
60 days prior to commencement of annuity payments or it may be
changed by the
Beneficiary upon the death of the Owner. If this is an IRA,
payments which
satisfy the minimum distribution requirements of the Internal
Revenue Code of
1986, as amended, must begin no later than the Owner's attainment
of age 70 1/2.
Premium Tax - The amount of tax, if any, charged by a state or
other
governmental authority.
Request - Any written, telephoned, or computerized instruction in
a form
satisfactory to the Company and received at the Schwab Annuity
Service Center
(or other annuity service center subsequently named) from the Owner
or the
Owner's designee (as specified in a form acceptable to the Company)
or the
Beneficiary (as applicable) as required by any provision of the
Contract or
as required by the Company. All Requests are subject to any action
taken or
payment made by the Company before it was processed.
Schwab Annuity Service Center - P.O. Box 7666, San Francisco,
California
94120-7666, telephone 800-838-0650.
Series Account - The segregated account established by the
Company
under
Colorado law and registered as a unit investment trust under the
Investment
Company Act of 1940, as amended.
Simplified Employee Pension - An individual retirement annuity
(IRA) which
may accept contributions from one or more employers under a
retirement
savings program intended to satisfy the requirements of Section
408(k) of the
Internal Revenue Code of 1986, as amended.
Surrender Value - The Annuity Account Value with a Market Value
Adjustment,
if applicable, on the effective date of the surrender, less Premium
Tax, if
any.
Transaction Date - The date on which any Contribution or Request
from the
Owner will be processed by the Company at the Schwab Annuity
Service Center.
Contributions and Requests received after 4:00 p.m. EST/EDT will be
deemed to
have been received on the next business day. Requests will be
processed and
the Variable Account Value will be determined on each day that the
New York
Stock Exchange is open for trading.
Transfer - The moving of money from among and between the
Investment
Division(s) and the Guaranteed Period Fund.
Variable Account Value - The sum of the values of the Variable
Sub-Accounts
credited to the Owner under the Annuity Account.
Variable Sub-Accounts - The sub-division(s) of the Owner's Annuity
Account
containing the value credited to the Owner under the Annuity
Account from an
Investment Division.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance
Company.
<PAGE>
KEY FEATURES OF THE ANNUITY
The Contract currently allows you to invest in your choice of
twenty-one
different Investment Divisions offered by eleven different mutual
fund
investment advisers. You can also invest in the Guarantee Period
Fund. Your
Annuity Account Value allocated to an Investment Division will vary
with the
investment performance of the Investment Division you select. You
bear the
entire investment risk for all amounts invested in the Investment
Division(s). Your Annuity Account Value could be less than the
total amount
of your Contributions.
Who should invest. The Contract is designed for investors who are
seeking
long-term tax deferred asset accumulation with a wide range of
investment
options. The Contract can be used for retirement or other
long-term
investment purposes. The deferral of income taxes is particularly
attractive
to investors in high federal and state tax brackets who have
already fully
taken advantage of their ability to make IRA contributions or
"pre-tax"
contributions to their employer sponsored retirement or savings
plans.
A Wide Range of Variable Investment Choices. The Contract gives
you an
opportunity to select among twenty-one different Investment
Divisions. Each
Investment Division invests in shares of an Eligible Fund. The
Eligible Funds
cover a wide range of investment objectives as follows:
Investment Objective Eligible Funds
Aggressive Growth Janus Aspen Aggressive
Growth Portfolio
SteinRoe Capital Appreciation
Fund
Strong Discovery Fund II
Alger American Small
Capitalization Portfolio
Growth Janus Aspen Growth Portfolio
Alger American Growth Portfolio
TCI Growth
Montgomery Variable Series:
Growth Fund
Schwab Asset Director - High
Growth Portfolio
Index Schwab S&P 500 Portfolio
Growth & Income Federated American Leaders
Fund II
Equity Income INVESCO VIF-Industrial
Income Portfolio
Balanced/Asset Allocation INVESCO VIF-Total Return
Portfolio
Gold/Natural Resources Van Eck Gold and Natural
Resources Fund
International Lexington Emerging Markets
Fund
TCI International
Janus Aspen Worldwide Growth
Portfolio
Montgomery Variable Series:
International Small Cap Fund
High Yield Bond INVESCO VIF-High Yield
Portfolio
Government Bond Federated Fund for U.S.
Government Securities II
Money Market Schwab Money Market Portfolio
The distinct investment objectives and policies for each
Eligible
Fund are
more fully described in their individual fund prospectuses which
are
available from the Schwab Annuity Service Center, P.O. Box 7666,
San
Francisco, California 94120-7666, or via telephone at
1-800-838-0650.
The Guarantee Period Fund. The Contract also gives you an
opportunity to
allocate your Contributions and to transfer your Annuity Account
Value to the
Guarantee Period Fund. This Fixed Sub-Account option is comprised
of
Guarantee Periods, each of which has its own stated rate of
interest and its
own maturity date. The stated rate of interest for the Guarantee
Period will
depend on the date the Guarantee Period is established and the
duration of
the Guarantee Period you select from among those available. The
rates
declared are subject to a minimum (Guaranteed Interest Rate), but
the Company
may declare higher rates (the stated rate of interest). The
Guaranteed
Interest Rate will be disclosed in the written confirmation. The
stated rate
of interest will not be less than the Guaranteed Interest Rate and
will also
be disclosed in the written confirmation. Amounts withdrawn or
transferred
from a Guarantee Period prior to the Guarantee Period Maturity Date
may be
subject to a Market Value Adjustment. (See "Market Value
Adjustment," page
15.)
How to Invest. You must complete a Contract application form in
order to
invest in the Contract and you must pay by check or instruct us to
transfer
funds from your Schwab account. The minimum initial investment is
$5,000 (or
$2,000 if in an IRA). Subsequent investments must be at least
$500. The
minimum initial investment may be reduced to $1,000 should the
Owner agree to
make additional $100 per month minimum recurring deposits through
an ACP.
Free Look Period. The Contract provides for a Free Look Period
which allows
you to cancel your investment generally within 10 days of your
receipt of the
Contract. You can cancel the Contract during the Free Look Period
by
delivering or mailing the Contract to the Schwab Annuity Service
Center. The
cancellation is not effective unless we receive a notice which is
postmarked
before the end of the Free Look Period. If the Contract is
returned, the
Contract will be void from the start and the Annuity Account Value
will be
refunded. These procedures may vary where required by state law.
(See
"Application and Contributions," page 16.)
Allocation of the Initial Investment. Any initial Contribution
allocated to
an Investment Division (other than certain 1035 exchanges - see
"Application
and Contributions," page 16) will be allocated to the Schwab Money
Market
Portfolio until the next Transaction Date following the end of the
Free Look
Period. At that time, the Variable Account Value will be allocated
to the
Investment Divisions in accordance with your instructions. (See
"Annuity
Account Value," page 17.) Your initial investment in the Guarantee
Period
Fund will be immediately allocated to the Guarantee Period(s)
specified in
the application.
Charges and Deductions Under the Contract. The Contract is a "no
load"
variable annuity and, as such, imposes no sales charges, redemption
or
withdrawal charges.
There is a Mortality and Expense Risk Charge at an effective
annual
rate of
0.85% of the value of the net assets in the Variable Account. A
Contract
Maintenance Charge of $25 will be deducted annually from your
Annuity Account
Value. There will be a transfer fee of $10 for each Transfer in
excess of
twelve Transfers per calendar year. (See "Charges and Deductions,"
page 25.)
Depending on your state of residence, we may deduct a charge for
Premium Tax
from purchase payments or amounts withdrawn or at the Payment
Commencement
Date. (See "Charges and Deductions," page 25.)
The Market Value Adjustment may increase or decrease the value of
a Guarantee
Period if the Guarantee Period is broken prior to the Guarantee
Period
Maturity Date. A negative adjustment may result in an effective
interest
rate lower than the stated rate of interest for the Guarantee
Period and the Guaranteed
Interest Rate and the value of the Guarantee Period being less than
Contribution(s). (See "Market Value Adjustment," page
15).
Switching Investments. You may switch Contributions among the
Investment Divisions or Guarantee Period Fund as
often as you like with no immediate tax consequences. You may make
a Transfer Request to the Schwab Annuity Service
Center. A transfer fee may apply. (See "Charges and Deductions,"
page 25.) Amounts Transferred out of a Guarantee
Period prior to the Guarantee Period Maturity Date may be subject
to a Market Value Adjustment. (See "Market Value
Adjustment," page 15.)
Full and Partial Withdrawals. You may withdraw all or part of your
Annuity Account Value before the earlier of the annuity
commencement date you selected or the Annuitant's or Owner's death.
Withdrawals may be taxable and if made prior
to age 59 1/2 may be subject to a 10% penalty tax. Withdrawals of
amounts allocated to a Guarantee Period prior to the
Guarantee Period Maturity Date may be subject to Market Value
Adjustment. (See "Market Value Adjustment," page 15.)
The minimum partial withdrawal prior to the Market Value Adjustment
is $500. There is no limit on the number of
withdrawals made. The Company may delay payment of withdrawals
from your Variable Sub-Accounts by up to 7 days
and may delay withdrawals from the Guarantee Period Fund by up to
6 months. (See "Cash Withdrawals," page 21.)
Annuity Options. Beginning on the first day of the month
immediately following the annuity commencement date you
select, you may elect to receive annuity payments on a fixed or
variable basis. (The default date is the first day of the
month that the Annuitant attains age 91.) A wide range of annuity
options are available to provide flexibility in choosing
an annuity payment schedule that meets your particular needs.
These annuity options include alternatives designed to
provide payments for life (for either a single or joint life), with
or without a guaranteed minimum number of payments. (See
"Payment Options," page 27.)
Death Benefit. The amount of the death benefit, if payable before
annuity payments commence, will be the greater of
(a) the Annuity Account Value with a Market Value Adjustment, if
applicable, as of the date a Request for payment is
received, less Premium Tax, if any; or (b) the sum of Contributions
paid, less partial withdrawals and Periodic Withdrawals,
less charges deducted under the Contract, if any, less Premium Tax,
if any. (See "Death Benefit," page 22.)
Customer Service. Schwab's professional representatives are
available toll-free to assist you. If you have any questions
about your Contract, please telephone the Schwab Annuity Service
Center (800-838-0650) or write to the Schwab Annuity
Service Center at P.O. Box 7666, San Francisco, California
94120-7666. All inquiries should include the Contract number
and the Owner's name. As a Contract Owner you will receive
periodic statements confirming any transactions relating
to your Contract, as well as a quarterly statement and an annual
report.
<PAGE>
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to
assist you in understanding the various costs and
expenses that you will bear directly or indirectly when investing
in the Contract. The table and examples reflect expenses
related to the Investment Divisions as well as of the Eligible
Funds. The table assumes that the entire Annuity Account
Value is allocated to one or more Investment Divisions. The
information set forth should be considered together with the
narrative provided under the heading "Charges and Deductions," page
25 of this Prospectus, and with the Funds'
prospectuses. In addition to the expenses listed below, Premium
Tax may be applicable.
Contract Owner Transaction Expenses
Sales Load None
Surrender Fee None
Transfer Fee (First 12 Per Year) None
Annual Contract Maintenance Charge $25.00
Investment Division Annual Expenses1
(as a percentage of average Variable
Account assets)
Mortality and Expense Risk Charge 0.85%
Administrative Expense Charge 0.00%
Other Fees and Expenses of the Variable Account0.00%
Total Investment Division Annual Expenses0.85%
<PAGE>
Eligible Fund Annual Expenses (1)
(as a percentage of Eligible Fund net assets, after expenses
reimbursements)
Total
Management Other 12b-1 Eligible
Fund
Fees Expenses Fees Expenses
Portfolio
Alger American Growth Portfolio.75%.10% 0% .85%
Alger American Small
Capitalization Portfolio.85% .07% 0% .92%
Federated American Leaders Fund II.0%.85% 0% .85%
Federated Fund for U.S. Government Securities II.0%.80%0%.80%
INVESCO VIF-High Yield Portfolio.60%.37% 0% .97%
INVESCO VIF-Industrial Income Portfolio.75%.28%0% 1.03%
INVESCO VIF-Total Return Portfolio.75%.26% 0% 1.01%
Janus Aspen Aggressive
Growth Portfolio .75% .11% 0% .86%
Janus Aspen Growth Portfolio.65%.13% 0% .78%
Janus Aspen Worldwide
Growth Portfolio .68% .22% 0% .90%
Lexington Emerging Markets Fund.85%.90% 0% 1.75%
Montgomery Variable Series: Growth Fund1.00%.25%0%1.25%
Montgomery Variable Series:
International Small Cap Fund1.25%.25% 0% 1.50%
Schwab Asset Director -
High Growth Portfolio.60% .15% 0% .75%
Schwab Money Market Portfolio.44%.06% 0% .50%
Schwab S&P 500 Portfolio.20% .15% 0% .35%
SteinRoe Capital Appreciation Fund.50%.26% 0% .76%
Strong Discovery Fund II1.00% .31% 0% 1.31%
TCI Growth 1.00% 0% 0% 1.00%
TCI International 1.50% 0% 0% 1.50%
Van Eck Gold and Natural Resources Fund.90%.18%0% 1.08%
_________________________________
(1) The figures given above reflect the amounts actually deducted
from the Eligible Funds during 1995. From time to time,
an Eligible Fund's investment adviser, in its sole discretion, may
waive all or part of its fees and/or voluntarily assume
certain expenses. For a more complete description of the Eligible
Funds' fees and expenses, see the Eligible Funds'
prospectuses. As of the date of this Prospectus, certain fees are
being waived or expenses are being assumed, in each
case on a voluntary basis. Without such waivers or reimbursements,
the total Eligible Fund annual expenses that would
have been incurred for the last completed fiscal year would be:
2.21% for Federated American Leaders Fund II; 5.61%
for Federated Fund for U.S. Government Securities II; 2.71% for
INVESCO VIF-High Yield Portfolio; 2.31% for INVESCO
VIF-Industrial Income Portfolio; 2.51% for INVESCO VIF-Total Return
Portfolio; .93% for Janus Aspen Aggressive Growth
Portfolio; .98% for Janus Aspen Growth Portfolio; 1.09% for Janus
Aspen Worldwide Growth Portfolio; 4.09% for Lexington
Emerging Markets Fund; and 1.02% for Schwab Money Market Portfolio.
See the Eligible Funds' prospectuses for a
discussion of fee waiver and expense reimbursements.
Examples(1)
If you retain, annuitize, or surrender the Contract at the end of
the applicable time period, you would pay the following
fees and expenses on a $1,000 investment, assuming a 5% annual
return on assets:
Investment Divisions 1 Year 3 Years
Alger American Growth Portfolio $ 8.89 $29.14
Alger American Small
Capitalization Portfolio $ 9.61 $31.51
Federated Equity Growth and Income Fund$ 8.89$29.14
Federated U.S. Government Bond Fund$ 8.37 $27.45
INVESCO VIF-High Yield Portfolio $10.13 $33.20
INVESCO VIF-Industrial Income Portfolio$10.76$35.22
INVESCO VIF-Total Return Portfolio $10.55 $34.55
Janus Aspen Aggressive
Growth Portfolio $ 8.99 $29.48
Janus Aspen Growth Portfolio $ 8.16 $26.77
Janus Aspen Worldwide
Growth Portfolio $ 9.41 $30.83
Lexington Emerging Markets Fund $18.21 $59.20
Montgomery Variable Series: Growth Fund$13.04$42.60
Montgomery Variable Series:
International Small-Cap Fund $15.63 $50.93
Schwab Asset Director -
High Growth Portfolio $ 7.84 $25.75
Schwab Money Market Portfolio $ 5.24 $17.23
Schwab S&P 500 Portfolio $ 3.67 $12.09
SteinRoe Capital Appreciation Fund $ 7.95 $26.09
Strong Discovery Fund II $13.66 $44.61
TCI Growth $10.45 $34.21
TCI International $15.63 $50.93
Van Eck Gold and Natural Resources Fund$11.28$36.90
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL
EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES IN THE
CONTRACT.
These examples assume that no premium taxes have been assessed
(although premium taxes may be
applicable - see "Premium Tax," page 26).
(1) The Eligible Fund Annual Expenses and these examples are based
on data provided by the Eligible Funds. The
Company has no reason to doubt the accuracy or completeness of that
data, but the Company has not verified the
Eligible Funds' figures. In preparing the Eligible Fund Expense
table and the Examples above, the Company has relied
on the figures provided by the Eligible Funds.
<PAGE>
_________________________________________________________________
___________
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT
_________________________________________________________________
___________
Great-West Life & Annuity Insurance Company ("GWL&A")
The Company is a stock life insurance company originally
organized under the laws of the state of Kansas as the
National Interment Association. Its name was changed to Ranger
National Life Insurance Company in 1963 and to
Insuramerica Corporation prior to changing to its current name in
1982. In September of 1990, GWL&A redomesticated
and is now organized under the laws of the state of Colorado.
GWL&A is authorized to engage in the sale of life insurance,
accident and health insurance and annuities. It is
qualified to do business in the District of Columbia, Puerto Rico
and 49 states in the United States.
GWL&A is a wholly-owned subsidiary of The Great-West Life
Assurance Company ("Great-West Life"). Great-West
Life is a subsidiary of Great-West Lifeco Inc., a holding company.
Great-West Lifeco Inc. is in turn a subsidiary of Power
Financial Corporation, a financial services company. Power
Corporation of Canada, a holding and management company,
has voting control of Power Financial Corporation. Mr. Paul
Desmarais, through a group of private holding companies,
which he controls, has voting control of Power Corporation of
Canada.
The Series Account
The Variable Annuity-1 Series Account ("Series Account") was
established by the Company as a separate
account under the laws of the State of Colorado on July 24, 1995.
The Series Account is registered with the
Securities and Exchange Commission ("Commission") under the
Investment Company Act of 1940, as amended ("1940
Act"), as a unit investment trust. The Series Account meets the
definition of a "separate account" under the federal
securities laws. However, such registration does not involve
supervision of the management of the Series Account or
the Company by the Commission.
The Company does not guarantee the investment performance of
the Series Account. The portion of the
Annuity Account Value attributable to the Series Account and the
amount of variable annuity payments depend on the
investment performance of the Eligible Funds. Thus, the Contract
Owner bears the full investment risk for all
Contributions allocated to the Series Account.
The Series Account is administered and accounted for as part
of the general business of the Company; but
the income, capital gains, or capital losses of each Investment
Division are credited to or charged against the assets
held in that Investment Division in accordance with the terms of
the Contract, without regard to other income, capital
gains or capital losses of any other Investment Division or arising
out of any other business the Company may
conduct. Under Colorado law, the assets of the Series Account are
not chargeable with liabilities arising out of any
other business the Company may conduct. Nevertheless, all
obligations arising under the Contracts are generally
corporate obligations of the Company.
The Series Account currently has twenty-one Investment
Divisions available for allocation of Contributions. If,
in the future, the Company determines that marketing needs and
investment conditions warrant, it may establish
additional Investment Divisions which will be made available to
Owners to the extent and on a basis to be determined
by the Company, (See "Addition, Deletion, or Substitution," page
12). Each Investment Division invests in shares of an
Eligible Fund, each having a specific investment objective.
_________________________________________________________________
___________
THE ELIGIBLE FUNDS
_________________________________________________________________
___________
The Eligible Funds described below are offered exclusively for
use as funding vehicles for insurance products
and, consequently, are not publicly available mutual funds. Each
Eligible Fund has separate investment objectives
and policies. As a result, each Eligible Fund operates as a
separate investment portfolio and the investment
performance of one Eligible Fund has no effect on the investment
performance of any other Eligible Fund. See the
Eligible Funds' prospectuses for more information.
The Alger American Fund
Alger American Small Capitalization Portfolio: Seeks long-term
capital appreciation by investing at least 65%
of its total assets, except during temporary defensive
periods, in equity securities of companies that, at the
time of purchase, have total market capitalization within the
range of companies included in the Russell 2000
Growth Index, updated quarterly. The Russell 2000 Growth
Index is designed to track the performance of
small capitalization companies with market capitalizations
which range from $20 million to $3.04 billion. The
Portfolio may invest up to 35% of its total assets in equity
securities of companies that, at the time of
purchase, have total market capitalization greater than the
range of companies included in the Russell 2000
Growth Index and in excess of that amount (up to 100% of its
assets) during temporary defensive periods.
Alger American Growth Portfolio: Seeks long-term capital
appreciation by investment of at least 65% of its
assets, except during temporary defensive periods, in equity
securities of companies that, at the time of
purchase of the securities, have total market capitalization
of $1 billion or greater. The Portfolio may invest up
to 35% of its total assets in equity securities of companies
that, at the time of purchase, have total market
capitalization of less than $1 billion and in excess of that
amount (up to 100% of its assets) during temporary
defensive periods.
Federated Investors Insurance Management Series
Federated American Leaders Fund II: Seeks to achieve
long-term
growth of capital as a primary objective
and seeks to provide income as a secondary objective through
investment of at least 65 % of its total assets
(under normal circumstances) in common stocks of "blue chip"
companies.
Federated Fund for U.S. Government Securities II: Seeks to
provide current income through investment of
at least 65% of its total assets in securities which are
primary or direct obligations of the U.S. government or
its agencies or instrumentalities or which are guaranteed as
to principal and interest by the U.S. government,
its agencies, or instrumentalities and in certain
collateralized mortgage obligations, and repurchase
agreements.
<PAGE>
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Industrial Income Portfolio: Seeks 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 Industrial Income Portfolio
seeks to achieve its investment 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.
INVESCO VIF-Total Return Portfolio: Seeks a high total return
on investment through capital appreciation
and current income. The Total Return Portfolio seeks to
achieve its investment objective by investing in a
combination of equity securities (consisting of common stocks
and, to a lesser degree, securities convertible
into common stock) and fixed income securities.
INVESCO VIF-High Yield Portfolio: Seeks 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. These bonds and other
securities are sometimes referred to as "junk bonds." The
High Yield Portfolio pursues its investment objective
through investment in a variety of long-term,
intermediate-term, and short-term bonds. Potential capital
appreciation is a factor in the selection of investments, but
is secondary to the Portfolio's primary objective.
Janus Aspen Series
Janus Aspen Aggressive Growth Portfolio: Seeks long-term
growth of capital in a manner consistent with
the preservation of capital. The Portfolio normally invests
at least 50% of its equity assets in securities issued
by medium-sized companies. Medium-sized companies are those
whose market capitalizations fall within the
range of companies in the S&P MidCap 400 Index (the "MidCap
Index"). Companies whose capitalization falls
outside this range after the Portfolio's initial purchase
continue to be considered medium-sized companies for
the purpose of this policy. As of December 29, 1995, the
MidCap Index included companies with
capitalizations between approximately $118 million to $7.5
billion. The range of the MidCap Index is expected
to change on a regular basis. Subject to the above policy,
the Portfolio may also invest in smaller or larger
issuers.
Janus Aspen Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with the
preservation of capital. The Portfolio pursues its objective
by investing in common stocks of companies of any
size. This Portfolio generally invests in larger, more
established issuers.
Janus Aspen Worldwide Growth Portfolio: Seeks long-term growth
of capital in a manner consistent with the
preservation of capital. The Portfolio pursues its objective
primarily through investments in common stocks of
foreign and domestic issuers. The Portfolio has the
flexibility to invest on a worldwide basis in companies and
organizations of any size, regardless of country of
organization or place of principal business activity. The
Portfolio normally invests in issuers from at least five
different countries, including the United States; however,
it may at times invest in fewer than five countries or even a
single country.
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Fund: Seeks long term growth of
capital primarily through investment in equity
securities of companies domiciled in, or doing business in
emerging countries and emerging markets. For
purposes of its investment objective, the Fund considers
emerging country equity securities to be any country
whose economy and market the World Bank or United Nations
considers to be emerging or developing. The
Fund may also invest in equity securities and equivalents
traded in any market of companies that derive 50%
or more of their total revenue from either goods or services
produced in such emerging countries or markets
or sales made in such countries.
Montgomery Variable Series
Montgomery Growth Fund: Seeks capital appreciation by
investing at least 65% of its total assets (under
normal conditions) in the equity securities of domestic
corporations. In addition to capital appreciation, this
Fund emphasizes value. While the Fund emphasizes investments
in common stock, it also invests in other
types of equity securities (including options on equity
securities, warrants and futures contracts on equity
securities). The Fund may invest up to 35% of its total
assets in debt securities rated within the three highest
grades of S&P, Moody's or Fitch, or unrated debt securities
deemed to be of comparable quality by its
portfolio manager using guidelines approved by the Board of
Trustees.
Montgomery International Small Cap Fund: Seeks capital
appreciation by investing at least 65% of its total
assets (under normal conditions) in equity securities of
companies outside the United States having total
market capitalizations of less than $1 billion, sound
fundamental values and potential for long-term growth at a
reasonable price. The Fund generally invests the remaining
35% of its total assets in a similar manner but
may invest those assets in companies having market
capitalizations of $1 billion or more, or in debt securities,
including up to 5% of its total assets in debt securities
rated below investment grade.
Schwab Annuity Portfolios
Schwab Money Market Portfolio: Seeks maximum current income
consistent with liquidity and stability of
capital. It seeks to achieve its objective by investing in
short-term money market instruments. This Portfolio is
neither insured nor guaranteed by the United States Government
and there can be no assurance that it will be
able to maintain a stable net asset value of $1.00 per share.
Schwab Asset Director-High Growth Portfolio: seeks to
provide
high capital growth with less volatility than
an all stock portfolio. The High Growth Fund seeks to meet
its investment objective by investing in a mix of
stocks, bonds, and cash equivalents.
Schwab S&P 500 Portfolio: seeks to track the price and
dividend performance (total return) of common
stocks of U.S. companies, as represented in the Standard &
Poor's Composite Index of 500 stocks (the
"Index"). The S&P 500 Fund invests primarily in the common
stocks of companies composing the Index.
SteinRoe Variable Investment Trust
SteinRoe Capital Appreciation Fund: Seeks capital growth by
investing primarily in common stocks,
convertible securities, and other securities selected for
prospective capital growth.
Strong Discovery Fund II, Inc.
Strong Discovery Fund II: Seeks capital growth by investing in
a diversified portfolio of securities that the
Fund's investment adviser believes represent attractive growth
opportunities. The Fund normally emphasizes
equity investments, although it has the flexibility to invest
in any security the Fund's investment adviser
believes has the potential for capital appreciation.
TCI Portfolios, Inc.
TCI Growth: Seeks capital growth by investing in common
stocks (including securities convertible into
common stocks and other equity equivalents) and other
securities that meet certain fundamental and
technical standards of selection and have, in the opinion of
the investment manager, better-than-average
potential for appreciation. The Portfolio's investment manager
intends to stay fully invested in such securities,
regardless of the movement of stock prices generally.
TCI International: Seeks capital growth by investing primarily
in an internationally diversified portfolio of
securities of foreign companies that meet certain fundamental
and technical standards of selection and have,
in the opinion of the investment manager, potential for
capital appreciation. The Portfolio will invest primarily
in common stocks (defined to include depository receipts for
common stock and other equity equivalents) of
such companies. Investment in securities for foreign issues
typically involves a greater degree of risk than an
investment in domestic securities.
Van Eck Worldwide Insurance Trust
Van Eck Gold and Natural Resources Fund: Seeks long-term
capital appreciation by investing in equity and
debt securities of companies engaged in the exploration,
development, production and distribution of gold
and other natural resources, such as strategic and other
metals, minerals, forest products, oil, natural gas and
coal. Current income is not an investment objective.
The two Alger American Funds are advised by Fred Alger
Management, Inc. of New York, New York. The two
Federated Insurance Series Portfolios are advised by Federated
Advisers of Pittsburgh, Pennsylvania. The three
INVESCO Variable Investment Funds, Inc., Portfolios are advised by
INVESCO Funds Group, Inc., of Denver,
Colorado. INVESCO Trust Company is the sub-adviser for the INVESCO
VIF-Industrial Income Portfolio. The three
Janus Aspen Series Portfolios are advised by Janus Capital
Corporation of Denver, Colorado. The Lexington
Emerging Markets Fund is advised by Lexington Management
Corporation of Saddle Brook, New Jersey. The two
Montgomery Variable Series Funds are advised by Montgomery Asset
Management, L.P. of San Francisco, California.
The three Schwab Annuity Portfolios are advised by Charles Schwab
Investment Management, Inc., of San Francisco,
California. The SteinRoe Capital Appreciation Fund is advised by
Stein Roe & Farnham Incorporated of Chicago,
Illinois. Strong Discovery Fund II is advised by Strong Capital
Management, Inc. of Milwaukee, Wisconsin. The two
TCI Portfolios, Inc., are advised by Investors Research Corporation
of Kansas City, Missouri, advisers to the Twentieth
Century family of mutual funds. The Van Eck Gold and Natural
Resources Fund is advised by Van Eck Associates
Corporation of New York, New York.
***
Meeting investment objectives depends on various factors,
including, but not limited to, how well the Eligible
Fund managers anticipate changing economic and market conditions.
THERE IS NO ASSURANCE THAT ANY OF
THESE ELIGIBLE FUNDS WILL ACHIEVE THEIR STATED OBJECTIVES.
The Contracts are not deposits of, or guaranteed or endorsed
by, any bank, nor are the Contracts federally
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
The Contracts involve certain investment risks, including possible
loss of principal.
Each Eligible Fund is registered with the Commission as an
open-end management investment company or
portfolio thereof. The Commission does not supervise the
management or the investment practices and policies of
any of the Eligible Funds.
Since some of the Eligible Funds are available to registered
separate accounts of other insurance companies
offering variable annuity and variable life products, there is a
possibility that a material conflict may arise between the
interests of the Series Account and one or more other separate
accounts investing in the Eligible Funds. In the event
of a material conflict, the affected insurance companies are
required to take any necessary steps to resolve the
matter, including stopping their separate accounts from investing
in the Eligible Funds. See the Eligible Funds'
prospectuses for more details.
Additional information concerning the investment objectives
and policies of all of the Eligible Funds and the
investment advisory services and administrative services and
charges can be found in the current prospectuses for
the Eligible Funds, which can be obtained by calling the Schwab
Annuity Service Center at 800-838-0650, or by
writing to Schwab Annuity Service Center, P.O. Box 7666, San
Francisco, California 94120-7666. The Eligible Funds'
prospectuses should be read carefully before any decision is made
concerning the allocation of Contributions
to, or Transfers among, the Investment Divisions.
Addition, Deletion, or Substitution
The Company does not control the Eligible Funds and cannot
guarantee that any of the Eligible Funds will
always be available for allocation of Contributions or Transfers.
The Company retains the right to make changes in
the Series Account and in its investments. Currently, Schwab must
approve certain changes.
GWL&A and Schwab reserve the right to eliminate the shares of
any Eligible Fund held by an Investment
Division and to substitute shares of another Eligible Fund or of
another investment company, for the shares of any
Eligible Fund, if the shares of the Eligible Fund are no longer
available for investment or if, in GWL&A's and Schwab's
judgment, investment in any Eligible Fund would be inappropriate in
view of the purposes of the Series Account. To
the extent required by the 1940 Act, a substitution of shares
attributable to the Owner's interest in an Investment
Division will not be made without prior notice to the Owners and
the prior approval of the Commission. Nothing
contained herein shall prevent the Series Account from purchasing
other securities for other series or classes of
variable annuity policies, or from effecting an exchange between
series or classes of variable policies on the basis of
Requests made by you.
New Investment Divisions may be established when, in our
discretion, marketing, tax, investment or other
conditions so warrant. Any new Investment Divisions will be made
available to Owners on a basis to be determined
by us. Each additional Investment Division will purchase shares in
a Eligible Fund or in another mutual fund or
investment vehicle. We may also eliminate one or more Investment
Divisions if, in our sole discretion, marketing, tax,
investment or other conditions so warrant. In the event any
Investment Division is eliminated, we will notify the
Owners and request a re-allocation of the amounts invested in the
eliminated Investment Division.
In the event of any such substitution or change, we may make
such changes to your Contract as may be
necessary or appropriate to reflect such substitution or change.
Furthermore, if deemed to be in the best interests of
persons having voting rights under the Contracts, the Series
Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be
de-registered under such Act in the event such
registration is no longer required, or may be combined with one or
more other separate accounts. Such changes will
be made in compliance with applicable law.
_________________________________________________________________
__________
THE GUARANTEE PERIOD FUND
_________________________________________________________________
___________
Guarantee Period Fund
Amounts allocated to the Guarantee Period Fund under the
Contract will be deposited to, and accounted for,
in a non-unitized separate account established by the Company under
Section 10-7-401, et seq. of the Colorado
Insurance Code and, accordingly, are not part of the Series
Account. A non-unitized separate account is a separate
account in which the Owner does not participate in the performance
of the assets through unit values. Therefore,
Owners allocating Contributions do not receive a unit ownership of
assets accounted for in this separate account.
The assets accrue solely to the benefit of the Company and any gain
or loss in the separate account is borne entirely
by the Company. For amounts allocated to the Guarantee Period
Fund, Owners will receive the Contract guarantees
made by the Company.
Contributions allocated to or amounts transferred to the
Guarantee Period Fund will establish a new
Guarantee Period of a duration selected by the Owner from those
currently being offered by the Company. Every
Guarantee Period offered by the Company will have a duration of at
least one year. Contributions allocated to the
Guarantee Period Fund will be credited on the Transaction Date.
Each Guarantee Period will have its own stated rate of
interest and Guarantee Period Maturity Date. The
stated rate of interest applicable to a Guarantee Period will
depend on the date the Guarantee Period is established
and the duration chosen by the Owner.
As of the date of this Prospectus, Guarantee Periods with
annual durations of 1 to 10 years are offered. The
Guarantee Periods may be changed in the future; however, any such
modification will not have an impact on any
Guarantee Period then in effect.
The value of amounts in each Guarantee Period is the Owner's
Contributions, less Premium Tax, if any, in that
Guarantee Period, plus interest earned, less amounts distributed,
withdrawn (in whole or in part), Transferred or
applied to an annuity option, periodic withdrawals, and charges
deducted under the Contract. If a Guarantee Period
is broken, a Market Value Adjustment may be assessed. Any such
amount withdrawn or Transferred from a
Guarantee Period will be paid in accordance with the MVA formula
(See "Market Value Adjustment," page 15.)
Investments
The Company intends to invest in assets which, in the
aggregate, have characteristics, especially cash flow
patterns, reasonably related to the characteristics of its
liabilities. Various techniques will be used to achieve the
objective of close aggregate matching of assets and liabilities.
The Company will primarily invest in investment-grade
fixed income securities including:
Securities issued by the U.S. Government or its agencies
or instrumentalities, which issues may or
may not be guaranteed by the U.S. Government.
Debt securities which have an investment grade, at the
time of purchase, within the four highest
grades assigned by Moody's Investment Services, Inc. (Aaa, Aa,
A or Baa), Standard & Poor's Corporation
(AAA, AA, A or BBB) or any other nationally recognized rating
service.
Other debt instruments, including, but not limited to,
issues of banks or bank holding companies and
of corporations, which obligations, although not rated by
Moody's, Standard & Poor's, or other nationally
recognized rating firms, are deemed by the Company's
management to have an investment quality
comparable to securities which may be purchased as stated
above.
Commercial paper, cash or cash equivalents, and other
short-term investments having a maturity of
less than one year which are considered by the Company's
management to have investment quality
comparable to securities which may be purchased as stated
above.
In addition, the Company may invest in futures and options.
Financial futures and related options thereon and
options on securities are purchased solely for non-speculative
hedging purposes. The Company may sell a futures
contract or purchase a put option on futures or securities to
protect the value of securities held in or to be sold for the
general account or the non-unitized separate account in the event
the securities prices are anticipated to decline.
Similarly, if securities prices are expected to rise, the Company
may purchase a futures contract or a call option
thereon against anticipated positive cash flow or may purchase
options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT
STRATEGY FOR THE
GUARANTEE PERIOD FUND, THE COMPANY IS NOT OBLIGATED TO INVEST THE
ASSETS ATTRIBUTABLE TO
THE GUARANTEE PERIOD FUND ACCORDING TO ANY PARTICULAR STRATEGY,
EXCEPT AS MAY BE
REQUIRED BY COLORADO AND OTHER STATE INSURANCE LAWS, NOR WILL THE
STATED RATE OF
INTEREST THAT THE COMPANY ESTABLISHES NECESSARILY RELATE TO THE
PERFORMANCE OF THE NON-
UNITIZED SEPARATE ACCOUNT.
Subsequent Guarantee Periods
Prior to the date annuity payments commence, you may invest
the value of amounts held in a maturing
Guarantee Period in any Guarantee Period that we offer at that
time. On the quarterly statement issued prior to the
end of any Guarantee Period, we will notify you of the upcoming
maturity of a Guarantee Period. THE GUARANTEE
PERIOD AVAILABLE FOR NEW CONTRIBUTIONS MAY BE CHANGED AT ANY TIME,
INCLUDING BETWEEN THE
DATE OF NOTIFICATION OF A MATURING GUARANTEE PERIOD AND THE DATE A
SUBSEQUENT GUARANTEE
PERIOD BEGINS. Information regarding the current Guarantee Periods
then available and their stated rate of interest
may be obtained by calling the Schwab Annuity Service Center at:
1-800-838-0650.
If the Company receives no direction from the Contract
Owner
by the Guarantee Period Maturity Date, the
Company will automatically allocate the amount from the maturing
Guarantee Period to a Guarantee Period equal in
duration to the one just ended. If at that time, the duration
previously chosen is no longer available, the amount will
be allocated to the next shortest available Guarantee Period
duration. If none of the above is available, the value of
matured Guarantee Periods will be allocated to the Schwab Money
Market Investment Division. In any event, a
Guarantee Period will not renew for a term equal in duration to the
one just ended if the Guarantee Period will mature
after the Payment Commencement Date. No Guarantee Period may
mature later than six months after a Payment
Commencement Date. For example, if a 3-year Guarantee Period
matures and the Payment Commencement Date
begins 1 3/4 years from the Guarantee Period Maturity Date, the
matured value will be transferred to a 2-year
Guarantee Period.
Breaking A Guarantee Period
Any Transfer, withdrawal or the selection of an annuity option
prior to the Guarantee Period Maturity Date will
be known as breaking a Guarantee Period. When a Request to break
a Guarantee Period is received, the Guarantee
Period that is closest to the Guarantee Period Maturity Date will
be broken first. If a Guarantee Period is broken, a
Market Value Adjustment may be assessed. The Market Value
Adjustment may increase or decrease the value of the
amount Transferred or withdrawn from the Guarantee Period Fund.
The Market Value Adjustment may reduce the
value of amounts held in a Guarantee Period below the amount of
your Contribution(s) allocated to that Guarantee
Period. (See "Market Value Adjustment" below.)
Interest Rates
Declared rates are effective annual rates of interest. The
rate is guaranteed throughout the Guarantee Period.
FOR GUARANTEE PERIODS NOT YET IN EFFECT, GWL&A MAY DECLARE
INTEREST RATES DIFFERENT THAN
THOSE CURRENTLY IN EFFECT. When a subsequent Guarantee Period
begins, the rate applied will not be less than
the rate then applicable to new Contracts of the same type with the
same Guarantee Period.
The stated rate of interest must be at least equal to the
Guaranteed Interest Rate. The Company may declare
higher rates. The Guaranteed Interest Rate is based on the
applicable state standard non-forfeiture law. Please see
Appendix A for the standard non-forfeiture law rate applicable to
the state in which the Contract was issued.
The determination of the stated rate of interest is influenced
by, but does not necessarily correspond to,
interest rates available on fixed income investments which the
Company may acquire using funds deposited into the
Guarantee Period Fund. In addition, the Company will consider
other items in determining the stated rate of interest
including regulatory and tax requirements, sales commissions and
administrative expenses borne by the Company,
general economic trends, and competitive factors.
Market Value Adjustment
Distributions from the amounts allocated to a Guarantee Period
due to a full surrender or partial withdrawal,
Transfer, application of amounts to the periodic withdrawal option
or to purchase an annuity, or distributions resulting
from the death of the Owner or Annuitant prior to a Guarantee
Period Maturity Date will be subject to a Market Value
Adjustment ("MVA"). An MVA may increase or decrease the amount
payable on one of the above described
distributions. Amount available for a full surrender, partial
withdrawal or Transfer = amount Requested + MVA. The
MVA is calculated by multiplying the amount Requested by the Market
Value Adjustment Factor ("MVAF").
The MVA reflects the relationship as of the time of its
calculation between (a) the U.S. Treasury Strip ask side
yield as published in the Wall Street Journal on the last business
day of the week prior to the date the stated rate of
interest was established for the Guarantee Period; and (b) the U.S.
Treasury Strip ask side yield as published in the
Wall Street Journal on the last business day of the week prior to
the week the Guarantee Period is broken. There
would be a downward adjustment if Treasury rates at the time the
Guarantee Period is broken, exceed Treasury rates
when the Guarantee Period was created. There would be an upward
adjustment if Treasury rates at the time the
Guarantee Period is broken, are lower than when the Guarantee
Period was created. The MVA factor is the same for
all Contracts.
1. The formula used to determine the MVA is:
MVA = (amount applied) X (MVAF)
The Market Value Adjustment Factor (MVAF) is:
MVAF = {[(1 + i)/(1 + j +.10%)] N/12} - 1
where:
a) i is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal on the last
business day of the week prior to the date the stated
rate of interest was established for the
Guarantee Period. The term of i is measured in years and
equals the term of the Guarantee Period;
b) j is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal on the last
business day of the week prior to the week the Guarantee
Period is broken. The term of j equals the
remaining term to maturity of the Guarantee Period,
rounded up to the higher number of years; and
c) N is the number of complete months remaining until
maturity.
If i + j differ by less than .10%, the MVA will equal 0. If
N is less than 6, the MVA will
equal 0.
2. The Market Value Adjustment will apply to any Guarantee Period
six or more months prior to the Guarantee
Period Maturity Date in each of the following situations:
a) Transfer to another Guarantee Period or to an
Investment Division offered under this Contract;
or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals; or
c) A single sum payment upon death of the Owner or
Annuitant.
3. The Market Value Adjustment will not apply to any Guarantee
Period having fewer than six months prior to the
Guarantee Period Maturity Date in each of the following situations:
a) Transfer to an Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals.
c) A single sum payment upon death of the Owner or
Annuitant.
See Appendix B for Illustrations of the MVA.
<PAGE>
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APPLICATION AND CONTRIBUTIONS
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Contributions
All Contributions may be paid at the Schwab Annuity Service
Center by a check payable to the Company or
by transfer to the Company of available funds from your Schwab
account.
The initial Contribution for the Contract must be at least
$5,000 (or $2,000 if for an IRA). Subsequent
Contributions must be at least $500. This minimum initial
investment may be reduced to $1,000, but only if you
participate in an Automatic Contribution Plan and contribute at
least $100 per month through a recurring deposit. A
confirmation will be issued to you upon the acceptance of each
Contribution.
Your Contract will be issued and your Contribution
generally
will be accepted and credited within two
business days after receipt of an acceptable application and
receipt of the initial Contribution at the Schwab Annuity
Service Center. All Contributions should be paid to the Schwab
Annuity Service Center by check (payable to GWL&A)
or by instructing Schwab to transfer to GWL&A available funds from
your account with Schwab. Acceptance is
subject to there being sufficient information in a form acceptable
to us and we reserve the right to reject any
application or Contribution.
The Schwab Annuity Service Center will process your
application and Contributions. If your application is
complete and your initial Contribution is being transferred from
funds available in your Schwab account, then the
Contribution will generally be credited within two business days
following receipt of the application. If your application
is incomplete, the Schwab Annuity Service Center will either
complete the application from information Schwab has on
file, or contact you for the additional information. No transfer
of funds will be made from your Schwab account until
your application is complete. The funds will be credited as
Contributions to the Contract when they are transferred.
If your Contribution is by check, and the application is
complete, Schwab will use its best efforts to credit the
Contribution on the day of receipt, but in all such cases it will
be credited to your Contract within two business days
of receipt. If your application is incomplete, the Schwab Annuity
Service Center will complete the application from
information Schwab has on file or contact you by telephone to
obtain the required information. If your application
remains incomplete for five business days, we will return to you
both the check and the application unless you
consent to our retaining the initial Contribution and crediting it
as soon as the requirements are fulfilled.
A Contract may be returned within ten days after receipt, or
longer where required by law ("Free Look Period").
During the Free Look Period, all contributions will be processed as
follows:
(1) Amounts to be allocated to one or more of the then
available Guarantee Periods will be allocated as
directed, effective upon the Transaction Date.
(2) Amounts the Owner has directed to be allocated to one or
more of the Investment Divisions will first
be allocated to the Schwab Money Market Investment
Division until the next Transaction Date following
the end of the Free Look Period. On that date, the
Variable Account Value held in the Schwab Money
Market Investment Division will be allocated to the
Investment Divisions selected by the Owner.
(3) During the Free Look Period, you may change the
allocation percentages among the Investment
Divisions and/or your selection of Investment Divisions
to which Contributions will be allocated after
the Free Look Period.
(4) If the Contract is returned, the contract will be void
from the start and the greater of: (a)
Contributions received or (b) the Annuity Account Value
less surrenders, withdrawals and distributions,
will be refunded. Exercising the return privilege
requires the return of the Contract to the Company or
to the Schwab Annuity Service Center.
Amounts the Owner has contributed from a 1035 exchange of the
Schwab Investment Advantage Annuity
Contract will be immediately allocated to the Investment Divisions
selected by the Owner. If the Contract is returned, it
will be void from the start and the greater of: (a) Contributions
received or (b) the Annuity Account Value less
surrenders, withdrawals and distributions, will be refunded.
Additional Contributions may be made at any time prior to the
Payment Commencement Date, as long as the
Annuitant is living. Additional Contributions must be at least
$500 or $100 per month if under an ACP.
Total Contributions may exceed $1,000,000 with our prior
approval.
The Company reserves the right to modify the limitations set
forth in this section.
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ANNUITY ACCOUNT VALUE
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Before the date annuity payments commence, your Annuity
Account Value is the sum of each Variable and
Fixed Sub-Account established under your Contract.
Before the annuity commencement date, the Variable Account
Value is the total dollar amount of all
Accumulation Units under each of your Variable Sub-Accounts.
Initially, the value of each Accumulation Unit was set
at $10.00. Each Variable Sub-Account's value prior to the annuity
commencement date is equal to: (a) net
Contributions allocated to the corresponding Investment Division;
plus or minus (b) any increase or decrease in the
value of the assets of the Variable Sub-Account due to investment
results; less (c) the daily Mortality and Expense
Risk Charge; less (d) reductions for the Contract Maintenance
Charge deducted on the last business day of each
Contract Year; less (e) any applicable Transfer Fees; and less (f)
any withdrawals or Transfers from the Variable Sub-
Account.
A Valuation Period is the period between successive Valuation
Dates. It begins at the close of the New York
Stock Exchange (generally 4:00 p.m. ET) on each Valuation Date and
ends at the close of the New York Stock
Exchange on the next succeeding Valuation Date. A Valuation Date
is each day that the New York Stock Exchange is
open for regular business. The value of an Investment Division's
assets is determined at the end of each Valuation
Date. To determine the value of an asset on a day that is not a
Valuation Date, the value of that asset as of the end
of the previous Valuation Date will be used.
The Variable Account Value is expected to change from
Valuation Period to Valuation Period, reflecting the
investment experience of the selected Investment Division(s) as
well as the deductions for charges.
Contributions which you allocate to an Investment Division are
used to purchase Variable Accumulation Units
in the Investment Division(s) you select. The number of
Accumulation Units to be credited will be determined by
dividing the portion of each Contribution allocated to the
Investment Division by the value of an Accumulation Unit
determined at the end of the Valuation Period during which the
Contribution was received. In the case of the initial
Contribution, Accumulation Units for that payment will be credited
to the Variable Account Value (and, except for
certain 1035 exchanges), held in the Schwab Money Market Investment
Division until the end of the Free Look Period
(see "Application and Contributions," page 16). In the case of any
subsequent Contribution, Accumulation Units for
that payment will be credited at the end of the Valuation Period
during which we receive the Contribution. The value
of an Accumulation Unit for each Investment Division for a
Valuation Period is established at the end of each Valuation
Period and is calculated by multiplying the value of that unit at
the end of the prior Valuation Period by the Investment
Division's Net Investment Factor for the Valuation Period.
Unlike a brokerage account, amounts held under a Contract are
not covered by the Securities Investor
Protection Corporation ("SIPC") .
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TRANSFERS
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In General
Prior to the Payment Commencement Date you may Transfer all or
part of your Annuity Account Value among
and between the Investment Divisions and the available Guarantee
Periods by telephone or by sending a Request to
the Schwab Annuity Service Center. The Request must specify the
amounts being Transferred, the Investment
Division(s) and/or Guarantee Period(s) from which the Transfer is
to be made, and the Investment Division(s) and/or
Guarantee Period(s) that will receive the Transfer.
Currently, there is no limit on the number of Transfers you
can make among the Investment Divisions during
any Contract Year. There is no charge for the first twelve
Transfers each Contract Year, but there will be a charge of
$10 for each additional Transfer in each Contract Year. We reserve
the right to limit the number of Transfers you
make. The charge will be deducted from the amount transferred.
All Transfers made on a single Transaction Date
will be aggregated to count as only one Transfer toward the twelve
free Transfers; however, if a one time rebalancing
Transfer also occurs on the Transaction Date, it will be counted as
a separate and additional Transfer.
Transfers involving the Guarantee Period Fund (including
Transfers to or from the Investment Division(s)) are
not limited during any calendar year. These Guarantee Period Fund
Transfers are counted against your twelve free
Transfer as discussed above. The $10 charge will apply to each
Transfer made in excess of the first twelve Transfers
each calendar year.
A Transfer generally will be effective on the date the Request
for Transfer is received by the Schwab Annuity
Service Center if received before 4:00 p.m. Eastern Time. Under
current law, there will not be any tax liability to you if
you make a Transfer.
Transfers involving the Investment Divisions will result in
the purchase and/or cancellation of Accumulation
Units having a total value equal to the dollar amount being
Transferred to or from a particular Investment Division.
The purchase and/or cancellation of such units generally shall be
made using the Variable Account Value as of the
end of the Valuation Date on which the Transfer is effective.
When a Transfer is made from amounts in a Guarantee Period
before the Guarantee Period Maturity Date, the
amount Transferred may be subject to a Market Value Adjustment.
(See "Market Value Adjustment," page 15.) A
Request for Transfer from amounts in a Guarantee Period made prior
to the Guarantee Period Maturity Date for
Transfers on the Guarantee Period Maturity Date will not be counted
for the purpose of determining any Transfer Fee
on Transfers in excess of the twelve Transfers per year if these
Transfers are to take place on the Guarantee Period
Maturity Date.
Possible Restrictions
We reserve the right without prior notice to modify, restrict,
suspend or eliminate the Transfer privileges
(including telephone Transfers) at any time. For example,
restrictions may be necessary to protect Owners from
adverse impacts on portfolio management of large and/or numerous
Transfers by market timers or others. We have
determined that the movement of significant amounts from one
Investment Division to another may prevent the
underlying Eligible Fund from taking advantage of investment
opportunities because the Eligible Fund must maintain a
significant cash position in order to handle redemptions. Such
movement may also cause a substantial increase in
Eligible Fund transaction costs which must be indirectly borne by
Owners. Therefore, we reserve the right to require
that all Transfer Requests be made by the Owner and not by an
Owner's designee and to require that each Transfer
Request be made by a separate communication to us. We also reserve
the right to request that each Transfer
Request be submitted in writing and be manually signed by the
Owner; facsimile Transfer Requests may not be
allowed. Transfers among the Investment Divisions may also be
subject to such terms and conditions as may be
imposed by the Eligible Funds.
Custom Transfer: Dollar Cost Averaging (Automatic Transfers)
The Owner may Request to automatically Transfer at regular
intervals, predetermined amounts from one
Investment Division selected from among those being allowed under
this option (which may be modified by the
Company from time to time) to any of the other Investment
Divisions. The intervals between Transfers may be
monthly, quarterly, semi-annually or annually. The Transfer will
be initiated on the Transaction Date one frequency
period following the date of the Request. Transfers will continue
on that same day each interval unless terminated by
you or for other reasons as set forth in the Contract. If there
are insufficient funds in the applicable Variable Sub-
Account on the date of Transfer, no Transfer will be made; however,
Dollar Cost Averaging will resume once there are
sufficient funds in the applicable Variable Sub-Account. Dollar
Cost Averaging will terminate automatically upon the
annuity commencement date. Amounts transferred through Dollar Cost
Averaging are not counted against the twelve
free Transfers allowed in a calendar year.
Automatic Transfers must meet the following conditions:
1. The minimum amount that can be Transferred out of the
selected Investment Division is $100 per month.
2. The Owner must specify dollar amount to be Transferred,
designate the Investment Division(s) to which the
Transfer will be made and the percent to be allocated to such
Investment Division(s). The Accumulation Unit values
will be determined on the Transfer Date.
Dollar Cost Averaging may be used to purchase Accumulation
Units of the Investment Divisions over a period
of time. The Owner, by Request, may cease Dollar Cost Averaging at
any time. Participation in Dollar Cost Averaging
does not, however, assure a greater profit, nor will it prevent or
necessarily alleviate losses in a declining market. The
Company reserves the right to modify, suspend or terminate Dollar
Cost Averaging at any time.
Custom Transfer: Rebalancer Option
The Owner may Request to automatically Transfer among the
Investment Divisions on a periodic basis by
electing the Rebalancer Option. This option automatically
reallocates the Variable Account Value to maintain a
particular allocation among Investment Divisions selected by the
Owner. The amount allocated to each Investment
Division will increase or decrease at different rates depending on
the investment experience of the Investment Division.
The Owner may Request that the rebalancing occur one time
only, in which case the Transfer will take place
on the Transaction Date of the Request. This Transfer will count
as one Transfer towards the twelve free Transfers
allowed in a calendar year. (See "Transfer Fee," page 26.)
Rebalancing may also be set up on a quarterly, semiannual or
annual basis, in which case the first Transfer
will be initiated on the Transaction Date one frequency period
following the date of the Request. On the Transaction
Date for the specified Request, assets will be automatically
reallocated to the selected Investment Divisions.
Rebalancing will continue on the same Transaction Date for
subsequent periods. In order to participate in the
Rebalancer Option, the entire Variable Account Value must be
included. Transfers set up with these frequencies will
not count against the twelve free Transfers allowed in a calendar
year.
The Owner must specify the percentage of Variable Account
Value to be allocated to each Investment Division
and the frequency of rebalancing. The Owner, by Request, may
modify the allocations or cease the Rebalancer
Option at any time. The Rebalancer Option will terminate
automatically upon the annuity commencement date.
Participation in the Rebalancer Option and Dollar Cost Averaging at
the same time is not allowed. Participation in the
Rebalancer Option does not assure a greater profit, nor will it
prevent or necessarily alleviate losses in a declining
market. The Company reserves the right to modify, suspend, or
terminate the Rebalancer Option at any time.
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CASH WITHDRAWALS
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Withdrawals
You (the Owner) may withdraw from the Contract all or part of
your Annuity Account Value at any time during
the life of the Annuitant and prior to the date annuity payments
commence by Request at the Schwab Annuity Service
Center subject to the rules below. Federal or state laws, rules or
regulations may apply. The amount payable to you
if you surrender your Contract is your Annuity Account Value, with
a Market Value Adjustment, if applicable, on the
effective date of the surrender, and less any applicable Premium
Tax. No withdrawals may be made after the date
annuity payments commence.
A Request for a partial withdrawal will result in a reduction
in your Annuity Account Value equal to the sum of
the dollar amount withdrawn. A Market Value Adjustment may apply.
(See "Market Value Adjustment," page 15.) The
partial withdrawal proceeds may be greater or less than the amount
requested, depending on the effect of the Market
Value Adjustment.
The minimum partial withdrawal before application of the MVA
is $500. Partial withdrawals are unlimited;
however, you must specify the Investment Division(s) or Guarantee
Period(s) from which the withdrawal is to be made.
After any partial withdrawal, if the remaining Annuity Account
Value is less than $2,000, then a full surrender may be
required.
The following terms apply:
(a) No partial withdrawals are permitted after the date
annuity payments commence.
(b) A partial withdrawal will be effective upon the
Transaction Date.
(c) A partial withdrawal from amounts in a Guarantee Period
may be subject to the Market Value
Adjustment provisions, the Guarantee Period Fund
provisions of the Contract, and the terms of the
attached Guarantee Period Fund Rider(s), if any.
Withdrawals may be taxable (this includes Periodic
Withdrawals, discussed below). Moreover, the Internal
Revenue Code (the "Code") provides that a 10% penalty tax may be
imposed on the taxable portions of certain early
withdrawals. The Code generally requires us to withhold federal
income tax from withdrawals. However, generally
you will be entitled to elect, in writing, not to have tax
withholding apply unless withholding is mandatory for your
Contract. Withholding applies to the portion of the withdrawal
which is included in your income and subject to federal
income tax. The tax withholding rate is 10% of the taxable amount
of the withdrawal. Withholding applies only if the
taxable amount of the withdrawal is at least $200. Some states
also require withholding for state income taxes. (See
"Federal Tax Matters," page 31.)
Withdrawal Requests must be in writing to ensure that your
instructions regarding withholding are followed. If
an adequate election is not made, the Request will be denied and no
withdrawal or partial withdrawal will be
processed.
After a withdrawal of all of your total Annuity Account Value,
or at any time that your Annuity Account Value is
zero, all your rights under the Contract will terminate.
Since IRAs are offered by this Prospectus, reference should be
made to the applicable provisions of the Code
for any additional limitations or restrictions on cash withdrawals.
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TELEPHONE TRANSACTIONS
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We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine
and if we follow such procedures we will not be liable for any
losses due to unauthorized or fraudulent instructions.
However, we may be liable for such losses if we do not follow those
reasonable procedures. The procedures we will
follow for telephone transactions may include requiring some form
of personal identification prior to acting on
instructions received by telephone, providing written confirmation
of the transaction, and/or tape recording the
instructions given by telephone.
We reserve the right to suspend telephone transaction
privileges at any time, for some or all Contracts, and
for any reason. Withdrawals are not permitted by telephone.
<PAGE>
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DEATH BENEFIT
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Payment of Death Benefit
Before the date annuity payments commence, the death benefit,
if any, will be equal to the greater of: (a) the
Annuity Account Value with an MVA, if applicable, as of the date
the Request for payment is received, less Premium
Tax, if any, or (b) the sum of Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less Premium
Tax, if any. The death benefit will become payable following the
Company's receipt of a Request from the Beneficiary.
When an Owner or the Annuitant dies before the annuity commencement
date and a death benefit is payable to a
Beneficiary, the death benefit proceeds will remain invested in
accordance with the allocation instructions given by the
Owner(s) until new allocation instructions are Requested by the
Beneficiary or until the death benefit is actually paid to
the Beneficiary. The death benefit will be determined as of the
date payments commence; however, on the date a
payment option is processed, amounts in the Variable Sub-Account
will be Transferred to the Money Market
Investment Division unless the Beneficiary otherwise elects by
Request. Subject to the distribution rules set forth
below, payment of the death benefit may be Requested to be made as
follows:
A. Proceeds from the Variable Sub-Account(s)
1. payment in a single sum; or
2. payment under any of the variable annuity options
provided under this Contract.
B. Proceeds from the Guarantee Period(s)
1. payment in a single sum with respect to which a
Market Value Adjustment may apply; or
2. payment under any of the annuity options provided
under this Contract with respect to which
a Market Value Adjustment may apply; or
3. payment on the Guarantee Period Maturity Date so
that a Market Value Adjustment will not
apply.
In any event, no payment of benefits provided under the
Contract will be allowed that does not satisfy the
requirements of Section 72(s) of the Code and any other applicable
federal or state laws, rules or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and
before the annuity commencement date, the
Company will pay the death benefit to the Beneficiary unless there
is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to
the Annuitant's death, and the Annuitant dies
before the annuity commencement date while the Owner and Contingent
Annuitant are living, no death benefit will be
payable by reason of the Annuitant's death and the Contingent
Annuitant will become the Annuitant.
If the Annuitant dies after the date annuity payments commence
and before the entire interest has been
distributed, any benefit payable must be distributed to the
Beneficiary in accordance with and at least as rapidly as
under the payment option applicable to the Annuitant on the
Annuitant's date of death.
If a corporation or other non-individual is an Owner, or if
the deceased Annuitant is an Owner, the death of the
Annuitant will be treated as the death of an Owner and the Contract
will be subject to the "Death of Owner" provisions
described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner, the Joint Owner will become
the Owner and Beneficiary and may elect to take the death
benefit or elect to continue the Contract in force.
(2) In all other cases, the Company will pay the death
benefit to the Beneficiary even if a Joint Owner (who
was not the Owner's spouse on the date of the Owner's death),
the Annuitant and/or the Contingent Annuitant
are alive at the time of the Owner's death, unless the sole
Beneficiary is the deceased Owner's surviving
spouse and the Beneficiary elects to become the Owner and
Annuitant and to continue the Contract in force.
If the Owner is not the Annuitant, and the Owner dies after
annuity payments commence and before the entire
interest has been distributed while the Annuitant is living, any
benefit payable will continue to be distributed to the
Annuitant at least as rapidly as under the payment option
applicable on the Owner's death. All rights granted the
Owner under the Contract will pass to any surviving Joint Owner
and, if none, to the Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner and a Contingent Annuitant,
the Joint Owner will become the Owner and the Beneficiary, the
Contingent Annuitant will become the
Annuitant, and the Contract will continue in force.
(2) If there is a Joint Owner who is the surviving spouse of
the deceased Owner but no Contingent Annuitant,
the Joint Owner will become the Owner, Annuitant and
Beneficiary and may elect to take the death benefit or
continue the Contract in force.
(3) In all other cases, the Company will pay the death
benefit to the Beneficiary, even if a Joint Owner (who
was not the Owner's spouse on the date of the Owner's death),
Annuitant and/or Contingent Annuitant are
alive at the time of the Owner's death, unless the sole
Beneficiary is the deceased Owner's surviving spouse
and the Beneficiary Requests to become the Owner and Annuitant
and to continue the Contract in force.
Any death benefit payable to the Beneficiary upon an Owner's
death will be distributed as follows:
(1) If the Owner's surviving spouse is the person entitled to
receive benefits upon the Owner's death, the
surviving spouse will be treated as the Owner and will be
allowed to take the death benefit or continue the
Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may
elect, not later than one year after the Owner's
date of death, to receive the death benefit in either a single
sum or payment under any of the variable or fixed
annuity options available under the Contract, provided that
(a) such annuity is distributed in substantially
equal installments over the life or life expectancy of the
Beneficiary or over a period not extending beyond the
life expectancy of the Beneficiary; and (b) such distributions
begin not later than one year after the Owner's
date of death. If no election is received by the Company from
a non-spouse Beneficiary such that
substantially equal installments have begun not later than one
year after the Owner's date of death, then the
entire amount must be distributed within five years of the
Owner's date of death. The death benefit will be
determined as of the date the payments commence; or
(3) If a corporation or other non-individual entity is
entitled to receive benefits upon the Owner's death, the
death benefit must be completely distributed within five years
of the Owner's date of death.
Beneficiary
You may select one or more Beneficiaries. If more than one
Beneficiary is selected, unless you indicate
otherwise, they will share equally in any death benefit payable.
You may change the Beneficiary any time before the
Annuitant's death.
You may, while the Annuitant is living, change the Beneficiary
by Request. A change of Beneficiary will take
effect as of the date the Request is processed by the Schwab
Annuity Service Center, unless a certain date is
specified by the Owner. If the Owner dies before the Request was
processed, the change will take effect as of the
date the Request was made, unless the Company has already made a
payment or otherwise taken action on a
designation or change before receipt or processing of such Request.
A beneficiary designated irrevocably may not
be changed without the written consent of that Beneficiary, except
as allowed by law.
The interest of any Beneficiary who dies before the Owner or
the Annuitant will terminate at the death of the
Beneficiary. The interest of any Beneficiary who dies at the time
of, or within 30 days after, the death of an Owner or
the Annuitant will also terminate if no benefits have been paid to
such Beneficiary, unless the Owner otherwise
indicates by Request. The benefits will then be paid as though the
Beneficiary had died before the deceased Owner
or Annuitant. If no Beneficiary survives the Owner or Annuitant,
as applicable, the Company will pay the death benefit
proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint
Owner, the surviving spouse will become the
Beneficiary upon such Owner's death and may elect to take the death
benefit or may elect to continue the Contract in
force. If there is no surviving Joint Owner, and no named
Beneficiary is alive at the time at the time of an Owner's
death, any benefits payable will be paid to the Owner's estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request,
designate or change a Contingent Annuitant from
time to time. A change of Contingent Annuitant will take effect as
of the date the Request is processed at the Schwab
Annuity Service Center, unless a certain date is specified by the
Owner(s).
<PAGE>
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CHARGES AND DEDUCTIONS
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No deductions are made from Contributions except for any
applicable Premium Tax. Therefore, the full
amount of the Contributions (less any applicable Premium Tax) are
invested in the Contract.
As more fully described below, charges under the Contract are
assessed only as deductions for Premium Tax,
if applicable, for certain Transfers, as a Contract Maintenance
Charge, and as charges against the assets in the
Owner's Variable Sub-Account(s) for our assumption of mortality and
expense risks. In addition, a Market Value
Adjustment may apply to withdrawals and surrenders, Transfers,
amounts applied to purchase an annuity, and
distributions resulting from death of the Owner or Annuitant if the
amounts held in a Guarantee Period are paid out
prior to the Guarantee Period Maturity Date.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your
Variable Sub-Account(s) at the end of each
Valuation Period to compensate us for bearing certain mortality and
expense risks under the Contract. This is a daily
charge equal to an effective annual rate of 0.85% of the value of
the net assets in your Variable Sub-Account(s). The
approximate portion of this charge attributable to mortality risks
is 0.68%; the approximate portion of this charge
estimated to be attributable to expense risk is 0.17% of the value
of the net assets in your Variable Sub-Account(s).
We guarantee that this charge will never increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the
Accumulation Unit Values for each of your Variable
Sub-Accounts. Thus, this charge will continue to be applicable
should you choose a variable annuity payment option
or the periodic withdrawal option.
Annuity Account Values and annuity payments are not affected
by changes in actual mortality experience
incurred by us. The mortality risks assumed by us arise from our
contractual obligations to make annuity payments
determined in accordance with the annuity tables and other
provisions contained in the Contract. Thus you are
assured that neither the Annuitant's longevity nor an unanticipated
improvement in general life expectancy will
adversely affect the annuity payments under the Contract.
We bear substantial risk in connection with the death benefit
before the annuity commencement date, since
we will pay a death benefit equal to the greater of: (1) the
Annuity Account Value with a Market Value Adjustment, if
applicable, as of the later of the date of death or the date the
Request for payment is received, less Premium Tax, if
any; or, (2) the sum of the Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less any charges
under Contract less Premium Tax, if any (i.e., we bear the risk of
unfavorable experience in your Variable Sub-
Accounts).
The expense risk assumed is the risk that our actual expenses
in administering the Contracts and the Series
Account will be greater than anticipated, or exceed the amount
recovered through the Contract Maintenance Charge
plus the amount, if any, recovered through Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to
cover actual costs and risks assumed, the loss will
fall on us. Conversely, if this charge is more than sufficient,
any excess will be profit to us. Currently, we expect a
profit from this charge. Our expenses for distributing the
Contracts will be borne by our general assets, including any
profits from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge
from the Annuity Account Value only on
each Contract anniversary date. This charge partially covers our
costs for administering the Contracts and the Series
Account. Once you have selected a payment option, this charge will
cease to apply other than for the Periodic
Withdrawal Option. The Contract Maintenance Charge is deducted
from your Annuity Account Value allocated to the
Schwab Money Market Investment Division. If you do not have
sufficient Annuity Account Value allocated to the
Schwab Money Market Investment Division to cover the Contract
Maintenance Charge, then the charge or any portion
thereof will be deducted on a pro rata basis from all your Variable
Sub-Accounts with current value. If the entire
Annuity Account is held in the Guarantee Period Fund or there are
not enough funds in any Variable Sub-Account to
pay the entire charge, then the Contract Maintenance Charge will be
deducted on a pro rata basis from amounts held
in all Guarantee Periods. There is no MVA on amounts deducted from
a Guarantee Period for the Contract
Maintenance Charge. We do not expect a profit from amounts
received from the Contract Maintenance Charge.
Premium Tax
We may be required to pay state premium taxes or retaliatory
taxes currently ranging from 0% to 3.5% in
connection with Contributions or values under the Contracts.
Depending upon applicable state law, we will deduct
charges for the premium taxes we incur with respect to a particular
Contract from the Contributions, from amounts
withdrawn, or from amounts applied on the Payment Commencement
Date. In some states, charges for both direct
premium taxes and retaliatory premium taxes may be imposed at the
same or different times with respect to the same
Contribution, depending on applicable state law.
Transfer Fee
There will be a $10 charge for each Transfer in excess of
twelve Transfers in any calendar year. We do not
expect a profit from the Transfer fee for excess Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in
addition to the Premium Tax described above) in
several states. No charges are currently made for taxes other than
Premium Tax. However, we reserve the right to
deduct charges in the future for federal, state, and local taxes or
the economic burden resulting from the application
of any tax laws that we determine to be attributable to the
Contracts.
Expenses of the Eligible Funds
The value of the assets in the Investment Divisions reflect
the value of Eligible Fund shares and therefore the
fees and expenses paid by each Eligible Fund. A complete
description of the fees, expenses, and deductions from
the Eligible Funds are found in the Eligible Funds' prospectuses.
(See "The Eligible Funds," page 8.) Current
prospectuses for the Funds can be obtained by calling the Schwab
Annuity Service Center at 800-838-0650, or by
writing to the Schwab Annuity Service Center, P.O. Box 7666, San
Francisco, California 94120-7666.
<PAGE>
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PAYMENT OPTIONS
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Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account
Value be applied to a Periodic Withdrawal
Option. The amount applied to a Periodic Withdrawal is the Annuity
Account Value with an MVA, if applicable, less
Premium Tax, if any.
In Requesting Periodic Withdrawals, the Owner must elect:
- The withdrawal frequency of either 12-, 6-, 3-, or
1-month intervals;
- A withdrawal amount; a minimum of $100 is required;
- The calendar day of the month on which withdrawals will
be made;
- One withdrawal option; and
- The allocation of withdrawals from the Owner's Variable
and/or Fixed Sub-Account(s) as follows:
1) Prorate the amount to be paid across all Variable
and Fixed Sub-Accounts in proportion to the
assets in each sub-account; or
2) Select the Variable and/or Fixed Sub-Account(s) from
which withdrawals will be made. Once
the Variable and/or Fixed Sub-Accounts have been
depleted, the Company will automatically
prorate the remaining withdrawals against all
remaining available Variable and/or Fixed Sub-
Accounts unless the Owner Requests the selection of
another Variable and/or Fixed Sub-
Account.
The Owner may elect to change the withdrawal option and/or the
frequency once each calendar year.
While Periodic Withdrawals are being received:
1. the Owner may continue to exercise all contractual rights
that are available prior to electing an annuity
option, except that no Contributions may be made;
2. for Periodic Withdrawals from Guarantee Periods six or
more months prior to its Guarantee Period
Maturity Date, a Market Value Adjustment, if applicable,
will be assessed;
3. the Owner may keep the same investment options as were in
force before periodic withdrawals began;
4. charges and fees under the Contract continue to apply;
and
5. maturing Guarantee Periods renew into the shortest
Guarantee Period then available.
Periodic Withdrawals will cease on the earlier of the date:
1. the amount elected to be paid under the option selected
has been reduced to zero;
2. the Annuity Account Value is zero;
3. the Owner Requests that withdrawals stop; or
4. an Owner or the Annuitant dies.
The Owner must elect one of the following five (5) withdrawal
options:
1. Income for a Specified Period for at least thirty-six
(36) months - The Owner elects the duration over
which withdrawals will be made. The amount paid will vary
based on the duration; or
2. Income of a Specified Amount for at least thirty-six (36)
months - The Owner elects the dollar amount
of the withdrawals. Based on the amount elected, the duration
may vary; or
3. Interest Only - The withdrawals will be based on the
amount of interest credited to the Guarantee
Period Fund between each withdrawal. Available only if 100%
of the account value is invested in the
Guarantee Period Fund; or
4. Minimum Distribution - If this is an IRA contract, the
Owner may Request minimum distributions as
specified under Code Section 401(a)(9); or
5. Any Other Form for a period of at least thirty-six (36)
months - Any other form of Periodic Withdrawal
which is acceptable to the Company.
If Periodic Withdrawals cease, the Owner may resume making
Contributions. The Owner may elect to restart
a Periodic Withdrawal program; however, the Company may limit the
number of times the Owner may restart a
Periodic Withdrawal program.
Periodic withdrawals may be taxable, subject to withholding
and subject to the 10% penalty tax. IRAs are
subject to complex rules with respect to restrictions on and
taxation of distributions, including the applicability of
penalty taxes. A competent tax adviser should be consulted before
a Periodic Withdrawal Option is requested. (See
"Federal Tax Matters," page 31.)
Annuity Date
The date annuity payments commence may be chosen when the
Contract is purchased or at a later date.
This date must be at least one year after the initial Contribution.
In the absence of an earlier election, the annuity date
is the first day of the month of the Annuitant's 91st birthday.
If an option has not been elected within 30 days of the
annuity commencement date, the Annuity Account
Value held in the Fixed Sub-Account(s) will be applied under
Annuity Payment Option 3, discussed below, to provide
payments for life with a guaranteed period of 20 years. The
Annuity Account Value held in the Variable Sub-
Account(s) will be applied under Variable Annuity Payment Option 1,
discussed below, to provide payments for life
with a guaranteed period of 20 years.
Under section 401(a)(9) of the Code, a Contract which is
purchased and used in connection with an Individual
Retirement Account or with certain other plans qualifying for
special federal income tax treatment is subject to
complex "minimum distribution" requirements, which require that
distributions under such a plan must begin by a
specific date, and also that the entire interest of the plan
participant must be distributed within certain specified
periods under formulas that specify minimum annual distributions.
The application of the minimum distribution
requirements to each person will vary according to the person's age
and other circumstances. A prospective
purchaser may wish to consult a competent tax adviser regarding the
application of the minimum distribution
requirements. (See "Federal Tax Matters," page 31.)
<PAGE>
Annuity Options
An annuity option may be selected by the Owner when the
Contract is purchased, or at a later date. This
selection may be changed, by Request, at any time up to 30 days
before the annuity date. In the absence of an
election, payments will automatically commence on the annuity date
as described above. The amount to be applied
is the Annuity Account Value on the annuity date. The minimum
amount that may be withdrawn from the Annuity
Account Value to purchase an annuity payment option is $2,000 with
an MVA, if applicable. If the amount is less than
$2,000, the Company may pay the amount in a single sum subject to
the Contract provisions applicable to a partial
withdrawal. Payments may be elected to be received monthly,
quarterly, semi-annually or annually. Payments to be
made under the annuity payment option selected must be at least
$50. The Company reserves the right to make
payments using the most frequent payment interval which produces a
payment of not less than $50. The maximum
amount that may be applied under any payment option is $1,000,000,
unless prior approval is obtained from the
Company.
A single sum payment may be elected. If it is, then the
amount to be paid is the Surrender Value. If the
Owner elects a variable annuity with funds from the Owner's
Variable Sub-Accounts, then the amount to be applied is
the Annuity Account Value held in the Variable Sub-Account(s), as
of the annuity commencement date, less any
applicable Premium Tax. If the Owner elects a fixed annuity with
funds from the Fixed Sub-Accounts, then the amount
to be applied is the Annuity Account Value held in the Fixed
Sub-Account(s), as of the annuity commencement date
with an MVA, if applicable, less any applicable Premium Tax.
Fixed Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal
annual, semiannual, quarterly or monthly
installments of the dollar amount elected for not more than 240
months. Upon death of the Annuitant, the Beneficiary
will begin to receive the remaining payments at the same interval
that was elected by the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or
monthly, as elected, for a selected number of years
not to exceed 240 months. Upon death of the Annuitant, the
Beneficiary will begin to receive the remaining payments
at the same interval that was elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a designated
period and thereafter throughout the lifetime
of the Annuitant. The designated period may be 5, 10, 15 or 20
years. Upon death of the Annuitant, for each
remaining designated period, the amounts payable under this payment
option will be paid to the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the
Annuitant, terminating with the last payment due
prior to the death of the Annuitant. Since no minimum number of
payments is guaranteed, this option may offer the
maximum level of monthly payments of the annuity options. It is
possible that only one payment may be made if the
Annuitant died before the date on which the second payment was due.
No other payments nor death benefits would
be payable.
Option 5: Any Other Form
This option allows an Owner the ability to choose any other
form of annuity which is acceptable to the
Company.
Variable Annuity Payment Options
Option 1: Variable Life Annuity with Guarantee Period
This option provides for payments during a designated period
and thereafter throughout the life time of the
Annuitant. The designated period may be 5, 10, 15 or 20 years.
Upon death of the Annuitant, for each remaining
designated period, the amounts payable under this payment option
will be paid to the Beneficiary.
Option 2: Variable Life Annuity
This annuity is payable during the lifetime of the Annuitant.
The annuity terminates with the last payment due
prior to the death of the Annuitant. Since no minimum number of
payments is guaranteed, this option may offer the
maximum level of monthly payments of the annuity options. It is
possible that only one payment may be made if the
Annuitant died before the date on which the second payment was due.
No other payments nor death benefits would
be payable.
Variable annuity payment options are subject to the following
provisions:
Amount of First Payment
The first payment under a variable annuity payment option will
be based on the value of the amounts held in
each Variable Sub-Account on the 5th Valuation Date preceding the
annuity commencement date. It will be
determined by applying the appropriate rate to the amount applied
under the payment option.
Annuity Units
The number of Annuity Units paid to the Annuitant for each
Variable Sub-Account is determined by dividing
the amount of the first monthly payment by its Accumulation Unit
Value on the 5th Valuation Date preceding the date
the first payment is due. The number of Annuity Units used to
calculate each payment for a Variable Sub-Account
remains fixed during the Annuity Payment Period.
Amount of Payments after the First
Payments after the first will vary depending upon the
investment experience of the Investment Divisions. The
subsequent amount paid from each sub-account is determined by
multiplying (a) by (b) where (a) is the number of
sub-account Annuity Units to be paid and (b) is the sub-account
Annuity Unit value on the 5th Valuation Date
preceding the date the annuity payment is due. The total amount of
each variable annuity payment will be the sum of
the variable annuity payments for each Variable Sub-Account. The
Company guarantees that the dollar amount of
each payment after the first will not be affected by variations in
expenses or mortality experience.
<PAGE>
Transfers After the Annuity Commencement Date
Once annuity payments have begun, no Transfers may be made
from a fixed annuity payment option to a
variable annuity payment option, or vice versa; however, for
variable annuity payment options, Transfers may be made
among Investment Divisions. Transfers after the annuity
commencement date will be made by converting the number
of Annuity Units being Transferred to the number of Accumulation
Units of the Variable Sub-Account to which the
Transfer is made. The result will be that the next annuity
payment, if it were made at that time, would be the same
amount that it would have been without the Transfer. Thereafter,
annuity payments will reflect changes in the value of
the new Annuity Units.
***
For annuity options involving life income, the actual age
and/or sex of the Annuitant will affect the amount of each
payment. We reserve the right to ask for satisfactory proof of the
Annuitant's age. We may delay annuity payments until
satisfactory proof is received. Since payments to older Annuitants
are expected to be fewer in number, the amount of
each annuity payment under a selected annuity form will be greater
for older Annuitants than for younger Annuitants.
If the age of the Annuitant has been misstated, the payments
established will be made on the basis of the correct
age. If payments were too large because of misstatement, the
difference with interest may be deducted by the Company
from the next payment or payments. If payments were too small, the
difference with interest may be added by the
Company to the next payment. This interest is at an annual
effective rate which will not be less than the Guaranteed
Interest Rate.
The Payment Commencement Date and annuity options available
for IRAs may also be controlled by
endorsements, the plan documents, or applicable law.
Once payments start under the annuity form selected by the
Owner: (a) no changes can be made in the annuity
form, (b) no additional Contributions will be accepted under the
Contract, and (c) no further withdrawals, other than
withdrawals made to provide annuity benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be
taxable as ordinary income. If, at the time the
annuity payments begin, we have not received a proper written
election not to have federal income taxes withheld, we
must by law withhold such taxes from the taxable portion of such
annuity payments and remit that amount to the federal
government (an election not to have taxes withheld is not permitted
for certain Qualified Contracts). State income tax
withholding may also apply. (See "Federal Tax-Matters," below.)
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FEDERAL TAX MATTERS
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Introduction
The following discussion is a general description of federal
income tax considerations relating to the Contracts
and is not intended as tax advice. Further, this discussion is
based on the assumption that the Contract qualifies as an
annuity contract for federal income tax purposes. This discussion
is not intended to address the tax consequences
resulting from all of the situations in which a person may be
entitled to or may receive a distribution under the Contract.
Any person concerned about these tax implications should consult a
competent tax adviser before initiating any
transaction. This discussion is based upon our understanding of
the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is
made as to the likelihood of the continuation of the
present federal income tax laws or of the current interpretation by
the Internal Revenue Service. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or purchased and used
in connection with IRAs. The ultimate effect of federal income
taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefit to you, the Annuitant, or the
Beneficiary may depend on the type of Contract,
and on the tax status of the individual concerned. In addition,
certain requirements must be satisfied in purchasing an
IRA and receiving distributions from an IRA in order to continue
receiving favorable tax treatment. Therefore, purchasers
of IRAs should seek competent legal and tax advice regarding the
suitability of the Contract for their situation, the
applicable requirements, and the tax treatment of the rights and
benefits of the Contract. The following discussion
assumes that an IRA is purchased with proceeds from and/or
Contributions that qualify for the intended special federal
income tax treatment.
Tax Status
The Company is taxed as a life insurance company under Part I
of Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in
general. An Owner who is a natural person generally is
not taxed on increases (if any) in the value of an Annuity Account
Value until distribution occurs by withdrawing all or part
of the Annuity Account Value (e.g., withdrawals or annuity payments
under the annuity form elected). However, under
certain circumstances, the Owner may be subject to taxation
currently. In addition, an assignment, pledge, or agreement
to assign or pledge any portion of the Annuity Account Value
generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment or
an annuity) is taxable as ordinary income. An IRA
Contract may not be assigned as collateral.
The Owner of any annuity contract who is not a natural person
(e.g. a corporation) generally must include in
income any increase in the excess of the Annuity Account Value over
the "investment in the contract" (discussed below)
during each taxable year. The rule does not apply where the
non-natural person is the nominal owner of a Contract and
the beneficial owner is a natural person. The rule also does not
apply in the following circumstances: (1) where the
annuity Contract is acquired by the estate of a decedent, (2) where
the Contract is held under an IRA, (3) where the
Contract is a qualified funding asset for a structured settlement,
and (4) where the Contract is purchased on behalf of an
employee upon termination of a qualified plan. A prospective Owner
that is not a natural person may wish to discuss
these matters with a competent tax adviser.
The following discussion generally applies to a Contract owned
by a natural person.
Withdrawals
In the case of a withdrawal under an IRA, including
withdrawals under the Periodic Withdrawal Option, a ratable
portion of the amount received may be non-taxable. The amount of
the non-taxable portion is generally determined by
the ratio of the "investment in the contract" to the individual's
total accrued benefit under the retirement plan. The
"investment in the contract" generally equals the amount of any
nondeductible Contributions paid by or on behalf of any
individual. Special tax rules may be available for certain
distributions from an IRA.
With respect to Non-Qualified Contracts, partial withdrawals,
including Periodic Withdrawals, are generally treated
as taxable income to the extent that the Annuity Account Value
immediately before the withdrawal exceeds the "investment
in the contract" at that time. If a partial withdrawal is made
from a Guarantee Period which is subject to a Market Value
Adjustment, then the Annuity Account Value immediately before the
withdrawal will not be altered to take into account the
Market Value Adjustment. As a result, for purposes of determining
the taxable portion of the partial withdrawal, the Annuity
Account Value will not reflect the amount, if any, deducted from or
added to the Guarantee Period due to the Market Value
Adjustment. Full surrenders are treated as taxable income to the
extent that the amount received exceeds the "investment
in the contract." The taxable portion of any annuity payment is
taxed at ordinary income tax rates.
Annuity Payments
Although the tax consequences may vary depending on the
annuity form elected under the Contract, in general,
only the portion of the annuity payment that represents the amount
by which the Annuity Account Value exceeds the
"investment in the contract" will be taxed; after the investment in
the contract is recovered, the full amount of any additional
annuity payments is taxable. For fixed annuity payments, in
general there is no tax on the portion of each payment which
represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments
for the term of the payments; however, the remainder of each
annuity payment is taxable. Once the investment in the
Contract has been fully recovered, the full amount of any
additional annuity payments is taxable. If the annuity payments
cease as a result of an Annuitant's death before full recovery of
the "investment in the contract," you should consult a
competent tax adviser regarding the deductibility of the
unrecovered amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal income tax
penalty equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on
distributions: (1) made on or after the date on which the Owner
attains age 59 1/2; (2) made as a result of death or
disability of the Owner; or (3) received in substantially equal
periodic payments as a life annuity or a joint and survivor
annuity for the lives or life expectancies of the Owner and a
"designated beneficiary." Other exemptions or tax penalties
may apply to certain distributions pursuant to an IRA. For more
details regarding these exemptions or penalties consult
a competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the
death of an Owner or the Annuitant. Generally such
amounts are includible in the income of the recipient as follows:
(1) if distributed in a lump sum, they are taxed in the
same manner as a full surrender, as described above, or (2) if
distributed under an annuity form, they are taxed in the
same manner as annuity payments, as described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of
the Contract must provide the following two distribution
rules: (A) if any Contract Owner dies on or after the date annuity
payments commence, and before the entire interest in
the Contract has been distributed, the remainder of his interest
will not be distributed under a slower distribution schedule
than that provided for in the method in effect on the Contract
Owner's death; and (B) if any Contract Owner dies before
the date annuity payments commence, his entire interest must
generally be distributed within five years after the date of
death provided that if such interest is payable to a designated
Beneficiary, then such interest may be made over the life
of that designated Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, so long as
payments commence within one year after the Contract Owner's death.
If the sole designated Beneficiary is the spouse
of the Contract Owner, the Contract may be continued in the name of
the spouse as Contract Owner. The designated
Beneficiary is the natural person designated by the terms of the
Contract or by the Contract Owner as the individual to
whom ownership of the contract passes by reason of the Contract
Owner's death. If the Contract Owner is not an
individual, then for purposes of the distribution at death rules,
the Primary Annuitant is considered the Contract Owner.
In addition, when the Contract Owner is not an individual, a change
in the Primary Annuitant is treated as the death of
the Contract Owner.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary who is not also
the Owner, or the exchange of a Contract may result in adverse tax
consequences to the Owner that are not discussed
herein. An Owner contemplating any such designation, transfer,
assignment, or exchange of a Contract should contact
a competent tax adviser with respect to the potential tax effects
of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued
by the Company (or our affiliates) to the same Owner
during any calendar year will be treated as one annuity contract
for purposes of determining the amount includible in
gross income under section 72(e) of the Code. Amounts received
under any such Contract may be taxable (and may
be subject to the 10% Penalty Tax) to the extent of the combined
income in all such Contracts. In addition, the Treasury
Department has specific authority to issue regulations that prevent
the avoidance of section 72(e) through the serial
purchase of annuity contracts or otherwise. Congress has also
indicated that the Treasury Department may have authority
to treat the combination purchase of an immediate annuity contract
and separate deferred annuity contracts as a single
annuity contract under its general authority to prescribe rules as
may be necessary to enforce the income tax laws.
Withholding
Annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that
vary according to the type of distribution and the recipient's tax
status. Recipients, however, generally are provided the
opportunity to elect not to have tax withheld from distributions.
Certain distributions from IRAs are subject to mandatory
federal income tax withholding.
Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely modified the federal taxation of certain
annuities. For example, one such proposal would have changed the
tax treatment of non-qualified annuities that did not
have "substantial life contingencies" by taxing income as it is
credited to the annuity. There is always the possibility that
the tax treatment of annuities could change by legislation or other
means (such as IRS regulations, revenue rulings,
judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the
date of the change).
<PAGE>
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one annuity contract
for another. A replacement contract obtained in a tax-free
exchange of contracts succeeds to the status of the original
contract. Special rules apply to Contracts issued prior to August
14, 1982. Prospective Owners wishing to take advantage
of a Section 1035 exchange should consult their tax adviser.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408
of the Code. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement
program known as an Individual Retirement Annuity. Also,
certain kinds of distributions from certain types of qualified and
non-qualified retirement plans may be "rolled over"
following the rules set out in the Code to maintain favorable tax
treatment, to an Individual Retirement Annuity. The sale
of a Contract for use with an IRA may be subject to special
disclosure requirements of the Internal Revenue Service.
Purchasers of the Contract for use with IRA's will be provided with
supplemental information required by the Internal
Revenue Service or other appropriate agency. Such purchasers will
have the right to revoke their purchase within seven
days of purchase of the IRA Contract.
Various tax penalties may apply to contributions in excess of
specified limits, aggregate distributions in excess
of $150,000 annually, distributions that do not satisfy specified
requirements, and certain other transactions. The Contract
will be amended as necessary to conform to the requirements of the
Code. Purchasers should seek competent advice
as to the suitability of the Contract for use with IRA's.
If a Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan, Owners,
Annuitants and Beneficiaries are cautioned that the rights of any
person to any of the benefits under the Contract may
be subject to the terms and conditions of the plan itself,
regardless of the terms and conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must
also be the Owner. In addition, if a Contract is
purchased to fund an IRA, minimum distributions must commence not
later than April 1st of the calendar year following
the calendar year in which you attain age 70 1/2. You should
consult your tax adviser concerning these matters.
The Contract and prototype IRA endorsement have been submitted
for IRS approval and determination that they
are acceptable under Section 408 of the Code, so that each
individual who purchases a Contract with an IRA
endorsement will be considered to have adopted a retirement savings
program that satisfies the requirements of Section
408 of the Code. The IRS approval is a determination only as to
the form of the Contract and does not represent a
determination of the merits of the Contract.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she is purchasing
a Non-Qualified Contract or an IRA. If the initial Contribution is
derived from an exchange or surrender of another annuity
contract, we may require that the prospective purchaser provide
information with regard to the federal income tax status
of the previous annuity contract. We will require that persons
purchase separate Contracts if they desire to invest monies
qualifying for different annuity tax treatment under the Code.
Each such separate Contract would require the minimum
initial Contribution stated above. Additional Contributions under
a Contract must qualify for the same federal income tax
treatment as the initial Contribution under the Contract; we will
not accept an additional Contribution under a Contract
if the federal income tax treatment of such Contribution would be
different from that of the initial Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax
consequences is only a brief summary and is not intended
as tax advice. Further, the federal income tax consequences
discussed herein reflect our understanding of current law
and the law may change. Federal estate tax consequences and state
and local estate, inheritance, and other tax
consequences of ownership or receipt of distributions under a
Contract depend on the individual circumstances of each
Owner or recipient of the distribution. A COMPETENT TAX ADVISER
SHOULD BE CONSULTED FOR FURTHER
INFORMATION.
_________________________________________________________________
___________
ASSIGNMENTS OR PLEDGES
_________________________________________________________________
___________
Generally, rights in the Contract may be assigned or pledged
for loans at any time during the life of the Annuitant;
however, if the Contract is an IRA, the Owner may not assign the
Contract as collateral.
If a non-IRA Contract is assigned, the interest of the
assignee has priority over the interest of the Owner and the
interest of the Beneficiary. Any amount payable to the assignee
will be paid in a single sum.
A copy of any assignment must be submitted to the Company at
the Schwab Annuity Service Center. Any
assignment is subject to any action taken or payment made by the
Company before the assignment was processed. The
Company is not responsible for the validity or sufficiency of any
assignment.
If any portion of the Annuity Account Value is assigned or
pledged for a loan, it may be treated as a distribution.
A competent tax adviser should be consulted for further
information.
_________________________________________________________________
___________
PERFORMANCE DATA
_________________________________________________________________
___________
From time to time, we may advertise yields and average annual
total returns for the Investment Divisions. In
addition, we may advertise the effective yield of the Schwab Money
Market Investment Division. These figures will be
based on historical information and are not intended to indicate
future performance.
The yield of the Schwab Money Market Investment Division
refers to the annualized income generated by an
investment in that Investment Division over a specified seven-day
period. The yield is calculated by assuming that the
income generated for that seven-day period is generated each
seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by
an investment in that Investment Division is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed
reinvestment.
The yield of an Investment Division (other than the Schwab
Money Market Investment Division) refers to the
annualized income generated by an investment in that Investment
Division over a specified thirty-day period. The yield
is calculated by assuming that the income generated by the
investment during that thirty-day period is generated each
thirty-day period over a twelve-month period and is shown as a
percentage of the investment.
The yield calculations do not reflect the effect of any
Premium Tax that may be applicable to a particular Contract.
To the extent that premium taxes are applicable to a particular
Contract, the yield of that Contract will be reduced. For
a description of the methods used to determine yield and total
returns, see the Statement of Additional Information.
The average annual total return of an Investment Division
refers to return quotations assuming an investment has
been held in the Investment Division for various periods of time
including, but not limited to, a period measured from the
date the Investment Division commenced operations. When an
Investment Division has been in operation for 1, 5, and
10 years, respectively, the average annual total return for these
periods will be provided. The average annual total return
quotations will represent the average annual compounded rates of
return that would equate an initial investment of $1,000
to the redemption value of that investment (excluding Premium Tax)
as of the last day of each of the periods for which
total return quotations are provided. For additional information
regarding yields and total returns calculated using the
standard formats briefly described herein, please refer to the
Statement of Additional Information.
Performance information for any Investment Division reflects
only the performance of a hypothetical Contract under
which Annuity Account Value is allocated to an Investment Division
during a particular time period on which the
calculations are based. Performance information should be
considered in light of the investment objectives and policies
and characteristics of the Eligible Funds in which the Investment
Division invests, and the market conditions during the
given time period, and should not be considered as a representation
of what may be achieved in the future.
Reports and promotional literature may also contain other
information including (1) the ranking of any Investment
Division derived from rankings of variable annuity separate
accounts or their investment products tracked by Lipper
Analytical Services, Inc., VARDS, Morningstar, Value Line,
IBC/Donoghue's Money Fund Report, Financial Planning
Magazine, Money Magazine, Bank Rate Monitor, Standard & Poor's
Indices, Dow Jones Industrial Average, and other
rating services, companies, publications, or other persons who rank
separate accounts or other investment products on
overall performance or other criteria, and (2) the effect of
tax-deferred compounding on investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points
in time, of the return from an investment in a Contract (or returns
in general) on a tax-deferred basis (assuming one or
more tax rates) with the return on a currently taxable basis.
Other ranking services and indices may be used.
We may from time to time also disclose cumulative
(non-annualized) total returns for the Investment Divisions.
We may from time to time also disclose yield and standard total
returns for any or all Investment Divisions.
We may also advertise performance figures for the Investment
Divisions based on the performance of an Eligible
Fund prior to the time the Series Account commenced operations.
For additional information regarding the calculation of other
performance data, please refer to the Statement of
Additional Information.
<PAGE>
_________________________________________________________________
__________
DISTRIBUTION OF THE CONTRACTS
_________________________________________________________________
___________
Charles Schwab & Co., Inc. ("Schwab") is the distributor of
the Contracts. Schwab is registered with the Securities
and Exchange Commission as a broker/dealer and is a member of the
National Association of Securities Dealers, Inc.
("NASD"). Its principal offices are located at 101 Montgomery, San
Francisco, California 94104, telephone 800-838-0650.
Certain administrative services are provided by Schwab to
assist the Company in the processing of the Contracts,
which services are described in written agreements between Schwab
and the Company. The Company has agreed to
indemnify Schwab (and its agents, employees, and controlling
persons) for certain damages arising out of the sale of the
Contracts, including those arising under the securities laws.
_________________________________________________________________
__________
SELECTED FINANCIAL DATA
_________________________________________________________________
___________
The following is a summary of certain financial data of the
Company. This summary has been derived
in part from, and should be read in conjunction with, the financial
statements of the Company included
elsewhere in this Prospectus.
Nine Months EndedYears Ended December
31,
(In Millions) 9/30/969/30/95 1995 1994 19931992 1991
INCOME STATEMENT DATA
Premiums and other income$ 785$ 793$ 1,067$ 1,000$ 696$ 245$
58
Net investment income 623 622 835 768 792 661 599
Realized investment gains (losses) (31) 2 8 (72)
25 (4) (30)
Total Revenues 1,377 1,417 $ 1,910$ 1,696$ 1,513$ 902$
627
Total benefits and expenses1,2391,290$ 1,733$ 1,594$ 1,417$ 844$
596
Income tax expense 39 45 49 28 31 18
7
Cumulative effect of adopting a
new accounting method for income taxes_____ ____ ____ (23) ___
Net income $ 99$ 82$ 128$ 74$ 65$ 63$
24
BALANCE SHEET DATA
Investment assets $12,572
$12,148$12,473$11,791$11,592$10,771$8,483
Separate account assets 5,039 3,728 3,999 2,555 1,680 937 550
Total assets 18,90717,067 17,68215,61614,29612,9489,571
Total policy liabilities11,64011,399 11,49210,92910,59210,3527,808
Total shareholder's equity 989908 993 777 821 769 624
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
The Company operates in one business segment as a provider of
life, health and annuity products
to groups of individuals associated with employers or distributors;
however, the business operations of
GWL&A will be discussed in terms of its major business units: the
Employee Benefits Division, which
distributes life, health, disability income insurance and 401(k)
products to employee groups, primarily to small
to mid-sized corporations; and the Financial Services Division,
which distributes accumulation and payout
annuity products for both group and individual clients, primarily
in the public\non-profit sector, as well as
insurance products for individual clients.
GWL&A recognized the potential problems of high yielding
assets in the late 1980's and adjusted
its investment policy accordingly. The impact of problem mortgage
and real estate accounts showed marked
improvement in the last few years as the Company curtailed any new
investment in mortgage loans. The
emphasis of quality over yield in the bond portfolio certainly has
proved to be beneficial to the overall
strength of the investment assets.
Going forward, GWL&A intends to increase the percentage of
assets and liabilities funded on a
separate account basis. Management believes this emphasis is in
the best interests of its customers and
shareholders. GWL&A intends to continue to improve its
administrative and distribution systems in order to
compete with insurers, mutual fund companies, and other money
managers.
NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
Results of Operations
Net income increased to $98.7 million as of September 30,
1996, compared to $82.1 million for
the same period in 1995. The growth in earnings is being driven by
good results from operations.
Increased Employee Benefits Division earnings reflected an
improvement in group health morbidity and
expense gains associated with the large growth in 401(k). The
Financial Services Division net income
increased as a result of effective expense management and increased
interest margins on annuity
products.
The Company also benefited from a $25.6 million release of
a
provision on a contingent liability it
assumed from Great-West Life in 1993. This was largely offset by
capital losses of $21.5 million incurred
on the sales of bonds in the first nine months of 1996. The
Company had realized capital gains on bond
sales of $16.8 million through the first nine months of 1995. The
bond
capital gains and losses are included in the
realized investment gains [losses] in the income statement.
YEARS ENDED DECEMBER 31, 1995 and 1994
Results of Operations
The net income of $128 million in 1995 is up significantly
from the $74 million recorded in 1994.
The growth in earnings is related to the Company's continued
investment philosophy of replacing
mortgage loans with higher quality bonds which ultimately resulted
in a reduction of mortgage
writedowns. This is very apparent in the Financial Services
Division where the asset intensive lines
benefited from a combination of lower mortgage writedowns and
capital gains in the bond portfolio. The
Company's strategy of increasing fee income and reducing interest
rate exposure is apparent in the
growth of the separate accounts. The Employee Benefits Division's
net income from operations
increased in 1995, largely due to low healthcare inflation,
favorable mortality, outstanding 401(k) growth
and effective expense management.
Life, accident, and health premium increased $49 million from
1994 to a total of $988 million
primarily due to an increase in group health premium, which
primarily reflects the acquisition of a block of
group life and health business from Confederation Life Insurance
Company.
Net investment income increased $67 million to a total of $835
million in 1995 reflecting higher
earned rates and growth in policy loans associated with corporate
owned life insurance (COLI) business.
The net realized gains and losses improved significantly over
last year as the $8 million of gains
in 1995 was substantially better than the $72 million of losses
recorded in 1994. Provisions for asset
losses, included in realized losses, continued to decline as the
$22 million in 1995 were $12 million
better than the $34 million recorded in 1994. Interest rates
decreased in 1995, leading to bond capital
gains of $28 million which were better than the $39 million of
losses recorded in 1994.
The capital gains and losses recorded in 1994 and 1995 were
somewhat mitigated by
adjustments to the amortization of deferred acquisition costs and
premium deficiency reserves totalling
$(10) million in 1995 and $19 million in 1994.
Policyholder benefits increased to $1.2 billion, up $76
million, which is a combination of an
increase in interest credits to policyholders and higher group life
and health claims.
The commissions and operating expense increase of $56 million
to a total of $465 million includes
expense increases associated with managed care and the acquisition
of a block of group life and health
business from Confederation Life Insurance Company.
The effective income tax rate in 1995 and 1994 was lower than
the statutory rate due to a
reduction of $13 million and $7 million, respectively, in the
deferred tax asset valuation allowance held in
a subsidiary company, GWL Properties Inc.
Balance Sheet
Total assets grew approximately $2.1 billion to a total of
$17.7 billion, reflecting continued growth
in the separate accounts of $1.4 billion and a $333 million
increase in policy loans associated with COLI
business.
It is important to recognize the continued shift away from
mortgages as the portfolio dropped
$298 million during 1995. The mortgage portfolio of $1.7 billion
at December 31, 1995 represented 13.7%
of total investment assets, compared to 17.1% at December 31, 1994.
Stockholder's equity at December 31, 1995 of $993 million
increased substantially from December
31, 1994, as the result of higher earnings and a significant
increase in the unrealized gains on the bond
portfolio that is available for sale.
YEARS ENDED DECEMBER 31, 1994 and 1993
Results of Operations
Net income in 1994 of $74 million increased from $65 million
in 1993. The higher group life and
health earnings more than offset the lower asset intensive earnings
associated with the capital losses on
the bond portfolio.
Premiums and other income consist primarily of life, accident,
and health premiums which
increased 48% over 1993 to a total of $939 million. The $306
million increase was primarily the result of
group life and health, which was up $248 million as none of the
premium was reinsured to The Great-
West Life during 1994, compared to $179 million reinsured in 1993.
Net investment income decreased $24 million to a total of $768
million. The decrease was
associated with a 0.68% drop in the yield on investments as higher
yielding mortgages and bonds
continued to be replaced by lower yielding, higher quality bonds.
The net realized losses of $72 million were significantly
worse than the $25 million of net gains
recorded in 1993, reflecting the decline in bond prices during
1994. However, provisions for asset losses
in 1994 of $34 million showed improvement over the $43 million in
1993, reflecting the overall decrease in
mortgage investments and the reduction in problem mortgages.
The capital losses in 1994 were somewhat mitigated by
adjustments to the amortization of
deferred acquisition costs and premium deficiency reserves
totalling $19 million. The same components
were adjusted by $44 million in 1993.
The increase in benefits and expenses was primarily related to
a $69 million increase in policy
benefits and a $98 million increase in commission and operating
expenses, both the result of the group
life and health business not being reinsured at all during 1994.
In 1993 the business had been reinsured
to Great-West Life for part of the year.
The 1994 effective income tax rate of 27.7% is lower than the
1993 rate of 32.5% as a result of a
$7 million reduction in the deferred income tax asset valuation
allowance being held in a subsidiary
company, GWL Properties Inc.
Balance Sheet
Total assets increased $1.3 billion in 1994 to a total of
$15.6 billion. The only growth in the
general account was the acquisition of corporate owned life
insurance (COLI) policies from Confederation
Life Insurance Company which increased assets $250 million. The
majority of the increase is associated
with separate account assets which grew by $875 million over 1993
to a total of $2.6 billion. The growth
in separate accounts is derived from a combination of good sales in
both the 401(k) and the public non-
profit business units and good investment performance.
The mortgage loans on real estate portfolio reduced $367
million bringing the total portfolio to
$2.0 billion or 17.1% of total investment assets. The reduction is
related to a combination of
prepayments, renewals refinanced with other lenders, and the
Company's policy of not initiating any new
mortgage loans.
Liquidity and Capital Resources
The principal short- and long-term liquidity needs of the
Company are to satisfy policyholder
benefits. The liquidity needs of the Company are closely managed
through cash flow matching of assets
and liabilities, and the forecasting of earned and required yields
to ensure consistency between
policyholder requirements and the yield of assets. Over 88.1% of
policy liabilities are non-cashable prior
to maturity or subject to market value adjustments or withdrawal
penalties.
Investments in highly marketable securities at the end of 1995
totaled $6.4 billion, including short-
term investments of $135 million which have minimal market risk.
For several years, the Company has
followed an investment policy that has emphasized high-quality
bonds and de-emphasized high-yield,
lower quality bonds and mortgage loans. At December 31, 1995,
mortgages represented 13.7% of
investments, compared to 25.2% at December 31, 1991. Bonds rated
below investment grade were only
1.4% of investments at December 31, 1995. The Company's
investments in mortgage-backed and asset-
backed bonds do not include highly volatile issues. The Company
limits its use of derivative financial
instruments to contracts which change the interest rate
characteristics of certain bonds from variable to
fixed rates or which effectively change interest paid in foreign
currencies to U.S. dollars.
Additional liquidity is available through the Company's
commercial paper program which is
partially supported by a standby letter of credit. At December 31,
1995, the program had an outstanding
balance of $85 million with maturities ranging from 25 to 160 days
and interest rates ranging from 5.7% to
5.9%.
The National Association of Insurance Commissioners (NAIC)
utilizes risk-based capital standards
to determine the capital requirements of a life insurance company
based upon its inherent operating
risks. These standards require the computation of a risk-based
capital amount which is then compared
to the Company's actual adjusted capital. Based on current
calculations of the risk-based capital
standards, the Company's percentage to total adjusted capital is
well in excess of ratios that would
require regulatory attention.
Great-West Life owns all of the Company's $122 million of
preferred shares and all of its
common stock. The shareholder's equity was $993 million as of
December 31, 1995, compared to $777
million as of December 31, 1994. Most of the increase was related
to the increase in fair value of the
Company's available-for-sale bond portfolio, including $23 million
related to the Company's
reclassification on December 31, 1995 of $2.1 billion of bonds from
the held-to-maturity portfolio.
Ratings
The Company operates in a very competitive market place,
and
therefore its ratings from various
rating agencies are very important to its ability to distribute
certain products. A.M. Best Company has
assigned the Company its highest financial strength and operating
performance rating of A++. Duff &
Phelps Corporation has assigned the Company their highest claims
paying ability rating of AAA.
Standard & Poor's Corporation has assigned the Company its second
highest rating of AA+ for claims
paying ability. Moody's Investors Service has assigned the Company
an insurance and financial
strength rating of Aa2.
These ratings represent the rating agency's independent
opinion of the Company's financial
strength and ability to meet its policyholder obligations, but have
no relevance to the performance or
quality of the assets in the Series Account.
Regulation and Reserves
The Company is subject to regulation and supervision by the
insurance departments of the state
in which it is licensed. This regulation covers a variety of
areas, including policy reserve requirements,
adequacy of company capital and surplus, operational standards, and
financial accounting policies and
procedures.
Pursuant to state insurance laws and regulations, the Company
is obligated to hold policy
reserves to meet its obligations under all outstanding insurance
contracts. These reserves are based on
a number of assumptions as to future experience. Neither the
reserve requirements nor the other
aspects of state insurance regulation provide absolute protection
to holders of insurance contracts if the
Company were to experience unexpected losses (e.g., infectious
diseases or catastrophic investment
losses).
Competition
The Company is engaged in a business that is highly
competitive due to the large number of
insurance companies and other entities competing in marketing,
administering, and selling insurance
products. There are approximately 2,300 insurers in the life
insurance business in the United States.
Segment Information
The Company operates in one business segment as a provider of
life, health and annuity
products to groups of individuals associated with employers or
distributors.
Employees and Facilities
The Company has an administrative services agreement with
Great-West Life, to provide total
administrative support for all aspects of the Company's business.
Great-West Life has approximately
4,300 employees in its U.S. operations. The home office facilities
are in Englewood, Colorado which
includes 517,633 square feet in a three building complex. As well,
there are sales and claims offices
located in several states.
State Regulation
As a life insurance company organized and operated under
Colorado law, GWL&A is subject to
provisions governing such companies and regulation by the Colorado
Division of Insurance.
GWL&A's books and accounts are subject to review and
examination by the Colorado Division of
Insurance at any time, and a full examination of its operations is
conducted triennially.
In addition, GWL&A is subject to comprehensive and detailed
regulation and supervision by the
supervisory agencies in each jurisdiction in which it conducts
business. Each state's supervisory agency
has broad administrative authority which includes, but is not
limited to, the power to regulate licenses to
transact business, trade practices, agent licensing, policy forms,
claims practices, underwriting practices,
reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for
accumulation of surrender values, the form and content of required
financial statements and the type and
amounts of investments permitted. GWL&A is required to file
detailed annual reports with supervisory
agencies in each of the jurisdictions in which it does business and
its accounts are subject to
examination by such agencies at regular intervals.
Under insurance guaranty fund laws in most states, insurers
can be assessed up to prescribed
limits for insurance contract losses incurred by insolvent
companies. GWL&A has estimated that the $9
million reserve being held at December 31, 1995 is adequate to
cover any obligations of known
insolvencies.
In addition, most jurisdictions, including Colorado, regulate
affiliated groups of insurers such as
GWL&A and its affiliates under insurance holding company
legislation. Under such laws, intercorporate
transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in
relation to the financial position of the
company making the transfer. Changes in control also are regulated
under these laws.
Although the federal government generally does not directly
regulate the business of insurance,
federal initiatives often have an impact on the business in a
variety of ways. Current and proposed
federal measures which may significantly affect GWL&A's insurance
business include employee benefits
regulation, controls on medical care costs, insurance reform,
managed care regulation, medical
entitlement programs (e.g., Medicare), removal of barriers
preventing banks from engaging in the
insurance and mutual fund businesses, the taxation of insurance
companies and the tax treatment of
insurance products.
The Securities and Exchange Commission regulates certain
separate accounts of GWL&A and
the mutual funds used as funding vehicles for those accounts.
Directors and Officers
Set forth below is information concerning the Company's
directors and executive officers,
together with their principal occupation for the past five years.
Unless otherwise indicated, all of the
directors and executive officers have been engaged for not less
than five years in their present principal
occupations or in another executive capacity with the companies or
firms identified.
Directors Principal Occupation Last 5 Years
James Balog Company Director since March 1993;
previously Chairman,
Lambert Brussels Capital Corporation
James W. Burns, O.C. Chairman of the Boards of Lifeco1 and
Great-West Life; Deputy
Chairman, PCC2
Orest T. Dackow President and Chief Executive Officer,
Lifeco since April 1992;
previously President, Great-West Life
Paul Desmarais, Jr. Chairman and Co-Chief Executive Officer,
PCC; Chairman, PFC3
Robert G. Graham Company Director since January 1996;
previously Chairman and
Chief Executive Officer, Inter-City
Products Corporation
Robert Gratton Chairman of the Board of Great-West Life
& Annuity Insurance
Company ("GWL&A"); President and Chief
Executive Officer, PFC
N. Berne Hart Company Director since February 1992;
previously Chairman of
the Board, United Banks of Colorado, Inc.
Kevin P. Kavanagh Company Director since April 1992;
previously President and
Chief Executive Officer, Lifeco
William Mackness Company Director since July 1995;
previously Dean, Faculty of
Management, University of Manitoba
William T. McCallum President and Chief Executive Officer,
GWL&A; President and
Chief Executive Officer (U.S. Operations),
Great-West Life
Jerry E.A. Nickerson Chairman of the Board, H.B. Nickerson &
Sons Limited
The Honourable
P. Michael Pitfield, P.C., Q.C.Vice-Chairman, PCC;
Member of the Senate of Canada
Michel Plessis-Belair, F.C.A. Executive Vice-President and Chief
Financial Officer, PCC; Senior
Vice-President, Finance, PFC
Ross J. Turner Chairman, Genstar Investment Corporation
Brian E. Walsh Partner, Trinity L.P. since January 1996;
previously Managing
Director and Co-head, Global Investment
Bank, Bankers Trust
Company
1 Great-West Lifeco, Inc.
2 Power Corporation of Canada
3 Power Financial Corporation
Executive Officers Principal Occupation Last 5 Years
William T. McCallum President and Chief Executive Officer,
GWL&A; President and Chief Executive
Officer (U.S. Operations), Great-West Life
Dennis Low Executive Vice President, Financial
Services, GWL&A;
Executive Vice President,Financial
Services, Great-West Life
Alan D. MacLennan Executive Vice President, Employee
Benefits, GWL&A;
Executive Vice President, Employee
Benefits, Great-West Life
John T. Hughes Senior Vice President, Chief Investment
Officer, GWL&A;
Senior Vice President, Chief Investment
Officer (U.S. Operations), Great-West Life
D. Craig Lennox Senior Vice President, General Counsel and
Secretary, GWL&A; Senior Vice President
and General Counsel, Great-West Life
James D. Motz Senior Vice President, Employee Benefits
Operations, GWL&A and Great-West Life
Douglas L. Wooden Senior Vice President, Financial Services,
GWL&A and Great-West Life
Compensation
The following table sets out all compensation paid by
Great-West Life and its subsidiaries in
respect of the individuals who were, at December 31, 1995, the
Chief Executive Officer and the other four
most highly compensated executive officers of GWL&A (collectively
the "Named Executive Officers") for
services rendered to GWL&A and Great-West Life in all capacities
for fiscal years ended 1993, 1994 and
1995 respectively.
Name and
Principal Position
Year
Annual
Compensation(1)
Salary Bonus
($) ($)
Long-Term
Compensation Awards
Securities Under
Options Granted (2)
W.T. McCallum,
President and
Chief Executive
Officer
1995
1994
1993
523,958 351,000
225,000(3)
476,750 318,500
426,383 295,750
None
None
None
D. Low, Executive
Vice President,
Financial Services
1995
1994
1993
305,000 152,500
285,000 142,500
263,479 121,750
None
None
None
J.T. Hughes, Senior
Vice President, Chief
Investment Officer
1995
1994
1993
301,000 150,500
290,000 145,000
275,000 137,500
None
None
None
A.D. MacLennan,
Executive Vice
President, Employee
Benefits
1995
1994
1993
312,000 125,000
300,000 97,890
283,000 113,426
None
None
None
D.L. Wooden, Senior
Vice President,
Financial Services
1995
1994
1993
275,500 137,500
265,000 142,500
250,000 125,000
None
None
None
(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each
Named Executive Officer in 1995 did not exceed the lesser of
$50,000 and 10% of the total of the
individual's annual salary and bonus.
(2) The options are for common shares of Power Financial
Corporation ("PFC Options"). PFC Options
are granted by, and in the sole discretion of, Power Financial
Corporation. (For additional information on
Power Financial Corporation, see "Ownership of Securities" in this
prospectus.)
(3) A special one-time bonus payment with respect to long-term
performance.
The following table describes all PFC Options exercised in
1995, and unexercised PFC Options
held as of December 31, 1995, by the Named Executive Officers.
Name
Securities
Acquired
on
Exercise
Aggregate
Value
Realized
($)
Unexercised Options at FY-
End
Exercisable Unexercisable
Value of Unexercised in-
the-Money Options at FY-
End ($)
Exercisable Unexercisable
W.T. McCallum
34,000
418,290
26,000 None
371,002 None
D. Low
None
None
44,000 None
627,849 None
J.T. Hughes
20,000
175,551
60,000 None
548,713 None
A.D. MacLennan
32,000
389,430
None None
None None
D.L. Wooden
None
None
44,000 None
423,621 None
Pension Plan Tables
The following discussion relates to pension benefits payable
to the Named Executive Officers as
of December 31, 1995.
Great-West Life has a non-contributory pension plan covering
substantially all of its employees.
Great-West Life contributes such amounts as are necessary, on an
actuarial basis, to provide the plan
with assets sufficient to meet the benefits to be paid to plan
members. Contributions under the plan are
based on length of service and average annual compensation.
Compensation includes normal salary
and wages and does not include bonuses, overtime pay,
reimbursements or special pay.
The directors of Great-West Life or of GWL&A determine the
eligibility for, and the amount of,
supplemental executive retirement benefits.
The President and Chief Executive Officer is entitled to the
benefits shown in Table #1 and has
30 years of service. The Executive Vice President, Financial
Services; Senior Vice President, Chief
Investment Officer; Executive Vice President, Employee Benefits;
and Senior Vice President, Financial
Services, are entitled to the benefits shown in Table #1 and Table
#2, and have 31, 6, 30 and 5 years of
service respectively.
Table #1 - Employees' Pension Plan
Remuneration
($)<PAGE>
Years of Service
5 15 20 25
30 35 40
200,000
18,875 56,625 75,500 94,375 113,250
120,000 120,000
300,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
400,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
500,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
600,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
700,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
800,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
The benefits shown in Table #1 are payable upon the attainment
of age 65, the normal retirement
date, or age 62 with 35 years of service. Remuneration is the
average of the highest 60 consecutive
months of regular salary during the last 84 months of employment.
The determination of remuneration
and the pension amount are limited by Internal Revenue Service
maximums for qualified plans. The
normal form of pension is a life only annuity. Other optional
forms of pension payment are available on
an actuarially equivalent basis. The benefits listed in the table
are not subject to deduction for social
security or other offset amounts.
Table #2 - Supplemental Executive Retirement Benefits
Remuneration
($) Years of Service
5 15 20 25
30 35 40
200,000
None None None None None
None None
300,000
401 15,123 22,664 30,205 52,500
52,500 52,500
400,000
10,401 45,123 62,664 80,205 112,500
112,500 112,500
500,000
20,401 75,123 102,664 130,205 172,500
172,500 172,500
600,000
30,401 105,123 142,664 180,205 232,500
232,500 232,500
700,000
40,401 135,123 182,664 230,205 292,500
292,500 292,500
800,000
50,401 165,123 222,664 280,205 352,500
352,500 352,500
The benefits shown in Table #2 are payable upon the attainment
of age 62, the normal retirement
date. Remuneration is the average of the highest 60 consecutive
months of compensation during the last
84 months of employment. Compensation includes salary and bonuses
prior to any deferrals. The
normal form of pension is a life only annuity. Other optional
forms of pension payment are available on
an actuarially equivalent basis. The benefits listed in the table
are not subject to deduction for social
security or other offset amounts.
Ownership of Securities
All of the Company's outstanding shares are owned by The
Great-West Life Assurance Company,
100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5. The
Great-West Life Assurance
Company is owned 99.5% by Great-West Lifeco Inc., both of which
share the same address. Great-West
Lifeco Inc. is owned 86.5% by Power Financial Corporation, 751
Victoria Square, Montreal, Quebec,
Canada H2Y 2J3. It is owned 68.3% by 171263 Canada Inc., which is
owned 100% by Power
Corporation of Canada, both of which share the same address as
Power Financial Corporation. Mr. Paul
Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3,
through a group of private holding
companies, which he controls, has voting control of Power
Corporation of Canada.
_________________________________________________________________
___________
VOTING RIGHTS
_________________________________________________________________
___________
To the extent required by applicable law, all Eligible Fund
shares held in the Series Account will
be voted by the Company at regular and special shareholder meetings
of the respective Eligible Funds in
accordance with instructions received from persons having voting
interests in the corresponding
Investment Division. If, however, the 1940 Act or any regulation
thereunder should be amended, or if the
present interpretation thereof should change, or if we determine
that we are allowed to vote all Eligible
Funds shares in our own rights, we may elect to do so.
Before the annuity commencement date, you the Owner, have
the
voting interest. The number of
votes which are available to you will be calculated separately for
each of your Variable Sub-Accounts.
That number will be determined by applying your percentage
interest, if any, in a particular Investment
Division to the total number of votes attributable to that
Investment Division. You hold a voting interest in
each Investment Division to which your Annuity Account Value is
allocated. If you select a variable
annuity option, the votes attributable to a Contract will decrease
as annuity payments are made.
The number of votes of an Eligible Fund will be determined
as
of the date coincident with the
date established by that Eligible Fund for determining shareholders
eligible to vote at the meeting of the
Eligible Funds. Voting instructions will be solicited by written
communication prior to such meeting in
accordance with procedures established by the respective Eligible
Funds.
Shares as to which no timely instructions are received and
shares held by us as to which Owners
have no beneficial interest will be voted in proportion to the
voting instructions which are received with
respect to all Contracts participating in the Investment Division.
Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce
the votes eligible to be cast.
Each person or entity having a voting interest in a Investment
Division will receive proxy material,
reports and other material relating to the appropriate Eligible
Fund.
It should be noted that generally the Eligible Funds are not
required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in the Company.
_________________________________________________________________
___________
RIGHTS RESERVED BY THE COMPANY
_________________________________________________________________
___________
The Company reserves the right to make certain changes if, in
its judgment, they would best
serve the interests of Owners and Annuitants or would be
appropriate in carrying out the purposes of the
Contracts. Any changes will be made only to the extent and in the
manner permitted by applicable laws.
Also, when required by law, the Company will obtain your approval
of the changes and approval from
any appropriate regulatory authority. Such approval may not be
required in all cases, however.
Examples of the changes the Company may make include:
- To operate the Series Account in any form permitted under
the Investment Company Act of
1940 or in any other form permitted by law.
- To transfer any assets in any Investment Division to
another Investment Division, or to one or
more separate accounts, or to a Guarantee Period; or to add,
combine or remove Investment
Divisions of the Series Account.
- To substitute, for the Eligible Fund shares in any
Investment Division, the shares of another
Eligible Fund or shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code
or by any other applicable law in
order to continue treatment of the Contract as an annuity.
- To change the time or time of day at which a Valuation Date
is deemed to have ended.
- To make any other necessary technical changes in the
Contract in order to conform with any
action the above provisions permit the Company to take,
including to change the way the
Company assess charges, but without increasing as to any then
outstanding Contract the
aggregate amount of the types of charges which the Company has
guaranteed.
_________________________________________________________________
___________
LEGAL PROCEEDINGS
_________________________________________________________________
___________
There are at present no material legal proceedings to which
the Series Account is a party or to
which the assets of the Series Account are subject. The Company is
not currently a party to, and its
property is not currently subject to, any material legal
proceedings. The lawsuits to which the Company
is a party are, in the opinion of management, in the ordinary
course of business, and are not expected to
have a material adverse effect on the financial results, conditions
or prospects of the Company.
_________________________________________________________________
___________
LEGAL MATTERS
_________________________________________________________________
___________
Advice regarding certain legal matters concerning the federal
securities laws applicable to the
issue and sale of the Contract has been provided by Jorden Burt
Berenson & Johnson LLP. The
organization of the Company, the Company's authority to issue the
Contract, and the validity of the form
of the Contract have been passed upon by Ruth B. Lurie, Vice
President, Counsel and Associate
Secretary of the Company.
_________________________________________________________________
___________
EXPERTS
_________________________________________________________________
___________
The consolidated financial statements of Great-West Life &
Annuity Insurance Company at
December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995
included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated
in their report appearing herein, and are included in reliance upon
the report of such firm given upon
their authority as experts in accounting and auditing.
_________________________________________________________________
___________
AVAILABLE INFORMATION
_________________________________________________________________
___________
We have filed a registration statement ("Registration
Statement") with the Commission under the
1933 Act relating to the Contracts offered by this Prospectus.
This Prospectus has been filed as a part of
the Registration Statement and does not contain all of the
information set forth in the Registration
Statement and exhibits thereto. Reference is hereby made to the
Registration Statement and exhibits for
further information relating to us and the Contracts. Statements
contained in this Prospectus, as to the
content of the Contracts and other legal instruments, are
summaries. For a complete statement of the
terms thereof, reference is made to the instruments as filed as
exhibits to the Registration Statement.
The Registration Statement and its exhibits may be inspected and
copied at the offices of the
Commission located at 450 Fifth Street, N.W., Washington, D.C.
<PAGE>
Appendix A
The standard nonforfeiture rate in all states, other than those
listed below is 3%.
Florida 0%
Mississippi 0%
Oklahoma 0%
<PAGE>
Appendix B
On the following pages are four examples of Market Value
Adjustments illustrating (1) increasing interest
rates, (2) decreasing interest rates, (3) flat interest rates (i
and j are within .10% of each other), and (4)
less than 6 months to maturity.
Example #1 - Increasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 7.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]65/12} - 1
= .952885 - 1
= .047115
MVA = (amount Transferred or surrendered) x MVAF
= $10,000 x - .047115
= - $471.15
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + - $471.15)
= $9,528.85
Example #2 - Decreasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 5.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.05]65/12} - 1
= .0055323
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $553.23)
= $10,553.23
<PAGE>
Example #3 - Flat Interest Rates (i and j are within .10% of
each other)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 6.24%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $0)
= $10,000
Example #4 - N<6 (less than 6 months to maturity)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2005
j: 7.00%
Amount Surrendered: $10,000
N: 5
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000 <PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT
AND
UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of
Great-West Life & Annuity Insurance Company (a wholly-owned
subsidiary of The Great-West Life Assurance Company) and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Great-West Life & Annuity Insurance Company and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 19, 1996
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
ASSETS
1995
1994
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost
(fair value $2,158,043 and $4,135,248)
$ 2,054,204
$4,293,985
Available for sale, at fair value
(amortized cost $6,087,969 and $2,997,087)
6,263,187
2,824,703
Common stock
9,440
5,222
Mortgage loans on real estate
1,713,195
2,011,059
Real estate
60,454
43,663
Policy loans
2,237,745
1,905,013
Short-term investments
134,835
706,920
Total Investments
12,473,060
11,790,565
Cash
90,939
131,621
Reinsurance receivable
333,924
295,148
Deferred policy acquisition costs
278,526
297,092
Investment income due and accrued
211,922
195,817
Other assets
40,038
55,579
Premiums in course of collection
85,990
84,478
Deferred income taxes
168,941
210,407
Separate account assets
3,998,878
2,554,836
TOTAL ASSETS
$17,682,218
$15,615,543
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDER'S EQUITY
1995
1994
POLICY BENEFIT LIABILITIES:
Policy reserves
$10,845,935
$10,334,456
Policy and contract claims
359,791
338,515
Policyholders' funds
154,872
144,262
Experience refunds
83,562
70,359
Provision for policyholders'dividends
47,760
41,840
GENERAL LIABILITIES:
Due to Parent Corporation
149,974
159,117
Repurchase agreements
372,965
564,160
Commercial paper
84,854
89,686
Other liabilities
453,889
420,154
Undistributed earnings on
participating business
136,617
120,927
Separate account liabilities
3,998,878
2,554,836
Total Liabilities
16,689,097
14,838,312
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative,
1500 shares authorized, liquidation value of
$100,000 per share, 600 shares issued and
outstanding 60,000 60,000
Series B, cumulative,
1500 shares authorized, liquidation value of
$100,000 per share, 200 shares issued and
outstanding 20,000 20,000
Series C, cumulative,
1500 shares authorized, none outstanding
Series D, cumulative,
1500 shares authorized, none outstanding
Series E, non-cumulative,
2,000,000 shares authorized,
liquidation value of $20.90
41,800 41,800
per share, issued, and outstanding
Common stock, $1 par value;
50,000,000 shares authorized;
7,032,000 shares issued and
outstanding 7,032 7,032
Additional paid-in capital
657,265
657,265
Net unrealized gains (losses) on
securities available-for-sale
58,763
(78,427)
Retained earnings
148,261
69,561
Total Stockholder's Equity
993,121
777,231
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY
$17,682,218
$15,615,543
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
REVENUES:
Annuity contract charges and
premiums
$79,816
$61,122
$63,210
Life, accident, and health premiums
earned (net of premiums ceded totaling
$60,880,
$48,115
and $254,969)
987,611
938,947
632,961
Net investment income
835,046
767,646
791,424
Net realized gains (losses) on
investments
7,465
(71,939)
25,342
1,909,938
1,695,776
1,512,937
BENEFITS AND EXPENSES:
Life and other policy benefits (net
of reinsurance recoveries totaling
$43,574,
$18,937,
and $151,598)
557,469
548,950
390,562
Increase in reserves
98,797
64,834
59,873
Interest paid or credited to
contractholders
562,263
529,118
623,417
Provision for policyholders' share
of earnings (losses)
on participating business
2,027
(725)
(1,498)
Dividends to policyholders
48,150
42,094
34,474
1,268,706
1,184,271
1,106,828
Commissions
122,926
120,058
90,472
Operating expenses
314,810
261,311
196,820
Premium taxes
26,884
27,402
23,129
1,733,326
1,593,042
1,417,249
INCOME BEFORE INCOME TAXES
176,612
102,734
95,688
PROVISION FOR INCOME TAXES:
Current
88,366
65,070
76,672
Deferred
(39,434)
(36,614)
(45,620)
48,932
28,456
31,052
NET INCOME
$127,680
$74,278
$64,636
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S
EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND
1993 (Dollars in Thousands)
Net Additional
Unrealized Retained
Preferred Stock
Common Stock
Paid-In
Gains
Earnings
Shares
Amount
Shares
Amount
Capital
(Losses)
(Deficit)
Total
BALANCE, JANUARY 1, 1993
2,000,800
$121,800
7,028,217
$7,028
$647,199
$0
$(7,063)
$768,964
Issuance of common stock
3,783
4
496
500
Capital contributions
9,098
9,098
Dividends
(21,852)
(21,852)
Net income
64,636
64,636
BALANCE, DECEMBER 31, 1993
2,000,800
121,800
7,032,000
7,032
656,793
0
35,721
821,346
Adjustment to beginning
balance for change in
accounting method for investment
securities
6,515
6,515
Change in net unrealized
gains (losses)
(84,942)
(84,942)
Capital contributions
472
472
Dividends
(40,438)
(40,438)
Net income
74,278
74,278
BALANCE, DECEMBER 31, 1994
2,000,800
121,800
7,032,000
7,032
657,265
(78,427)
69,561
777,231
Change in net unrealized
gains (losses)
137,190
137,190
Dividends
(48,980)
(48,980)
Net income
127,680
127,680
BALANCE, DECEMBER 31,
1995
2,000,800
$121,800
7,032,000
$7,032
$657,265
$58,763
$148,261
$993,121
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
OPERATING ACTIVITIES:
Net income
$127,680
$74,278
$64,636
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain (loss) allocated to
par policyholders
2,027
(725)
(1,498)
Amortization of
investments
26,725
36,978
36,782
Realized losses (gains) on
disposal of investments
and write-downs of
mortgage loans and real estate
(7,465)
71,939
(25,342)
Amortization
49,464
29,197
34,115
Deferred income taxes
(39,763)
(38,631)
(56,959)
Changes in assets and
liabilities:
Policy benefit
liabilities
346,975
93,998
438,809
Reinsurance receivable
(38,776)
(25,868)
352,106
Accrued interest and
other receivables
(17,617)
(26,032)
(19,817)
Other, net
8,834
96,950
119,284
Net cash provided by operating activities
458,084
312,084
942,116
INVESTING ACTIVITIES:
Proceeds from sales,
maturities, and redemptions of
investments:
Fixed maturities
4,744,309
Held-to-maturity
Sales
18,821
16,014
Maturities and redemptions
655,993
1,034,324
Available-for-sale
Sales
4,211,649
1,753,445
Maturities and redemptions
253,747
141,299
Mortgage loans
260,960
291,102
339,406
Real estate
4,401
29,868
22,974
Common stock
178
Purchases of investments:
Fixed maturities
(5,494,534)
Held-to-maturity
(490,228)
(673,567)
Available-for-sale
(4,932,566)
(2,606,028)
Mortgage loans
(683)
(9)
(52,917)
Real estate
(5,302)
(9,253)
(14,303)
Common stock
(4,218)
(2,063)
Net cash used in
investing activities
(27,426)
(24,690)
(455,065)
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
FINANCING ACTIVITIES:
Contract withdrawals, net of
deposits
$(217,190)
$(238,166)
$(590,118)
Due to Parent Corporation
(9,143)
(13,078)
(149,510)
Dividends paid
(48,980)
(40,438)
(21,852)
Net commercial paper (repayments)
borrowings
(4,832)
89,686
Net repurchase agreements
(repayments) borrowings
(191,195)
(39,244)
311,937
Net cash used in
financing activities
(471,340)
(241,240)
(449,543)
NET INCREASE IN CASH
(40,682)
46,154
37,508
CASH, BEGINNING OF YEAR
131,621
85,467
47,959
CASH, END OF YEAR
$90,939
$131,621
$85,467
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$83,841
$68,892
$87,778
Interest
17,016
12,229
7,438
See notes to consolidated financial
statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance Company
(the Company) is a wholly-owned subsidiary of The Great-West Life
Assurance Company (the Parent Corporation). The Company is an
insurance company domiciled in the State of Colorado. The Company
offers a wide range of life insurance, health insurance, and
retirement and investment products to individuals, businesses,
and other private and public organizations throughout the United
States.
Basis of Presentation - The preparation of financial
statements in conformity with generally accepted accounting
principles equires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been
eliminated.
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform with the basis of presentation
used in 1995.
Investments - Investments are reported as follows:
1. Management determines the classification of fixed
maturities at the time of purchase. Fixed maturities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost unless
fair value is less than cost and the decline is deemed to be other
than temporary, in which case they are written down to fair
value and a new cost basis is established. Fixed maturities not
classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at
fair value, with the net unrealized gains and losses reported as a
separate component of stockholder's equity. The net unrealized
gains and losses in derivative financial instruments used to hedge
available-for-sale securities is included in the separate component
of stockholder's equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts using the
effective interest method over the life of the related bonds. Such
amortization is included in interest income from investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains
(losses) on investments.
2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and any
valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income
using the effective interest method. Accrual of interest is
discontinued on any impaired loans where collection of interest is
doubtful.
The Company maintains an allowance for credit losses at
a level that, in management's opinion, is sufficient to
absorb possible credit losses on its impaired loans and to provide
adequate provision for any possible future losses in the portfolio.
Management's judgement is based on past loss experience, current
and projected economic conditions, and extensive situational
analysis of each individual loan.
Effective January 1, 1995, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosures". In accordance with these standards, a mortgage loan
is considered to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The measurement of
impaired loans is based on the fair value of the collateral. As
the Company was already providing for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the Company's financial
statements.
3. Real estate is carried at the lower of cost or fair
value. In March 1995, the FASB issued SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" to be effective for fiscal years beginning after
December 15, 1995. The effect of adopting this statement is not
expected to be material.
4. Policy loans are carried at their unpaid balances.
5. Short-term investments include securities purchased with
initial maturities of one year or less and are carried at amortized
cost. The Company considers short-term investments to be
available-for-sale and amortized cost approximates fair value.
Gains and losses realized on disposal of investments are
determined on a specific identification basis.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs,
which consist of sales commissions and other costs that vary with
and are primarily related to the production of new and renewal
business, have been deferred to the extent recoverable. Deferred
costs associated with the annuity products are being amortized
over the life of the contracts in proportion to the emergence of
gross profits. Retrospective adjustments of these amounts are made
when the Company revises its estimates of current or future gross
profits. Deferred costs associated with traditional life
insurance are amortized over the premium paying period of the
related policies in proportion to premium revenues recognized.
Amortization of deferred policy acquisition costs totalled $48,054,
$28,199, and $32,611 in 1995, 1994, and 1993, respectively.
Separate Account - Separate account assets and related
liabilities are carried at fair value. The Company's separate
accounts invest in shares of Maxim Series Fund, Inc., a
diversified, open-end management investment company which is an
affiliate of the Company, shares of other external mutual funds, or
government or corporate bonds.
Life Insurance and Annuity Reserves - Life insurance and
annuity policy reserves with life contingencies of $4,675,175, and
$3,995,927 at December 31, 1995 and 1994, respectively, are
computed on the basis of estimated mortality, investment yield,
withdrawals, future maintenance and settlement expenses, and
retrospective experience rating premium refunds. Annuity contract
reserves without life contingencies of $6,170,760, and $6,338,529
at December 31, 1995 and 1994, respectively, are established
at the contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance
companies are carried as reinsurance receivable on the balance
sheet (See Note 3).
The cost of reinsurance related to long-duration contracts is
accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the
underlying policies.
Policy and Contract Claims - Policy and contract claims
include provisions for reported claims in process of settlement,
valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.
Participating Fund Account - Participating life and annuity
policy reserves are $3,339,316 and $2,917,273 at December 31, 1995
and 1994, respectively. Participating business approximates 46%
of the Company's ordinary life insurance in force and 84% of
ordinary life insurance premium income at December 31, 1995.
The liability for undistributed earnings on participating
business was increased by $15,690 in 1995, which represented $2,027
of earnings on participating business and adjustments of $13,663
to reflect the net unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes.
The amount of dividends to be paid from undistributed earnings
on participating business is determined annually by the Board of
Directors. Amounts allocable to participating policyholders are
consistent with established Company practice.
The Company has established a Participating Policyholder
Experience Account (PPEA) for the benefit of all participating
policyholders which is included in the accompanying consolidated
balance sheet. Earnings associated with the operation of the PPEA
are credited to the benefit of all participating policyholders. In
the event that the assets of the PPEA are insufficient to provide
contractually guaranteed benefits, the Company must provide such
benefits from its general assets.
The Company has also established a Participation Fund Account
(PFA) for the benefit of the participating policyholders previously
transferred to the Company from the Parent under an assumption
reinsurance transaction. The PFA is part of the PPEA. The assets
and liabilities associated with these policies are segregated in
the accounting records of the Company to assure the continuation of
current policyholder dividend expectations. Earnings derived
from the operation of the PFA accrue solely for the benefit of the
acquired participating policyholders.
Recognition of Premium Income and Benefits and Expenses - Life
insurance premiums are recognized as earned. Annuity premiums
with life contingencies are recognized as received. Accident and
health premiums are earned on a monthly pro rata basis. Revenues
for annuity and other contracts without significant life
contingencies consist of contract charges for the cost of
insurance, contract administration, and surrender fees that have
been assessed against the contract account balance during the
period. Benefits and expenses on policies with life contingencies
are associated with premium income by means of the provision for
future policy benefit reserves, resulting in recognition of profits
over the life of the contracts. The average crediting rate on
annuity products was approximately 7.2% in 1995.
Income Taxes - Income taxes are recorded using the asset and
liability approach which requires, among other provisions, the
recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events (other than the
enactments or changes in the tax laws or rules) are considered.
Deferred tax assets are recorded net of a valuation allowance to
the extent that management estimates that recovery of the asset is
not more likely than not.
Repurchase Agreements - The Company enters into repurchase
agreements with third-party broker-dealers in which the Company
sells securities and agrees to repurchase substantially similar
securities at a specified date and price. Such agreements are
accounted for as collateralized borrowings. Interest expense on
repurchase agreements is recorded at the coupon interest rate on
the underlying securities. The repurchase fee received or paid is
amortized over the term of the related agreement and recognized as
an adjustment to investment income.
Derivatives - The Company engages in hedging activities to
manage interest rate and foreign exchange risk (See Note 6).
2. RELATED-PARTY TRANSACTIONS
Reinsurance Transactions - The Company entered into a series
of reinsurance transactions with the Parent Corporation during 1993
and prior years intended to make the Company the underwriter and
administrator of all life and health insurance, annuity products,
and related services with respect to United States policyholders.
A May 1, 1993, reinsurance transaction resulted in the Company
recapturing certain group life and health business previously ceded
to the Parent under a coinsurance agreement, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$217,254
Policy reserves
$253,479
Mortgage loans
27,182
Cash and short-term
investments
5,607
Investment income
due & accrued
3,436
$253,479
$253,479
In addition, effective December 31, 1993, the Company
recaptured certain participating life business also previously
ceded to the Parent Corporation, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$171,005
Policy reserves
$180,000
Cash and short-term
investments
8,087
Investment income
due & accrued
908
$180,000
$180,000
From 1989 to 1993, the Company has assumed most of the United
States business of the Parent Corporation. During this period, the
Parent Corporation had recorded estimated tax liabilities for
certain United States federal income taxes in its financial
statements. On December 31, 1993 and December 30, 1994, the Parent
Corporation transferred assets with an estimated fair value of
$82,800 and $9,391, respectively, to the Company in exchange for
the Company agreeing to assume the estimated tax liabilities of the
Parent Corporation, and the issuance of shares of the Company's
common stock.
Fees and Expenses - The Company and the Parent Corporation
have a number of service agreements whereby the Parent Corporation
administers, distributes, and underwrites business for the Company
and administers the Company's investment portfolio. Certain
operating expenses represent allocations made by the Parent
Corporation to the Company for services provided pursuant to these
service agreements. These transactions are summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment management expense
(included in net
investment income)
$15,182
$13,841
$17,767
Administrative and underwriting
payments (included
in operating expenses)
301,529
269,020
199,947
Other - At December 31, 1995 and 1994, due to Parent
Corporation includes $27,814 and $35,388 due on demand and $122,160
and $123,729 of notes payable which bear interest and mature at
various dates. These notes may be prepaid in whole or in part at
any time without penalty; the issuer may not demand payment before
the maturity date. The Company also has available an arrangement
to obtain advances from the Parent Corporation to fund short-term
liquidity needs. The due on demand to the Parent Corporation bears
interest at the public bond rate (6.4% and 8.5% at December 31,
1995 and 1994, respectively) while the remainder bear interest at
various rates.
3. REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured and to recover a
portion of benefits paid by ceding risks to other insurance
enterprises under excess coverage and co-insurance contracts. The
Company retains a maximum of $1.5 million of coverage per
individual life.
Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company; consequently,
allowances are established for amounts deemed uncollectible. The
Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of
the reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. At December 31, 1995 and 1994, reinsurance
receivables with a carrying value of $333,924, and $295,148,
respectively, were due primarily from the Parent Corporation.
Total reinsurance premiums assumed from the Parent Corporation
were $1,606 and $2,438, and $0, in 1995, 1994, and 1993,
respectively.
The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life
insurance in force and life and accident/health premiums:
Assumed
Ceded
Primarily
Percentage
Primarily to
From
of
Amount
Gross
the Parent
Other
Net
Assumed
to
Amount
Corporation
Companies
Amount
Net
December 31, 1995:
Life insurance in force:
Individual
$22,388,520
$7,200,882
$3,476,784
$18,664,422
18.6%
Group
48,415,592
1,954,313
50,369,905
3.9%
Total
$70,804,112
$7,200,882
$5,431,097
$69,034,327
Premiums:
Life insurance
$339,342
$51,688
$21,028
$308,682
6.8%
Accident/health
623,626
9,192
64,495
678,929
9.5%
Total
$962,968
$60,880
$85,523
$987,611
December 31, 1994:
Life insurance in force:
Individual
$21,461,590
$7,411,811
$3,415,596
$17,465,375
19.6%
Group
48,948,669
2,102,228
51,050,897
4.1%
Total
$70,410,259
$7,411,811
$5,517,824
$68,516,272
Premiums:
Life insurance
$322,263
$42,946
$22,009
$301,326
7.3%
Accident/health
579,650
5,169
63,140
637,621
9.9%
Total
$901,913
$48,115
$85,149
$938,947
December 31, 1993:
Life insurance in force:
Individual
$17,131,994
$7,797,389
$3,142,723
$12,477,328
25.2%
Group
37,789,859
2,108,314
39,898,173
5.3%
Total
$54,921,853
$7,797,389
$5,251,037
$52,375,501
Premiums:
Life insurance
$283,707
$112,798
$18,753
$189,662
9.9%
Accident/health
524,747
142,171
60,723
443,299
13.7%
Total
$808,454
$254,969
79,476
$632,961
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment income:
Bonds and short-term
investments
$592,062
$555,103
$545,926
Mortgage loans on real
estate
171,008
182,544
220,477
Real estate
3,936
5,700
9,265
Policy loans
163,547
116,060
91,529
930,553
859,407
867,197
Investment expenses,
including interest on
amounts charged by the
Parent Corporation
of $10,778, $11,145, and
$7,250
95,507
91,761
75,773
Net investment income
$835,046
$767,646
$791,424
5. NET REALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gains (losses) on
investments are as follows:
Years Ended December 31,
1995
1994
1993
Net realized gains
(losses):
Bonds
$28,166
$(39,775)
$68,884
Mortage loans on real
estate
1,309
2,120
(98)
Real estate
(10)
(102)
(102)
Bond provisions
(5,000)
(3,200)
(4,456)
Mortgage loan provisions
(15,877)
(27,918)
(38,089)
Real estate provisions
(1,123)
(3,064)
(797)
Net realized gains
(losses) on investments
$7,465
$(71,939)
$25,342
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31,
1995 are summarized as follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Carrying Cost
Gains
Losses
Value
Value
Held-to-Maturity:
U.S. Treasury
Securities and
obligations of U.S.
Government Agencies:
Collateralized
mortgage obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
11,107
1,093
12,200
11,107
Collateralized
mortgage obligations
Public utilities
269,671
22,084
95
291,660
269,671
Corporate bonds
1,732,046
83,583
5,867
1,809,762
1,732,046
Foreign governments
18,596
1,087
12
19,671
18,596
State and
municipalities
22,784
1,966
24,750
22,784
$2,054,204
$109,813
$5,974
$2,158,043
$2,054,204
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$561,475
$9,983
$1,948
$569,510
$569,510
Direct mortgage pass-through
certificates
794,056
11,980
2,233
803,803
803,803
Other
561,736
7,703
39
569,400
569,400
Collateralized
mortgage obligations
490,074
18,044
3,304
504,814
504,814
Public utilities
581,482
16,607
2,425
595,664
595,664
Corporate bonds
2,943,918
121,537
26
3,065,429
3,065,429
Foreign governments
141,362
5,021
5,644
140,739
140,739
State and
municipalities
13,866
22
60
13,828
13,828
$6,087,969
$190,897
$15,679
$6,263,187
$6,263,187
6.SUMMARY OF INVESTMENTS (Continued)
Fixed maturities owned at December 31, 1994 are summarized as
follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair Carrying Cost
Gains
Losses
Value
Value
Held-to-Maturity:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$521,408
$389
$33,018
$488,779
$521,408
Direct
mortgage pass-through
certificates
69,559
617
1,001
69,175
69,559
Other
85,406
246
923
84,729
85,406
Collateralized
mortgage obligations
309,869
1,205
14,208
296,866
309,869
Public utilities
457,758
2,898
14,340
446,316
457,758
Corporate bonds
2,757,612
14,701
111,410
2,660,903
2,757,612
Foreign governments
90,690
47
3,950
86,787
90,690
State and
municipalities
1,683
10
1,693
1,683
$4,293,985
$20,113
$178,850
$4,135,248
$4,293,985
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$80,531
$
$3,798
$76,733
$76,733
Direct
mortgage pass-through
certificates
759,815
871
49,462
711,224
711,224
Other
198,651
9
2,654
196,006
196,006
Collateralized
mortgage obligations
203,036
6,379
196,657
196,657
Public utilities
325,383
193
26,379
299,197
299,197
Corporate bonds
1,119,726
3,253
65,398
1,057,581
1,057,581
Foreign governments
298,597
17
21,826
276,788
276,788
State and
municipalities
11,348
831
10,517
10,517
$2,997,087
$4,343
$176,727
$2,824,703
$2,824,703
Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of three
to thirty years and average lives of less than one to twelve
years. Prepayments on all mortgage-backed securities are monitored
monthly and amortization of the premium and/or the accretion of the
discount associated with the purchase of such securities is
adjusted by such prepayments.
The cumulative effect as of January 1, 1994 of adopting SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," increased the opening balance of stockholders'
equity by $6,515 to reflect the net unrealized gains on securities
classified as available-for-sale (previously carried at the
lower of aggregate amortized cost or fair value) and the
corresponding adjustments to deferred policy acquisition costs,
policy reserves, and amounts allocable to the liability for
undistributed earnings on participating business, all net of income
taxes.
In November 1995, the Financial Accounting Standards Board
issued a special report entitled A Guide to Implementation of SFAS
115 on Accounting for Certain Investments in Debt and Equity
Securities. In accordance with the adoption of this guidance, the
Company reassessed the classification of its investment portfolio
in December 1995 and reclassed securities totalling $2,119,814
from held-to-maturity to available-for-sale. In connection with
this reclassification, an unrealized gain, net of related
adjustments (see above), of $23,449 was recognized in stockholder's
equity at the date of transfer.
The estimated fair value of fixed maturities that are publicly
traded are obtained from an independent pricing service. To
determine fair value for fixed maturities not actively traded, the
Company utilized discounted cash flows at determined current market
spread rates on investments of similar quality and term.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1995, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Held-to-
Maturity
Available-
for-Sale
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value Cost
Fair Value Due in one year or
less
$287,565
$293,666
$326,032
$337,792
Due after one year
through five years
838,993
877,949
1,452,442
1,495,755
Due after five years
through ten years
537,365
575,896
1,023,894
1,064,871
Due after ten years
159,064
173,487
522,002
542,559
Mortgage-backed
securities
1,845,605
1,878,127
Asset-backed
securities
231,217
237,045
917,994
944,083
$2,054,204
$2,158,043
$6,087,969
$6,263,187
During the years ended December 31, 1995 and 1994,
available-for-sale securities with a fair value at the date of sale
of $4,211,649 and $1,753,445 were sold. The realized gains and
losses on such sales totaled $39,755 and $15,516 for 1995 and
$7,030 and $50,612 for 1994. During 1995 and 1994,
held-to-maturity securities with an amortized cost of $18,087 and
$15,300 were sold due to credit deterioration with insignificant
realized gains and losses. Gains on securities which were called
for redemption by the respective issuers prior to maturity were
$2,990 and $3,093 in 1995 and 1994, respectively.
At December 31, 1995 and 1994, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $343,351 and $0 of fixed maturities, respectively.
The Company makes limited use of derivative financial
instruments to manage interest rate and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, and foreign currency exchange
contracts. Interest rate floors and caps are interest rate
protection instruments that require the payment by a counter-party
to the Company of an interest differential. This differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Interest rate swap agreements are used to convert the
interest rate on certain fixed maturities from a floating rate to
a fixed rate. Interest rate swap transactions generally involve
the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal
amounts. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in
other than U.S. dollars. The differential paid or received on
interest rate and amounts received under interest rate floor and
cap agreements are recognized as an adjustment to net investment
income on the accrual method. Gains and losses on foreign exchange
contracts are deferred and recognized in net investment income when
the hedged transactions are realized.
Although derivative financial instruments taken alone may
expose the Company to varying degrees of market and credit risk
when used solely for hedging purposes, these instruments typically
reduce overall market and interest rate risk. The Company controls
the credit risk of its financial contracts through credit
approvals, limits, and monitoring procedures. As the Company
generally enters nto transactions only with high quality
institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to
occur.
The following table summarizes the financial hedge
instruments:
Notional
Strike/Swap
December 31, 1995
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Cap
100,000
11.0% [CMT]
2000
Interest Rate Swaps
165,000
6.203% to
9.35%
01/98 to
2/2002
Foreign Currency
Exchange Contracts
66,650
N/A
10/96 to
09/98
Notional
Strike
December 31, 1994
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Swaps
150,000
6.275% to
10.644%
01/95 -
01/2000
Foreign Currency
Exchange Contracts
70,991
N/A
10/96 -
09/98
LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate
The Company has established specific investment guidelines
designed to emphasize a diversified and geographically dispersed
portfolio of mortgages collateralized by commercial and industrial
properties located in the United States. The Company's policy is
to obtain collateral sufficient to provide loan-to-value ratios of
not greater than 75% at the inception of the mortgages. At
December 31, 1995 approximately 28% and 11% of the Company's
mortgage loans were collateralized by real estate located in
California and Illinois, respectively.
At December 31, 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 was $23,678
including $3,254 of loans with a related allowance for credit
losses of $654. Additionally, loans totaling $6,481 were on a
non-accrual basis. The average recorded investment in impaired
loans during the year ended December 31, 1995 was approximately
$29,150. For the year ended December 31, 1995, the Company
recognized interest income on those impaired loans of $675.
Interest income received and recorded using the cash basis method
of recognition during 1995 totalled $857.
As part of an active loan management policy and in the
interest of maximizing the future return of each individual loan,
the Company may from time to time alter the original terms of
certain loans. These restructured loans, all performing in
accordance with their modified terms, aggregated $89,160 and
$102,538 at December 31, 1995 and 1994, respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):
Balance at January 1, 1995
$57,987
Provision for loan losses
15,877
Direct chargeoffs
(10,480)
Recoveries
610
Balance at December 31, 1995
$63,994
7. COMMERCIAL PAPER
The Company has a commercial paper program which is partially
supported by a $50,000 standby letter-of-credit. At December 31,
1995, commercial paper outstanding has maturities ranging from 25
to 160 days and interest rates ranging from 5.7% to 5.9%. At
December 31, 1994, maturities ranged from 40 to 120 days and
interest rates ranged from 5.4% to 6.4%
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides estimated fair value for all
assets and liabilities and hedge contracts considered to be
financial instruments:
December 31,
1995
1994
Estimated
Carrying
Estimated
Carrying
Fair
Amount
Fair
Value
Amount
Value
ASSETS:
Fixed maturities
and short-term
investments
$8,452,226
$8,556,065
$7,825,608
$7,666,871
Mortgage loans
on real estate
1,713,195
1,749,514
2,011,059
2,037,694
Policy loans
2,237,745
2,237,745
1,905,013
1,905,013
Common stock
9,440
9,440
5,222
5,222
LIABILITIES:
Annuity contract
reserves
without life
contingencies
6,170,760
6,268,749
6,338,529
6,286,966
Policyholders'
funds
154,872
154,872
144,262
144,262
Due to Parent
Corporation
149,974
152,347
159,117
159,334
Repurchase agreements
372,965
372,965
564,160
564,160
Commercial paper
84,854
84,854
89,686
89,686
HEDGE CONTRACTS:
Interest rate
floor
84
1,320
88
76
Interest rate cap
90
90
Interest rate swaps
10,052
10,052
(771)
(771)
Foreign currency
exchange contracts
(4,604)
(4,604)
(4,345)
(4,345)
The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgement is
necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented
are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Mortgage loans fair value estimates generally are based on a
discounted cash flow basis. A discount rate "matrix" is
incorporated whereby the discount rate used in valuing a specific
mortgage generally corresponds to that mortgage's remaining
term. The rates selected for inclusion in the discount rate
"matrix" reflect rates that the Company would quote if placing
loans representative in size and quality to those currently in the
portfolio.
Policy loans accrue interest generally at variable rates with
no fixed maturity dates and, therefore, estimated fair value
approximates carrying value.
The fair value of annuity contract reserves without life
contingencies is estimated by discounting the cash flows to
maturity of the contracts, utilizing current credited rates for
similar products.
The estimated fair value of policyholder's funds is the same
as the carrying amount as the Company can change the crediting
rates with 30 days notice.
The estimated fair value of due to Parent Corporation is based
on discounted cash flows at current market spread rates on high
quality investments.
The carrying value of repurchase agreements and commercial
paper is a reasonable estimate of fair value due to the short-term
nature of the liabilities.
The estimated fair value of financial hedge instruments, all
of which are held for other than trading purposes, is the
estimated amount the Company would receive or pay to terminate the
agreement at each year-end, taking into consideration current
interest rates and other relevant factors. Included in the net
gain (loss) position for interest rates swaps are $0 and $2,985 of
unrealized losses in 1995 and 1994, respectively. Included in the
net loss position for foreign currencies exchange contracts are
$5,497 and $4,504 loss exposures in 1995 and 1994, respectvely.
See note 6 for additional information on policies regarding
estimated fair value of fixed maturities.
9. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income
tax
rate and the Company's effective rate:
1995
1994
1993
Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting
from:
Investment income not
subject to federal tax
(0.5)
(1.0)
(1.2)
Effect of tax rate change
on net deferred tax assets
(1.8)
Change in valuation
allowance
(7.8)
(6.9)
1.0
State and environmental
taxes
0.7
0.9
Other, net
0.3
(0.3)
(0.5)
Total
27.7%
27.7%
32.5%
Temporary differences which give rise to the deferred tax
assets
and liabilities as of December 31, 1995 and 1994 are as
follows:
1995
1994
Deferred Tax
Asset
Deferred Tax
Liability
Deferred Tax
Asset
Deferred Tax
Liability
Policyholder
reserves
$162,073
$
$119,764
$
Deferred policy
acquisition costs
55,542
62,040
Deferred acquisition
cost proxy tax
58,481<PAGE>
45,422
Investment assets
16,372
97,249
Net operating loss
carryforwards
17,588
22,666
Tax credits and
other
4,786
2,564
Subtotal
242,928
71,914
287,665
62,040
Valuation allowance
(2,073)
(15,218)
Total Deferred Taxes
$240,855
$71,914
$272,447
$62,040
Amounts related to investment assets above include $33,735 and
$(47,493) related to the unrealized gains (losses) on the Company's
fixed maturities available-for-sale at December 31, 1995 and 1994,
respectively.
The Company files a separate tax return and, therefore, losses
incurred by subsidiaries cannot be offset against operating income
of the Company. At December 31, 1995, the Company's subsidiaries
have approximately $50,251 of net operating loss carryforwards,
expiring through the year 2010. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$419 are included in the deferred tax assets.
The Company's valuation allowance was decreased in 1995 and
1994 by $13,145 and $6,278, respectively, primarily as a result of
taxable income in subsidiaries which was greater than expected and
the resulting re-evaluation by management of future estimated
taxable income in the subsidiaries.
Under pre-1984 life insurance company income tax laws, a
portion of life insurance company gain from operations was not
subject to current income taxation but was accumulated, for tax
purposes, in a memorandum account designated as "policyholders'
surplus account." The aggregate accumulation in the account is
$7,742 and the Company does not anticipate any transactions which
would cause any part of the amount to become taxable. Accordingly,
no provision has been made for possible future federal income
taxes on this accumulation.
The Internal Revenue Service is currently auditing tax years
1988 to 1991, inclusive. In the opinion of Company management,
amounts paid or accrued are adequate, however, it is possible that
the Company's estimate may change as a result of the completion of
the IRS audits.
10. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS
All of the Company's outstanding series of preferred stock are
owned by the Parent Corporation. The dividend rate on the Series
A Stated Rate Auction Preferred Stock (STRAPS) is 7.3% through
December 30, 2002. The Series A STRAPS are redeemable at the
option of the Company on or after December 29, 2002 at a price of
$100,000 per share, plus accumulated and unpaid dividends.
Through December 30, 1995, the Series B STRAPS had a 7%
dividend rate. Thereafter, the Company will, at its option, select
future dividend periods. Future dividend rates will be fixed by a
market auction process with dividend rates dependent upon the
Company. If auctions are undersubscribed or otherwise
unsuccessful, the dividend rate is fixed by formula. The Company
has the flexibility of specifying, before each auction, the rights
of redemption which it has during the succeeding dividend period.
These redemption rights are factored into the auctions which set
dividend rates.
The Series B STRAPS are redeemable at the option of the
Company at a price of $100,000 per share, plus accumulated and
unpaid dividends.
The Company's Series E 7.5% non-cumulative preferred shares
are redeemable by the Company after April 1, 1999. The shares are
not redeemable at the option of the holder at any time. The
shares are convertible into common shares at the option of the
holder on or after September 30, 1999, at a conversion price
negotiated between the holder and the Company or at a formula
determined conversion price in accordance with the share
conditions.
On December 31, 1993, the Company issued 3,783 shares of
common stock to the Parent Corporation in connection with an
assumption of estimated tax liabilities. The Company also received
$472 and $9,098 of contributed capital in the form of deferred tax
assets from the Parent Corporation during 1994 and 1993,
respectively, in connection with the 1993 reinsurance transactions
(see Note 2).
The Company's net income and capital and surplus, as
determined in accordance with statutory accounting principles and
practices for December 31 are as follows:
1995
1994
1993
(Unaudited)
Net Income
$114,931
$70,091
$55,995
Capital and Surplus
653,479
621,589
628,944
The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the State of
Colorado is subject to restrictions relating to statutory surplus
and statutory net gain from operations. Statutory surplus and net
gains from operations at December 31, 1995 were $524,647 and
$119,299 (unaudited), respectively. The Company should be able to
pay up to $119,299 (unaudited) of dividends without regulatory
approval in 1996.
Dividends of $9,217, $7,475, and $9,335, were paid on
preferred stock in 1995, 1994, and 1993, respectively. In
addition, dividends of $39,763, $32,963, and $12,517 were paid on
common stock in 1995, 1994 and 1993, respectively. Dividends are
paid as determined by the Board of Directors.
The Company is involved in various legal proceedings which
arise in the ordinary course of its business. In the opinion of
management, after consultation with counsel, the resolution of
these proceedings should not have a material adverse effect on its
financial position or results of operations.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
ASSETS 1996
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized
cost (fair value $2,006,053) $1,977,771
Available for sale, at fair
value (amortized cost $5,981,777) 5,992,295
Common stock 9,583
Mortgage loans on real estate 1,516,393
Real estate 62,763
Policy loans 2,506,789
Short-term investments 506,129
Total Investments 12,571,723
Cash 81,791
Reinsurance receivable 359,673
Deferred policy acquisition costs 286,502
Investment income due and accrued 218,402
Other assets 35,428
Premiums in course of collection 92,181
Deferred income taxes 222,437
Separate account assets 5,039,240
TOTAL ASSETS $18,907,377
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY 1996
POLICY BENEFIT LIABILITIES:
Policy reserves $10,985,700
Policy and contract claims 380,547
Policyholders' funds 139,153
Experience refunds 84,837
Provision for policyholders' dividends 50,151
GENERAL LIABILITIES:
Due to Parent Corporation 134,051
Repurchase agreements 395,735
Commercial paper 84,488
Other liabilities 490,029
Undistributed earnings on
participating business 134,374
Separate account liabilities 5,039,240
Total Liabilities 17,918,305
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of $20.90
per share, issued, and outstanding 41,800
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding 7,032
Additional paid-in capital 657,265
Net unrealized gains (losses) on
securities available-for-sale (1,797)
Retained earnings 204,772
Total Stockholder's Equity 989,072
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $18,907,377
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
REVENUES:
Annuity contract charges and premiums $67,430 $57,362
Life, accident, and health premiums earned
(net of premiums ceded totaling $43,542
and $47,077) 717,528 735,859
Net investment income 622,703 622,044
Net realized gains (losses) on investments(30,692) 1,906
1,376,969 1,417,171
BENEFITS AND EXPENSES:
Life and other policy benefits (net of
reinsurance recoveries totaling
$38,981 and $26,463) 381,420 410,712
Increase in reserves 63,056 91,258
Interest paid or credited to
contractholders 422,697 417,745
Provision for policyholders' share
of earnings (losses)
on participating business 1,813 313
Dividends to policyholders 32,081 31,268
901,067 951,296
Commissions 77,866 93,465
Operating expenses 242,233 226,135
Premium taxes 17,526 19,256
1,238,692 1,290,152
INCOME BEFORE INCOME TAXES 138,277 127,019
PROVISION FOR INCOME TAXES:
Current 58,001 61,980
Deferred (18,394) (17,104)
39,607 44,876
NET INCOME $98,670 $82,143
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
OPERATING ACTIVITIES:
Net income $98,670 $82,143
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain allocated to par policyholders 1,814 313
Amortization of investments 18,562 20,886
Realized losses (gains) on disposal
of investments and write-downs of
mortgage loans and real estate 30,692 (1,694)
Amortization 24,741 35,472
Deferred income taxes (18,676) (17,330)
Changes in assets and liabilities:
Policy benefit liabilities 206,966 222,687
Reinsurance receivable (25,749) (26,667)
Accrued interest and other
receivables (12,671) (20,527)
Other, net 28,593 (70,263)
Net cash provided by
operating activities 352,942 225,020
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales 11,466
Maturities and redemptions 409,012 504,168
Available-for-sale
Sales 2,664,867 2,846,901
Maturities and redemptions 621,231 90,020
Mortgage loans 188,398 191,009
Real estate 2,111 4,239
Common stock 1,773 0
Purchases of investments:
Fixed maturities
Held-to-maturity (336,291) (698,794)
Available-for-sale (3,590,988)(2,849,310)
Mortgage loans (3,485) (683)
Real estate (5,923) (4,594)
Common stock (1,904) (1,387)
Net cash (used in)
provided by investing
activities (51,199) 93,035
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits $(275,213)$(75,477)
Due to Parent Corporation (15,923) (24,039)
Dividends paid (42,159) (35,262)
Net commercial paper (repayments) borrowings (366) (5,472)
Net repurchase agreements (repayments)
borrowings 22,770 (247,224)
Net cash (used in) provided by
financing activities (310,891)(387,474)
NET DECREASE IN CASH (9,148) (69,419)
CASH, BEGINNING OF YEAR 90,939 131,621
CASH, END OF PERIOD $ 81,791 $ 62,202
See notes to consolidated financial statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Amounts in Thousands, except Share Amounts)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements and related notes have
been prepared in accordance with generally accepted accounting
principles for interim financial reporting. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the
opinion of management, all adjustments [consisting of only normal
recurring accruals] considered necessary for fair presentation of
the Company's financial position, results of operations, and cash
flows have been included. These financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1995.
The results of operations for the periods presented are not
necessarily indicative of the results for a full year.
2. OTHER
Pursuant to a December 31, 1993 agreement between the Company
and its Parent whereby the Company assumed responsibility for the
Parent Corporation's income tax liability for fiscal years prior to
1994, the Company had previously recorded a contingent liability
provision. The Company's 1996 results of operations include a
release of $25,600 from that provision, to reflect the resolution
of 1988 and 1989 tax issues with the Internal Revenue Service. In
the opinion of Company management, the remaining amounts paid or
accrued are adequate, however, it is possible that the Company's
estimate may change as a result of the completion of the IRS
audits.
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
Contracts Under
Flexible Premium Deferred
Combination Variable and Fixed Annuity Contracts
issued by
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Englewood, Colorado 80111
Telephone:(800) 468-8661 (Outside Colorado)
(800) 547-4957 (Colorado)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a
Prospectus
and should be read
in conjunction with the Prospectus, dated November 1, 1996, which
is available without
charge by contacting the Schwab Annuity Service Center, P.O. Box
7785, San Francisco,
California 94120-9420 or at 1-800-838-0650.
November 1 , 1996
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .B-3
GREAT-WEST LIFE & ANNUITY
AND THE VARIABLE ANNUITY-1 SERIES ACCOUNT. . . . . . . . . .B-3
CALCULATION OF ANNUITY PAYMENTS. . . . . . . . . . . . . . . .B-3
POSTPONEMENT OF PAYMENTS . . . . . . . . . . . . . . . . . . .B-4
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . .B-4
- Safekeeping of Series Account Assets. . . . . . . . . .B-4
- Experts . . . . . . . . . . . . . . . . . . . . . . . .B-4
- Principal Underwriter . . . . . . . . . . . . . . . . .B-4
WITHHOLDING. . . . . . . . . . . . . . . . . . . . . . . . . .B-5
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH
MORTALITY AND EXPENSE RISK CHARGE. . . . . . . . . . . . . .B-5
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . .
.B- 6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .B-7
<PAGE>
GENERAL INFORMATION
In order to supplement the description in the Prospectus, the
following provides additional information
about the Contracts and other matters which may be of interest to
you. Terms used in this Statement of
Additional Information have the same meanings as are defined in the
Prospectus under the heading
"Definitions."
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE VARIABLE ANNUITY-1 SERIES ACCOUNT
Great-West Life & Annuity Insurance Company (the "Company"), the
issuer of the Contract, is a Colorado
corporation qualified to sell life insurance and annuity contracts
in Puerto Rico, the District of Columbia
and all states except New York. The Company is a wholly-owned
subsidiary of The Great-West Life
Assurance Company, a stock life insurance company incorporate under
the laws of Canada. The Great-
West Life Assurance Company is in turn 86.4% by Great-West Lifeco
Inc., a holding company. Great-West
Lifeco Inc. is owned 68.4% by Power Financial Corporation of
Canada, a financial services company.
Power Corporation of Canada, a holding and management company, has
voting control of Power
Financial Corporation of Canada. Mr. Paul Desmarais, through a
group of private holding companies,
which he controls, has voting control of Power Corporation of
Canada.
The assets allocated to the Series Account are the exclusive
property of the Company.
Registration of the Series Account under the Investment Company Act
of 1904 does not involve
supervision of the management or investment practices or policies
of the Series Account or of the
Company by the Securities and Exchange Commission. The Company may
accumulate in the Series
Account proceeds from charges under the Contracts and other amounts
in excess of the Series Account
assets representing reserves and liabilities under the Contract and
other variable annuity contracts issued
by the Company. The Company may from time to time transfer to its
general account any of such excess
amounts. Under certain remote circumstances, the assets of one
Investment Division may not be
insulated from liability associated with another Investment
Division
Best's Insurance Reports, Life-Health Edition 1995,
assigned
the Company its highest financial
strength and operating performance rating of A++. Duff & Phelps
Corporation has assigned the
Company their highest claims paying ability rating of AAA.
Standard & Poor's Corporation has assigned
the Company its second highest rating of AA+ for claims paying
ability. Moody's Investors Service has
assigned the Company an insurance and financial strength rating of
Aa2.
CALCULATION OF ANNUITY PAYMENTS
A. Fixed Annuity Options
The amount of each annuity payment under a fixed annuity
option is fixed and guaranteed
by the Company. On the Payment Commencement Date, the Annuity
Account Value held in the Fixed
Sub-Account(s), with a Market Value Adjustment, if applicable, less
Premium Tax, if any, is computed and
that portion of the Annuity Account Value which will be applied to
the fixed annuity option selected is
determined. The amount of the first monthly payment under the
fixed annuity option selected will be at
least as large as would result from using the annuity tables
contained in the Contract to apply to the
annuity option selected. The dollar amounts of any fixed annuity
payments will not vary during the entire
period of annuity payments and are determined according to the
provisions of the annuity option selected.
<PAGE>
B. Variable Annuity Options
To the extent a variable annuity option has been
selected, the Company converts the
Accumulation Units for each of the Owner's Variable Sub-Accounts
into Annuity Units for each Variable
Sub-Account at their values determined as of the end of the
Valuation Period which contains the Payment
Commencement Date. The number of Annuity Units paid for each
Variable Sub-Account is determined
by dividing the amount of the first monthly payment by the
sub-account's Annuity Unit Value on the fifth
Valuation Date preceding the date the first payment is due. The
number of Annuity Units used to
calculate each payment for a Variable Sub-Account remains fixed
during the annuity payment period.
The first payment under a variable annuity payment option
will be based on the value of
each Variable Sub-Account on the fifth Valuation Date preceding the
Payment Commencement Date. It
will be determined by applying the appropriate rate to the amount
applied under the Payment Option.
Payments after the first will vary depending upon the investment
experience of the Variable Sub-Accounts.
The subsequent amount paid from each sub-account is determined by
multiplying (a) by (b) where (a)
is the number of sub-account Annuity Units to be paid and (b) is
the sub-account Annuity Unit value on
the fifth Valuation Date preceding the date the annuity payment is
due. The total amount of each Variable
Annuity Payment will be the sum of the Variable Annuity Payments
for each Variable Sub-Account.
POSTPONEMENT OF PAYMENTS
With respect to amounts allocated to the Series Account,
payment of any amount due
upon a total or partial surrender, death or under an annuity option
will ordinarily be made within seven
days after all documents required for such payment are received by
the Schwab Annuity Service Center.
However, the determination, application or payment of any death
benefit, Transfer, full surrender, partial
withdrawal or annuity payment may be deferred to the extent
dependent on Accumulation or Annuity Unit
Values, for any period during which the New York Stock Exchange is
closed (other than customary
weekend and holiday closings) or trading on the New York Stock
Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during
which any emergency exists as a
result of which it is not reasonably practicable for the Company to
determine the investment experience,
of such Accumulation or Annuity Units or for such other periods as
the Securities and Exchange
Commission may by order permit for the protection of investors.
SERVICES
A. Safekeeping of Series Account Assets
The assets of Variable Annuity-1 Series Account (the
"Series Account") are held by Great-
West Life & Annuity Insurance Company ("GWL&A"). The assets of the
Series Account are kept physically
segregated and held separate and apart from the general account of
GWL&A. GWL&A maintains records
of all purchases and redemptions of shares of the underlying funds.
Additional protection for the assets
of the Series Account is afforded by blanket fidelity bonds issued
to The Great-West Life Assurance
Company in the amount of $25 million, which covers all officers and
employees of GWL&A.
B. Experts
The accounting firm of Deloitte & Touche LLP performs
certain accounting and auditing
services for GWL&A and the Series Account. The principal business
address of Deloitte & Touche LLP
is 555 Seventeenth Street, Suite 3600, Denver, Colorado 80202.
The consolidated financial statements of GWL&A at
December 31, 1995, 1994 and 1993
for each of the three years in the period ended December 31, 1995,
included in the prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as set
forth in their report appearing therein and
are included in reliance upon such report given upon the authority
of such firm as experts in accounting
and auditing.
C. Principal Underwriter
The offering of the Contracts is made on a continuous basis by
Charles Schwab & Co., Inc.
("Schwab"). Schwab is a California corporation and is a member of
the National Association of Securities
Dealers ("NASD"). The Company does not anticipate discontinuing
the offering of the Contract, although
it reserves the right to do so. The Contract generally will be
issued for Annuitants from birth to age ninety.
WITHHOLDING
Annuity payments and other amounts received under the
Contract are subject to income
tax withholding unless the recipient elects not to have taxes
withheld. The amounts withheld will vary
among recipients depending on the tax status of the individual and
the type of payments from which taxes
are withheld.
Notwithstanding the recipient's election, withholding may
be required with respect to
certain payments to be delivered outside the United States and,
with respect to certain distributions from
certain types of qualified retirement plans, unless the proceeds
are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may
require the Company to disregard the
recipient's election if the recipient fails to supply the Company
with a "TIN" or taxpayer identification
number (social security number for individuals), or if the Internal
Revenue Service notifies the Company
that the TIN provided by the recipient is incorrect.
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH
MORTALITY AND EXPENSE RISK CHARGE
The Company and Schwab have applied for exemptive relief
from the Securities and
Exchange Commission in connection with deducting the mortality and
expense risk charge pursuant to
the Contract. In the application for the exemption, the Company
and Schwab have represented and
undertaken, among other things, that:
(1) The level of the mortality and expense risk charge is
within the range of industry practice
for comparable annuity contracts;
(2) This conclusion is based upon a review conducted of
publicly-available information
regarding annuity contracts of other companies maintained
by the Company at its
principal office, and the Company will make available on
request to the Securities and
Exchange Commission or its staff, a memorandum setting
forth the variable annuity
products analyzed in the methodology and results of the
comparative review; and
(3) There is a reasonable likelihood that the proposed
distribution financing arrangements
with respect to the Contract will benefit the Series
Account and investors in the Contract,
and the basis for this conclusion is set forth in a
memorandum which will be maintained
by the Company at its principal office and will be
available to the Securities and Exchange
Commission or its staff on request.
<PAGE>
CALCULATION OF PERFORMANCE DATA
A. Yield and Effective Yield Quotations for the Money Market
Investment Division
The yield quotation for the Money Market Investment Division
will be for the seven-day period and
is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical
pre-existing account having a balance of one Accumulation Unit in
the Money Market Investment Division
at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from Participant
accounts, and dividing the difference by the value of the account
at the beginning of the base period to
obtain the base period return, and then multiplying the base period
return by (365/7) with the resulting
yield figure carried to the nearest hundredth of one percent.
The effective yield quotation for the Money Market Investment
Division will be for the seven-day
period and is carried to the nearest hundredth of one percent,
computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one
Accumulation Unit in the Money Market Investment Division at the
beginning of the period, subtracting
a hypothetical charge reflecting deductions from Participant
accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain
the base period return, and then
compounding the base period return by adding 1, raising the sum to
a power equal to 365 divided by 7,
and subtracting 1 from the result, according to the following
formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN +1 365/7]-1.
For purposes of the yield and effective yield computations,
the hypothetical charge reflects all
deductions that are charged to all Participant accounts in
proportion to the length of the base period, and
for any fees that vary with the size of the account, the account
size is assumed to be the Money Market
Investment Division's mean account size. The specific percentage
applicable to a particular withdrawal
would depend on a number of factors including the length of time
the Contract Owner has participated
under the Contracts. (See "Charges and Deductions" on page 17 of
the Prospectus.) No deductions or
sales loads are assessed upon annuitization under the Contracts.
Realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of
the Money Market Investment Division
and the Fund are excluded from the calculation of yield.
B. Total Return and Yield Quotations for All Investment Divisions
(Other than Money Market)
The total return quotations for all Investment Divisions,
other than the Money Market, will be
average annual total return quotations for the one-year period.
The quotations are computed by finding
the average annual compounded rates of return over the relevant
periods that would equate the initial
amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where:P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV =ending redeemable value of a hypothetical
$1,000 payment made at the
beginning of the particular period at the end
of the particular period
For purposes of the total return quotations for these Investment
Divisions, the calculations take into effect
all fees that are charged to the Contract Value , and for any fees
that vary with the size of the account,
the account size is assumed to be the respective Investment
Divisions' mean account size. The
calculations also assume a complete redemption as of the end of the
particular period.
The yield quotations for these Investment Divisions set forth
in the Prospectus are based on the
thirty-day period ended on December 31, 1994, and are computed by
dividing the net investment income
per Accumulation Unit earned during the period by the maximum
offering price per unit on the last day
of the period, according to the following formula:
YIELD = 2[((a-b)cd +1)6 -1]
Where:a = net investment income earned during the period by
the corresponding portfolio
of the Fund attributable to shares owned by the
Investment Division.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units
outstanding during the
period.
d = the maximum offering price per Accumulation
Unit on the last day of the
period.
For purposes of the yield quotations for these Investment
Divisions, the calculations take into effect all fees
that are charged to the Contract Value, and for any fees that vary
with the size of the account, the
account size is assumed to be the respective Investment Divisions'
mean account size.
FINANCIAL STATEMENTS
The consolidated financial statements of GWL&A as contained in
the prospectus should be
considered only as bearing upon GWL&A's ability to meet its
obligations under the Contracts, and they
should not be considered as bearing on the investment performance
of the Series Account. The interest
of Contract Owners under the Contracts are affected solely by the
investment results of the Series
Account. This Statement of Additional Information contains no
financial statements for the Series Account
because the Series Account has not yet commenced operations, has no
assets or liabilities, and have
received no income nor incurred any expenses as of the date of this
Statement of Additional Information.
<PAGE>
PART C
OTHER INFORMATION
Item 24.Financial Statements and Exhibits
(a) Financial Statements
The financial statements for Great-West Life & Annuity
Insurance
Company for the years ended December 31,
1995, 1994 and 1993 and unaudited financial statements for the
period ended September 30, 1996 are included in the
prospectus.
(b) Exhibits
(1) Certified copy of resolution of Board of Directors or
Depositor establishing Registrant is
incorporated by reference to Registrant's Registration
Statement.
(2) Not applicable.
(3) Copy of distribution contract between Depositor and
Principal Underwriter to be filed by amendment
is attached as Exhibit 3.
(4) Copy of the form of the variable annuity contract is
incorporated by reference to Registrant's Pre-
Effective Amendment No. 1.
(5) Copy of the form of application to be used with the
variable annuity contract provided pursuant to
(4) is incorporated by reference to Registrant's
Pre-Effective Amendment No. 1.
(6) Copy of Articles of Incorporation and Bylaws of
Depositor is attached as Exhibits 6.a. and 6.b.
respectively.
(7) Not applicable.
(8) Copies of participation agreements with underlying
funds are attached as Exhibit 11.
(9) Opinion of counsel and consent of Ruth B. Lurie, Vice
President, Counsel and Associate Secretary
incorporated by referenced to Registrant's Registration
Statement.
(10) (a) Written Consent of Jorden Burt Berenson & Johnson
LLP incorporated by reference
to Registrant's Registration Statement.
(b) Written Consent of Deloitte & Touche LLP is attached as
Exhibit 10b.
(c) Written Consent of Ruth B. Lurie is incorporated by
reference to Registrant's Registration
Statement.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for computation of each performance quotation
provided in response to Item 21 is
incorporated by reference to Registrant's Registration
Statement.
(14) Financial Data Schedule is attached as Exhibit
14.
Item 25.Directors and Officers of the Depositor
Position and
Offices
Name Principal Business Address with
Depositor
James Balog 2205 North Southwinds Boulevard Director
Vero Beach, Florida 39263
James W. Burns, O.C. (4) Director
Orest T. Dackow (3) Director
Paul Desmarais, Jr. (4) Director
Robert G. Graham 574 Spoonbill Drive Director
Sarasota, Florida 34236
Robert Gratton (5) Chairman
N. Berne Hart 2552 East Alameda Avenue, #99 Director
Denver, Colorado 80209
Kevin P. Kavanagh (1) Director
William Mackness 61 Waterloo Street Director
Winnipeg, Manitoba R3N 0S3
William T. McCallum (3) Director,
President
and
Chief
Executive
Officer
Jerry E.A. Nickerson H.B. Nickerson & Sons Limited Director
P.O. Box 130
275 Commercial Street
North Sydney, Nova Scotia B2A 3M2
P. Michael Pitfield, P.C., Q.C. (4) Director
Michel Plessis-Belair, F.C.A. (4) Director
Ross J. Turner Genstar Investment Corporation Director
950 Tower Lane
Metro Tower, Suite 1170
Foster City, California 94404
Brian E. Walsh Trinity L.P. Director
115 East Putnam Avenue
Greenwich, Connecticut 06830
Glen Derback (3) Vice
President,
Financial
Control
and
Controller
John T. Hughes (3) Senior
Vice-President,
Chief
Investment
Officer
D. Craig Lennox (3) Senior
Vice-President,
General Counsel and
Secretary
Dennis Low (3) Executive
Vice-President,
Financial Services
Alan D. MacLennan (2) Executive
Vice-President,
Employee Benefits
James D. Motz (2) Senior
Vice-President,
Employee Benefits
Operations
Douglas L. Wooden (3) Senior
Vice-President,
Financial Services
______________________________________
(1) 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C
3A5.
(2) 8505 East Orchard Road, Englewood, Colorado 80111.
(3) 8515 East Orchard Road, Englewood, Colorado 80111.
(4) Power Corporation of Canada, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3.
(5) Power Financial Corporation, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3.
Item 26.Persons controlled by or under common control with the
Depositor or Registrant
See attached organizational chart.
Item 27.Number of Contractowners
Not applicable.
<PAGE>
ORGANIZATIONAL CHART
Power Corporation of Canada
100% - 171263 Canada Inc.
68.8% - Power Financial Corporation
86.4% - Great-West Lifeco Inc.
99.4% - The Great-West Life Assurance Company
100% - Great-West Life & Annuity Insurance Company
100% - GW Capital Management, Inc.
100% - Financial Administrative Services Corporation
100% - One Corporation
100% - One Health Plan of Illinois, Inc.
100% - One Health Plan of Texas, Inc.
100% - One Health Plan of California, Inc.
100% - One Health Plan of Colorado, Inc.
100% - One Health Plan of Georgia, Inc.
100% - One Orchard Equities, Inc.
100% - Great-West Benefit Services, Inc.
13% - Private Healthcare Systems, Inc.
100% - Benefits Communication Corporation
100% - BenefitsCorp Equities, Inc.
94% - Maxim Series Fund, Inc.
100% - GWL Properties Inc.
100% - Great-West Realty Investments Inc.
50% - Westkin Properties Ltd.
100% - Confed Admin Services, Inc.
Item 28.Indemnification
Provisions exist under the Colorado Business Corporation Act
and the Bylaws of GWL&A whereby
GWL&A may indemnify a director, officer, or controlling person of
GWL&A against liabilities arising under the
Securities Act of 1933. The following excerpts contain the
substance of these provisions:
Colorado Business Corporation Act
Article 109 - INDEMNIFICATION
Section 7-109-101. Definitions.
As used in this Article:
(1) "Corporation" includes any domestic or foreign entity
that is a predecessor of the corporation
by reason of a merger, consolidation, or other transaction
in which the predecessor's existence ceased
upon consummation of the transaction.
(2) "Director" means an individual who is or was a director
of a corporation or an individual who,
while a director of a corporation, is or was serving at the
corporation's request as a director, officer,
partner, trustee, employee, fiduciary or agent of another
domestic or foreign corporation or other person
or employee benefit plan. A director is considered to be
serving an employee benefit plan at the
corporation's request if his or her duties to the
corporation also impose duties on or otherwise involve
services by, the director to the plan or to participants in
or beneficiaries of the plan.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect
to a proceeding to pay a judgment,
settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity" means, when used with respect to a
director, the office of director in the
corporation and, when used with respect to a person other
than a director as contemplated in Section
7-109-107, means the office in the corporation held by the
officer or the employment, fiduciary, or agency
relationship undertaken by the employee, fiduciary, or agent
on behalf of the corporation. "Official
capacity" does not include service for any other domestic or
foreign corporation or other person or
employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened
to be made a named defendant or
respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and
whether formal or informal.
Section 7-109-102. Authority to indemnify directors.
(1) Except as provided in subsection (4) of this section,
a corporation may indemnify a person made
a party to the proceeding because the person is or was a
director against liability incurred in any
proceeding if:
(a) The person conducted himself or herself in good
faith;
(b) The person reasonably believed:
(I) In the case of conduct in an official
capacity with the corporation, that his or
her conduct was in the corporation's best
interests; or
(II) In all other cases, that his or her conduct
was at least not opposed to the
corporation's best interests; and
(c) In the case of any criminal proceeding, the person
had no reasonable cause to believe
his or her conduct was unlawful.
(2) A director's conduct with respect to an employee
benefit plan for a purpose the director
reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that
satisfies the requirements of subparagraph (II) of paragraph
(b) of subsection (1) of this section. A
director's conduct with respect to an employee benefit plan
for a purpose that the director did not
reasonably believe to be in the interests of the
participants in or beneficiaries of the plan shall be deemed
not to satisfy the requirements of subparagraph (a) of
subsection (1) of this section.
(3) The termination of any proceeding by judgment, order,
settlement, or conviction, or upon a plea
of nolo contendere or its equivalent, is not, of itself,
determinative that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right
of the corporation in which the
director was adjudged liable to the corporation; or
(b) In connection with any proceeding charging that
the director derived an improper
personal benefit, whether or not involving action in
his official capacity, in which proceeding the
director was adjudged liable on the basis that he or
she derived an improper personal benefit.
(5) Indemnification permitted under this section in
connection with a proceeding by or in the right
of a corporation is limited to reasonable expenses incurred
in connection with the proceeding.
Section 7-109-103. Mandatory Indemnification of Directors.
Unless limited by the articles of incorporation, a
corporation shall be required to indemnify a
person who is or was a director of the corporation and who
was wholly successful, on the merits or
otherwise, in defense of any proceeding to which he was a
party, against reasonable expenses incurred
by him in connection with the proceeding.
Section 7-109-104. Advance of Expenses to Directors.
(1) A corporation may pay for or reimburse the reasonable
expenses incurred by a director who is
a party to a proceeding in advance of the final disposition
of the proceeding if:
(a) The director furnishes the corporation a written
affirmation of his good-faith belief that
he has met the standard of conduct described in Section
7-109-102;
(b) The director furnishes the corporation a written
undertaking, executed personally or on
the director's behalf, to repay the advance if it is
ultimately determined that he or she did not
meet such standard of conduct; and
(c) A determination is made that the facts then known
to those making the determination
would not preclude indemnification under this article.
(2) The undertaking required by paragraph (b) of subsection
(1) of this section shall be an unlimited
general obligation of the director, but need not be secured
and may be accepted without reference to
financial ability to make repayment.
(3) Determinations and authorizations of payments under
this section shall be made in the manner
specified in Section 7-109-106.
Section 7-109-105. Court-Ordered Indemnification of Directors.
(1) Unless otherwise provided in the articles of
incorporation, a director who is or was a party to
a proceeding may apply for indemnification to the court
conducting the proceeding or to another court
of competent jurisdiction. On receipt of an application,
the court, after giving any notice the court
considers necessary, may order indemnification in the
following manner:
(a) If it determines the director is entitled to
mandatory indemnification under section 7-
109-103, the court shall order indemnification, in
which case the court shall also order the
corporation to pay the director's reasonable expenses
incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and
reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not
the director met the standard of conduct
set forth in section 7-109-102 (1) or was adjudged
liable in the circumstances described in Section
7-109-102 (4), the court may order such indemnification
as the court deems proper; except that
the indemnification with respect to any proceeding in
which liability shall have been adjudged
in the circumstances described Section 7-109-102 (4) is
limited to reasonable expenses incurred
in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered
indemnification.
Section 7-109-106. Determination and Authorization of
Indemnification of Directors.
(1) A corporation may not indemnify a director under
Section 7-109-102 unless authorized in the
specific case after a determination has been made that
indemnification of the director is permissible in
the circumstances because he has met the standard of conduct
set forth in Section 7-109-102. A
corporation shall not advance expenses to a director under
Section 7-109-104 unless authorized in the
specific case after the written affirmation and undertaking
required by Section 7-109-104(1)(a) and (1)(b)
are received and the determination required by Section
7-109-104(1)(c) has been made.
(2) The determinations required to be made under subsection
(1) of this section shall be made:
(a) By the board of directors by a majority vote of
those present at a meeting at which a
quorum is present, and only those directors not parties
to the proceeding shall be counted in
satisfying the quorum.
(b) If a quorum cannot be obtained, by a majority vote
of a committee of the board of
directors designated by the board of directors, which
committee shall consist of two or more
directors not parties to the proceeding; except that
directors who are parties to the proceeding
may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in
paragraph (a) of subsection (2) of this
section, and the committee cannot be established under
paragraph (b) of subsection (2) of this section,
or even if a quorum is obtained or a committee designated,
if a majority of the directors constituting such
quorum or such committee so directs, the determination
required to be made by subsection (1) of this
section shall be made:
(a) By independent legal counsel selected by a vote of
the board of directors or the
committee in the manner specified in paragraph (a) or
(b) of subsection (2) of this section or,
if a quorum of the full board cannot be obtained and a
committee cannot be established, by
independent legal counsel selected by a majority vote
of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made
in the same manner as the determination that indemnification
is permissible; except that, if the
determination that indemnification is permissible is made by
independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the
body that selected such counsel.
Section 7-109-107. Indemnification of Officers, Employees,
Fiduciaries, and Agents.
(1) Unless otherwise provided in the articles of
incorporation:
(a) An officer is entitled to mandatory
indemnification under section 7-109-103, and is
entitled to apply for court-ordered indemnification
under section 7-109-105, in each case to the
same extent as a director;
(b) A corporation may indemnify and advance expenses
to an officer, employee, fiduciary,
or agent of the corporation to the same extent as a
director; and
(c) A corporation may indemnify and advance expenses
to an officer, employee, fiduciary,
or agent who is not a director to a greater extent, if
not inconsistent with public policy, and if
provided for by its bylaws, general or specific action
of its board of directors or shareholders, or
contract.
Section 7-109-108. Insurance.
A corporation may purchase and maintain insurance on
behalf of a person who is or was a
director, officer, employee, fiduciary, or agent of the
corporation and who, while a director, officer,
employee, fiduciary, or agent of the corporation, is or was
serving at the request of the corporation as
a director, officer, partner, trustee, employee, fiduciary,
or agent of any other domestic or foreign
corporation or other person or of an employee benefit plan
against any liability asserted against or
incurred by the person in that capacity or arising out of
his or her status as a director, officer, employee,
fiduciary, or agent whether or not the corporation would
have the power to indemnify the person against
such liability under the Section 7-109-102, 7-109-103 or
7-109-107. Any such insurance may be procured
from any insurance company designated by the board of
directors, whether such insurance company is
formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including
any insurance company in which the corporation has an equity
or any other interest through stock
ownership or otherwise.
Section 7-109-109. Limitation of Indemnification of Directors.
(1) A provision concerning a corporation's indemnification
of, or advance of expenses to, directors
that is contained in its articles of incorporation or
bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except for an insurance
policy or otherwise, is valid only to the extent the
provision is not inconsistent with Sections 7-109-101 to
7-109-108. If the articles of incorporation limit
indemnification or advance of expenses, indemnification or
advance of expenses are valid only to the
extent not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a
corporation's power to pay or reimburse expenses
incurred by a director in connection with an appearance as
a witness in a proceeding at a time when he
or she has not been made a named defendant or respondent in
the proceeding.
Section 7-109-110. Notice to Shareholders of Indemnification of
Director.
If a corporation indemnifies or advances expenses to a
director under this article in connection
with a proceeding by or in the right of the corporation, the
corporation shall give written notice of the
indemnification or advance to the shareholders with or
before the notice of the next shareholders'
meeting. If the next shareholder action is taken without a
meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at
or before the time the first shareholder signs
a writing consenting to such action.
Bylaws of GWL&A
Article II, Section 11. Indemnification of Directors.
The Company may, by resolution of the Board of
Directors, indemnify and save harmless out of
the funds of the Company to the extent permitted by
applicable law, any director, officer, or employee
of the Company or any member or officer of any committee,
and his heirs, executors and administrators,
from and against all claims, liabilities, costs, charges and
expenses whatsoever that any such director,
officer, employee or any such member or officer sustains or
incurs in or about any action, suit, or
proceeding that is brought, commenced, or prosecuted against
him for or in respect of any act, deed,
matter or thing whatsoever made, done, or permitted by him
in or about the execution of his duties of
his office or employment with the Company, in or about the
execution of his duties as a director or
officer of another company which he so serves at the request
and on behalf of the Company, or in or
about the execution of his duties as a member or officer of
any such Committee, and all other claims,
liabilities, costs, charges and expenses that he sustains or
incurs, in or about or in relation to any such
duties or the affairs of the Company, the affairs of such
Committee, except such claims, liabilities, costs,
charges or expenses as are occasioned by his own wilful
neglect or default. The Company may, by
resolution of the Board of Directors, indemnify and save
harmless out of the funds of the Company to
the extent permitted by applicable law, any director,
officer, or employee of any subsidiary corporation
of the Company on the same basis, and within the same
constraints as, described in the preceding
sentence.
Item 29.Principal Underwriter
(a) Charles Schwab & Co., Inc. ("Schwab") is the
distributor of securities of the Registrant.
(b) Directors and Officers of Schwab
Position and Offices
Name Principal Business Address with Underwriter
Charles R. Schwab (1) Chairman and
Director
David S. Pottruck (1) President and Chief
Executive Officer
and Director
Steven L. Scheid (1) Executive Vice
President and
Chief Financial
Officer and Director
Tom D. Seip (1) Executive Vice
President -
Retail
John P. Coghlan (1) Executive Vice
President,
Schwab
Institutional
Lon Gorman (1) Executive Vice
President and
President, Schwab
Capital
Markets and
Trading
Daniel O. Leemon (1) Executive Vice
President
Business Strategy
Dawn G. Lepore (1) Executive Vice
President, and
Chief Information
Officer
Timothy F. McCarthy (1) Executive Vice
President -
Mutual Funds
Elizabeth G. Sawi (1) Executive Vice
President -
Electronic
Brokerage
Richard Tinervin (1) Executive Vice
President -
Retirement
Services
Luis E. Valencia (1) Executive Vice
President -
Human Resources
and
Corporate Support
Suzanne D. Lyons (1) Executive Vice
President -
Active Trader
Karen Chang (1) Executive Vice
President -
Head of Branches
William J. Klipp (1) Executive Vice
President -
SchwabFunds
Peter J. McIntosh (1) Executive Vice
President -
Brokerage
Operations and
National Investor
Services
Parkash P. Ahuja (1) Senior Vice
President-
Administrative
Services
Rhet Andrews (1) Senior Vice
President -
Schwab
Institutional
Trading
and Operations
William S. Baughman (1) Senior Vice
President -
Strategic
Planning
Rochelle A. Bays (1) Senior Vice
President -
CM & T Support
Services
Michelle B. Blieberg (1) Senior Vice
President -
HR Support
Services
Reid P. Conklin (1) Senior Vice
President -
Southeast Group
John Danton (1) Senior Vice
President and
Chief Financial
Officer, Retail
Martha J. Deevy (1) Senior Vice
President -
SITE Specialized
Services
Evelyn S. Dilsaver (1) Senior Vice
President
and Controller
Christopher V. Dodds (1) Senior Vice
President
and Treasurer
Sidney J. Dorr (1) Senior Vice
President -
Preferred
Execution
Services
Wayne W. Fieldsa (1) Senior Vice
President -
Securities
Operations
<PAGE>
Therese Haberle (1) Senior Vice
President -
Compliance
James M. Hackley (1) Senior Vice
President -
Active Trader
Gerry L. Hansen (1) Senior Vice
President -
Finance
Barbara R. Heinrich (1) Senior Vice
President -
Fixed Income
Jan K. Hier-King (1) Senior Vice
President -
SAMS Integration
and Planning
Colleen M. Hummer (1) Senior Vice
President -
Mutual Fund
Operations
Michael S. Knight (1) Senior Vice
President -
Midwest Group
Gloria J. Lau (1) Senior Vice
President -
Schwab
Institutional
Marketing
Thomas N. Lawrie (1) Senior Vice
President -
Customer Service
and Operations
James G. Losi (1) Senior Vice
President and
Chief
Administrative
Officer -
Retail Enterprise
Jeffrey M. Lyons (1) Senior Vice
President -
Affluent Segment
Elinor MacKinnon (1) Senior Vice
President -
Business Systems
Frederick F. Matteson (1) Senior Vice
President -
SITE Operations
and
Infrastructure
John McGonigle (1) Senior Vice
President -
Fund Relations
Kenneth W. Perlman (1) Senior Vice
President -
Capital Markets
& Trading -
Regulatory
Division
Earlene Perry (1) Senior Vice
President -
Retail Operations
John J. Phillips (1) Senior Vice
President -
Human Resources
Hugo W. Quackenbush (1) Senior Vice
President -
Corporate
Communications
Edward M. Rodden (1) Senior Vice
President -
Strategic
Planning
Myra Rothfield (1) Senior Vice
President -
Customer
Development and
Retention
Louise J. Rothman (1) Senior Vice
President -
Compensation and
Benefits
Harvey A. Rowen (1) Senior Vice
President -
Charles Schwab
Trust Company
Gideon Sasson (1) Senior Vice
President -
Electronic
Brokerage
Solutions
Arthur V. Shaw (1) Senior Vice
President -
Customer
Technology,
Information
and New Product
Development
Leonard Short (1) Senior Vice
President -
CRS Advertising,
Customer
Acquisition and
Brand Management
Betsy Snow (1) Senior Vice
President -
ISD Technical
Operations
Scott C. Steward (1) Senior Vice
President -
Brand Management
Ray Straka (1) Senior Vice
President -
Finance &
Corporate
Administration
Technology
Support
Michelle Swenson (1) Senior Vice
President -
SchwabFunds
Marketing/
New Product
Development
Mary B. Templeton (1) Senior Vice
President -
General Counsel
& Corporate
Secretary
Mark C. Thompson (1) Senior Vice
President -
Corporate
Communications
Cynthia K. Holbrook (1) Assistant Corporate
Secretary
______________________________________
(1) 101 Montgomery, San Francisco, California 94104.
(c) Commissions and other compensation received by
Principal Underwriter during registrant's last fiscal
year:
Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption
CommissionsCompensation
Schwab -0- -0- -0- -0-
Item 30.Location of Accounts and Records
All accounts, books, or other documents required to be
maintained by Section 31(a) of the 1940 Act and
the rules promulgated thereunder are maintained by the
registrant through GWL&A, 8515 E. Orchard
Road, Englewood, Colorado 80111.
Item 31.Management Services
Not Applicable.
Item 32.Undertakings
(a) Registrant undertakes to file a post-effective
amendment to this Registration Statement as
frequently as is necessary to ensure that the audited
financial statements in the Registration
Statement are never more than 16 months old for so long
as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of
any application to purchase a contract
offered by the Prospectus, a space that an applicant
can check to request a Statement of
Additional Information, or (2) a postcard or similar
written communication affixed to or included
in the Prospectus that the applicant can remove to send
for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of
Additional Information and any financial
statements required to be made available under this
form promptly upon written or oral request.
(d) Insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the
registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by the registrant of expenses
incurred or paid by a director, officer or
controlling person of the registrant in the successful
defense of any action, suit or proceeding)
is asserted by such director, officer or controlling
person in connection with the securities being
registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(e) GWL&A represents that the fees and charges deducted
under the Contracts, in the aggregate,
are reasonable in relation to the services rendered,
the expenses to be incurred, and the risks
assumed by GWL&A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-4 to be signed on its behalf, in the City of Englewood,
State of Colorado, on this 28th day of October , 1996.
VARIABLE ANNUITY-1 SERIES ACCOUNT
(Registrant)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer of
Great-West Life & Annuity
Insurance Company
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with Great-West Life & Annuity Insurance Company and on
the dates indicated:
Signature and Title Date
/s/ R. Gratton* 10/28 , 1996
Director and Chairman of the
Board (Robert Gratton)
/s/ W.T. McCallum 10/28 , 1996
Director, President and Chief Executive
Officer (William T. McCallum)
Signature and Title Date
/s/ G.R. Derback 10/28 , 1996
Controller
(Glen R. Derback)
/s/ J. Balog* 10/28 , 1996
Director, (James Balog)
/s/ J.W. Burns* 10/28 , 1996
Director, (James W. Burns)
/s/ O.T. Dackow* 10/28 , 1996
Director (Orest T. Dackow)
/s/ P. Desmarais, Jr.* 10/28 , 1996
Director (Paul Desmarais, Jr.)
/s/ R.G. Graham* 10/28 , 1996
Director (Robert G. Graham)
/s/ N.B. Hart* 10/28 , 1996
Director (N. Berne Hart)
/s/ K.P. Kavanagh* 10/28 , 1996
Director (Kevin P. Kavanagh)
/s/ W. Mackness* 10/28 , 1996
Director (William Mackness)
<PAGE>
Signature and Title Date
/s/ J.E.A. Nickerson* 10/28 , 1996
Director (Jerry E.A. Nickerson)
/s/ P.M. Pitfield* 10/28 , 1996
Director (P. Michael Pitfield)
/s/ M. Plessis-Belair* 10/28 , 1996
Director (Michel Plessis-Belair)
/s/ R.J. Turner* 10/28 , 1996
Director (Ross J. Turner)
/s/ B.E. Walsh* 10/28 , 1996
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox 10/28 , 1996
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with th4
Registration Statement and Pre-Effective Amendment No. 1
thereto.
<PAGE>
Exhibit Table
Form N-4
Exhibit
1. Certified copy of resolution of Board
of Directors establishing Registrant 3
3. Copy of distribution contract between
Depositor and Principal Underwriter 1
4. Copy of the form of variable
annuity contract 2
5. Copy of the form of application to
be used with the variable contract 2
6. (a) Copy of Articles of Incorporation
of Depositor 1
(b) Copy of Bylaws of Depositor 1
8. Copies of participation agreements
with underlying funds 1
9. Opinion and consent of Ruth B. Lurie,
Vice President, Counsel and Associate
Secretary 3
10. (a) Consent of Jorden Burt Berenson &
Johnson LLP 3
(b) Consent of Deloitte & Touche LLP 1
(c) Consent of Ruth B. Lurie 3
13. Schedule for computation of each
performance quotation 3
14. Financial Data Schedule 1
1 Filed on October 29, 1996 with Amendment No. 2 to Registration
Statement.
2 Filed on August 2, 1996 with Amendment No. 1 to Registration
Statement and incorporated herein by
reference.
3 Filed on February 22, 1996 with Registration Statement and
incorporated herein by reference.
ARTICLES OF REDOMESTICATION
OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLE I
NAME
The name of the corporation is Great-West Life & Annuity Insurance
Company.
ARTICLE II
STATE OF ORIGINAL INCORPORATION
The corporation was originally incorporated as the
National Interment Association on March 28, 1907, in the State of
Kansas. The corporation was authorized to do business as an
insurance company in the State of Kansas on April 24, 1907. On
April 19, 1910, the name of the corporation was changed to the
National Industrial Insurance Company. On September 14, 1956, the
name of
the corporation was changed to Liberty Life & Casualty Company,
Inc. On February 15, 1963, the name of the corporation was changed
to Ranger National Life Insurance Company. On May 29, 1980, the
name of the corporation was changed to Insuramerica Corporation. On
April 6, 1982, the name of the corporation was changed to
Great-West Life & Annuity Insurance Company.
ARTICLE III
PERPETUAL DURATION
The corporation shall have perpetual duration.
ARTICLE IV
PURPOSES
A. The business of the corporation is serving as an
insurance company relating to life, accident, and health insurance
formerly under the laws of the State of Kansas and, upon
redomestication to Colorado, under the laws of the State of
Colorado.
B. The corporation shall have the power to issue both
participating and nonparticipating insurance policies.
C. The corporation may engage in any lawful act or activity
for which corporations may be organized under the Colorado
Corporation Code which are not in conflict with the laws of the
State of Colorado applicable to insurance companies or with the
Regulations of the Colorado Commissioner of Insurance.
D. The purpose for which the corporation is being
redomesticated is to carry on, under the laws of the State of
Colorado, the business for which it was incorporated under the laws
of the State of Kansas.
ARTICLE V
REGISTERED OFFICE AND REGISTERED AGENT
The registered office is at 8515 E. Orchard Road,
Englewood, Colorado 80111. The registered agent is Ruth B. Lurie at
said address.
ARTICLE VI
NAMES AND ADDRESSES OF DIRECTORS AND OFFICERS
The following persons shall serve as the directors on the
date
of the redomestication of the corporation.
Frank J. Becker `
2818 West Central
El Dorado, Kansas 67042
Martin B. Dickinson, Jr.
1211 Massachusetts
Lawrence, Kansas 66044
George R. Dinney
2232 Ridge Plaza
Castle Rock, Colorado 80104
Dawn H. Grohs
225 N. Market, Suite 200
Wichita, Kansas 67201
Nelson L. Hartman
520 West 27th
Topeka, Kansas 66601
Kevin P. Kavanagh
100 Osborne North
Winnipeg, Manitoba
Canada R3C 3A5
2
William T. McCallum
8515 E. Orchard Road
Englewood, Colorado 80111
The following persons shall serve as officers on the date
of
the redomestication of the corporation.
William T. McCallum
President and Chief Executive Officer
8515 E. Orchard Road
Englewood, Colorado 80111
David E. Morrison
Senior Vice President and Actuary
100 Osborne North
Winnipeg, Manitoba,
Canada R3C 3A5
Glen R. Derback
Senior Vice President and Treasurer
8515 E. Orchard Road
Englewood, Colorado 80111
John T. Hughes
Sr. V.P., Chief Investment Officer
8515 E. Orchard Road
Englewood, Colorado 80111
D. Craig Lennox
Sr. V. P., General Counsel and Secretary
100 Osborne Street North
Winnipeg, Manitoba,
Canada R3C 3A5
Dennis Low
Senior Vice President, Individual
8515 E. Orchard Road
Englewood, Colorado 80111
Graham R. McDonald
Senior Vice President
8505 E. Orchard Road
Englewood, Colorado 80111
Edward J. Ransby
Senior Vice President, Capital Markets
& Pension Investments
100 Osborne Street North
Winnipeg, Manitoba
Canada R3C 3A5
ARTICLE VII
CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
Cumulative voting is not allowed in the election of Directors.
3
ARTICLE VIII
PREEMPTIVE RIGHTS FOR SHAREHOLDERS
Ownership of shares of any class of the capital stock of
the
corporation shall not entitle the holders thereof to any preemptive
right to subscribe for or purchase or to have offered to them for
subscription or purchase any additional shares of capital stock of
any class of the corporation or any securities convertible into any
class of capital stock of the corporation, however acquired,
issued, or sold by the corporation, it being the purpose and the
intent that the Board of Directors shall have full right, power,
and authority to offer for subscription or sale or to make any
disposal of any or all unissued shares of the capital stock of the
corporation or any securities convertible into stock or any or all
shares of stock or convertible securities issued and thereafter
acquired by the corporation, for such consideration, not less than
the par value of shares having a par value, in money or property,
as the Board of Directors shall determine.
ARTICLE IX
AUTHORIZED CAPITAL STOCK
The corporation is authorized to issue 5,000,000 shares of
common stock of a par value of $1 (one dollar) per share.
ARTICLE X
PERSONAL LIABILITY OF DIRECTORS
No director of this corporation shall have any personal
liability for monetary damages to the corporation or its
shareholders for breach of his/her fiduciary duty as a director
except that this provision shall not eliminate or limit the
liability of a director to the corporation or its shareholders for
monetary damages for (i) any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of a dividend or
approval of a stock repurchase in contravention of C.R.S. Section 7-5-
114, or (iv) any transaction from which the director derives an
improper personal benefit.
ARTICLE XI
GOVERNING LAW
Upon redomestication of the corporation to the State of
Colorado, the corporation accepts and will be subject to the laws
of the State of Colorado.
4
ARTICLE XII
EFFECTIVE DATE, AMENDMENT AND RESTATEMENT
These Articles of Redomestication become effective
immediately
upon the redomestication of the corporation to the State of
Colorado. They thereafter constitute an amendment and restatement
of all prior Articles of Incorporation of Great West Life & Annuity
Insurance Company under the laws of the State of Kansas.
ARTICLE XIII
SIGNATURES
These Articles of Redomestication are executed on behalf
of
the corporation by its President and its Secretary as evidenced by
their signatures appearing below.
Dated: August 23. 1990
ATTEST:
D. Craig Lennox, Secretary
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
BY:
William T. McCallum, President
These Articles of Redomestication are verified by the
signatures of the President and Secretary of the Corporation as
provided in the Colorado Corporation Code.
RBL0745C. FIN
5
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corpora-
tion") hereby adopts the following Articles of Amendment to
its
Articles of Redomestication:
FIRST: the name of the Corporation is Great-West Life
& Annuity Insurance Company.
SECOND: the amendment set forth on Exhibit A attached
hereto was adopted by a vote of the sole shareholder of the
Corp-
oration on December 6, 1990. The number of shares voted for
the
Amendment was sufficient for approval.
THIRD: the amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corpo-
ration.
FOURTH: the amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: December 6, 1990 By:
William T. McCallum, its
Presi-
dent & Chief; Executive
Officer
By:
Craig Lennox, its Senior
Vice
President, General Counsel
and
Secretary
STATE OF COLORADO )
COUNTY OF ) ss.
Before me, , a notary
public, personally appeared William T. McCallum, who acknowledged
that he is the President and Chief Executive Officer of Great-
West Life & Annuity Insurance Company, a Colorado corporation,
and that he signed the foregoing Articles of Amendment to Arti-
cles of Redomestication as his voluntary act and deed, and that
the facts contained therein are true.
In witness whereof, I have hereunto set my hand and
seal this 6th day of December, 1990.
My commission expires:
2
l
Great-West Life & Annuity Insurance Company hereby
amends and restates ARTICLE IX of its Articles of
Redomestication
to read in its entirety as follows:
ARTICLE IX
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital
stock which the corporation is authorized to issue is
100,000,000
shares, of which 50,000,000 shares shall be Common Stock,
of a
par value of $1 (one dollar) per share (the "Common
Stock"), and
50,000,000 shares shall be Preferred Stock, of a par value
of $1
(one dollar) per share (the "Preferred Stock").
A. COMMON STOCK
The powers, designations, preferences and relative,
participating, optional or other special rights (and the
quali-
fications, limitations or restrictions thereof) in respect
of the
Common Stock are as follows:
1. Rank. The Common Stock shall rank junior to the
Preferred Stock with respect to payment of dividends and
distri-
butions on liquidation or dissolution and shall have such
other
qualifications, limitations or restrictions as provided in
this
Article IX.
2. Voting Rights. Except as otherwise expressly pro-
vided by law or as provided for any series of Preferred
Stock by
the board of directors of the corporation in accordance
with this
Article IX, all voting rights shall be vested in the
holders of
shares of the Common Stock, and at every meeting of
stockholders
of the corporation (or with respect to any action by
written
consent in lieu of a meeting of stockholders), each share
of
Common Stock shall be entitled to one vote (whether voted
in
person by the holder thereof or by proxy or pursuant to a
stock-
holders' consent) on all matters to come before such
meeting of
the stockholders of the corporation.
3. Dividend and Liquidation Preference as between the
Common Stock and the Preferred Stock. For so long as any
shares
of Preferred Stock are outstanding, the corporation shall
not
declare, pay or set apart for payment any dividend or other
distribution (other than any dividend or distribution
payable
solely in shares of Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to
dividends and liquidation) in respect of the Common Stock
or any
other stock of the corporation ranking junior to the shares
of
Preferred Stock as to dividends or upon liquidation, or
call for
redemption, redeem, purchase or otherwise acquire for
consider-
ation any shares of the Common Stock or any other stock of
the
corporation ranking junior to the shares of Preferred Stock as to
dividends or upon liquidation, unless (i) full cumulative
dividends on all shares of Preferred Stock for all past dividend
periods have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment of
such dividends, and (ii) the corporation has redeemed the full
number of shares of Preferred Stock, if any, it is then obligated
to redeem in accordance with the terms of any series of Preferred
Stock as fixed by the board of directors of the corporation in
accordance with this Article IX.
4. Assets Remaining After Liquidation. In the event
of the dissolution, liquidation or winding up of the corporation,
whether voluntary or involuntary, after payment in full of the
amounts, if any, required to be paid to the holders of the Pre-
ferred Stock, the holders of shares of the Common Stock shall be
entitled, to the exclusion of the holders of shares of the Pre-
ferred Stock, to share ratably in all remaining assets of the
corporation.
B. PREFERRED STOCK
1. The Preferred Stock may be divided into and issued
in series. The board of directors of the corporation is autho-
rized to divide the authorized shares of Preferred Stock into one
or more series, each of which shall be so designated as to dis-
tinguish the shares thereof from the shares of all other series
and classes. The board of directors of the corporation is
authorized, within any limitations prescribed by law and this
Article IX, to fix and determine the designations, rights, quali-
fications, preferences, limitations and terms of the shares of
any series of Preferred Stock including but not limited to the
following:
(a) The rate of dividend, the time of payment of
dividends, whether dividends are cumulative, and the date
from which any dividends shall accrue;
(b) Whether shares may be redeemed, and, if so, the
redemption price and the terms and conditions of redemption;
(c) The amount payable upon shares in event of invol-
untary liquidation;
(d) The amount payable upon shares in event of volun-
tary liquidation;
(e) Sinking fund or other provisions, if any, for the
redemption or purchase of shares;
(f) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the
privilege of conversion;
2
(g) Voting powers, if any; and
(h) Such other terms, qualifications, privileges,
limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares of such series as
the board of directors of the corporation may, at the time
so acting, lawfully fix and determine under the laws of the
State of Colorado.
2. No Dividend Preference Between Series of Preferred
Stock. No dividends shall be declared on shares of any series of
Preferred Stock for any dividend period or part thereof unless
full cumulative dividends have been or contemporaneously are
declared on the shares of each other series of Preferred Stock
through the most recent dividend payment date for each such other
series. If at any time any accrued dividends on shares of any
series of Preferred Stock have not been paid in full, then the
corporation will, if paying any dividends on any shares of any
series of Preferred Stock, pay dividends on shares of all series
of Preferred Stock pro rata in proportion to the sums which would
be payable on such series if all accrued but unpaid dividends, if
any, were declared and paid in full. Dividends on any series of
Preferred Stock shall be cumulative only to the extent provided
in the terms of that series.
3. Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, holders of shares
of any series of Preferred Stock shall be entitled to receive,
out of the assets of the corporation available for distribution
to stockholders after satisfying claims of creditors but before
any payment or distribution on the Common Stock or on any other
class of stock ranking junior to the shares of Preferred Stock
upon liquidation, a liquidation distribution per share in the
amount of the liquidation preference fixed or determined in
accordance with the terms of the shares of such series of Pre-
ferred Stock plus, if so provided in such terms, an amount equal
to accumulated and unpaid dividends on each share of such series
(whether or not earned or declared) to the date of such dis-
tribution. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the assets of the
corporation are insufficient to pay in full the holders of shares
of any series of Preferred Stock the preferential amount to which
they are entitled, holders of shares of all series of Preferred
Stock will share ratably in any such distribution of such assets
in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full.
Unless and until payment in full has been made to holders of
shares of all series of Preferred Stock of the liquidation dis-
tributions to which they are entitled as provided in this Article
IX, no dividends or distributions will be made to holders of the
Common Stock or any other stock ranking junior to the shares of
any series of Preferred Stock on liquidation and no purchase,
3
redemption or other acquisition for any consideration by the
corporation will be made in respect of the Common Stock or any
stock ranking junior to the shares of any series of Preferred
Stock upon liquidation. After the payment to all holders of
series of Preferred Stock of the full amount of the liquidation
distributions to which they are entitled pursuant to the
preceding sentences, such holders (in their capacity as such
holders) shall have no right or claim to any of the remaining
assets of the corporation.
(b) Neither the sale, lease or exchange (for cash,
stock, securities or other consideration) of all or substantially
all of the property and assets of the corporation, nor the con-
solidation or merger of the corporation with or into any other
entity, nor the merger or consolidation of any other entity with
or into the corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the
purposes of this Article IX.
4. Conversion Rights. Preferred Stock of any series
may be convertible into shares of any other class or into shares
of any series of the same or any other class, except as may
otherwise be limited by law, if the terms and conditions of such
conversion are fixed and determined by the board of directors of
the corporation in establishing such series of Preferred Stock.
5. Dividend Rate Periods of the Preferred Stock. The
periods during which a dividend rate would be applicable for any
series of the Preferred Stock shall be determined in accordance
with the terms of that series. Such terms may provide that the
board of directors of the corporation shall have the discretion
to establish the duration of the period during which a dividend
rate would be applicable. Such terms may provide that a dividend
rate may be applicable during all or part of the time any shares
of such series are outstanding. If a dividend rate is applicable
during only part of the time any shares of a series are
outstanding, such terms may provide that the board of directors
of the corporation may select, from time to time, one or more
subsequent time periods of the same or varying lengths during
which a dividend rate will be applicable; provided, that the
board of directors of the corporation at the time of establishing
such series shall state in the terms of such series a minimum and
a maximum length for such time periods.
6. Redemption Provisions. (a) Shares of any series
of the Preferred Stock shall be subject to the right of the
corporation to redeem any of such shares if so provided in the
terms of such series. Such terms may provide that the board of
directors of the corporation may change from time to time, the
redemption terms and conditions, including the redemption price,
for shares of such series, provided, that the board of directors
of the corporation at the time of establishing such series shall
4
state in the terms of such series a minimum and a maximum
redemption price.
(b) The corporation shall not purchase or otherwise
acquire any shares of any series of Preferred Stock while any
accumulated and unpaid dividends exist with respect to such
series or any other series of Preferred Stock, unless
contemporaneously with such purchase or acquisition such
accumulated and unpaid dividends are (i) paid or (ii) declared
and a sum sufficient irrevocably deposited with the paying agent
for payment of such dividends; provided, however, that (a) the
corporation may redeem shares of any series of Preferred Stock in
accordance with the terms of such series, and (b) the corporation
may purchase or otherwise acquire shares pursuant to a voluntary
purchase or exchange offer made on an equal basis to all holders
of shares of all series of Preferred Stock.
5
<PAGE>
EXHIBIT A
1. Creation and Designation of Series.
The Board of Directors of Great-West Life & Annuity
Insurance Company (the "Corporation") hereby creates four series
of Stated Rate Auction Preferred Stock ("STRAPS"). The four
series are designated as follows: "Stated Rate Auction Preferred
Stock, Series A," consisting of 1,500 shares ("Series A STRAPS"),
"Stated Rate Auction Preferred Stock, Series B," consisting of
1,500 shares ("Series B STRAPS"), "Stated Rate Auction Preferred
Stock, Series C," consisting of 1,500 shares ("Series C STRAPS")
and "Stated Rate Auction Preferred Stock, Series D," consisting
of 1,500 shares ("Series D STRAPS"). Each share of Series A
STRAPS shall be identical and equal in all respects to every
other share of Series A STRAPS, each share of Series B STRAPS,
shall be identical and equal in all respects to every other share
of Series B STRAPS, each share of Series C STRAPS shall be
identical and equal in all respects to every other share of
Series C STRAPS, each share of Series D STRAPS shall be identical
and equal in all respects to every other share of Series D
STRAPS, and the shares of Series A STRAPS, Series B STRAPS,
Series C STRAPS and Series D STRAPS shall, except as expressly
provided in this Statement of Designation, be identical and equal
in all respects. The Series A STRAPS, Series B STRAPS, Series C
STRAPS and Series D STRAPS shall be subject to and governed by
the provisions of the Articles of Redomestication of the
Corporation as amended from time to time in accordance with
applicable law (including, but not limited to, the provisions of
the Articles of Redomestication concerning dividend and liquida-
tion preferences).
2. Definitions.
Unless the context or use indicates another or
different meaning, the following terms shall have the following
meanings, whether used in the singular or plural:
"Affiliate", as used in paragraphs 1 through 7, means
any entity other than the Corporation (i) which owns
beneficially, directly or indirectly, 10% or more of the
outstanding shares of the Common Stock, (ii) which is in control
of the Corporation, as "control" is defined under Section 230.405
of the Rules and Regulations of the Securities and Exchange
Commission, 17 C.F.R. S 230.405, as in effect on the date of this
Statement of Designation, (iii) of which 10% of more of the
outstanding shares of Common Stock, or in which a 10% or greater
general partnership or joint venture interest, is owned
beneficially, directly or indirectly, by any entity described in
clause (i) or (ii) above, or (iv) which is controlled by any
entity described in clause (i) or (ii) above, as "controlled by"
is defined under such Section 230.405.
"Applicable Rate" has the meaning specified in
paragraph 3(c)(i) below.
"Applicable Treasury Rate" on any date, with respect to
any series of STRAPS with a Long-Term Dividend Period, means the
interest equivalent of the rate for direct obligations of the
United States Treasury having an original maturity which is equal
to, or next lower than, the length of such Long-Term Dividend
Period, as published weekly by the Federal Reserve Board in
"Federal Reserve Statistical Release H.15 (519)--Selected
Interest Rates," or any successor publication by the Federal
Reserve Board within five Business Days preceding such date. In
the event that the Federal Reserve Board does not publish such
weekly per annum interest rate, or if the release is not yet
available, the Applicable Treasury Rate will be the arithmetic
mean of the secondary market bid rates as of approximately
3:30 p.m., New York City time, on the Business Day next preceding
such date of the U.S. Government Securities Dealers obtained by
the Auction Agent (in the case of a determination of the
Applicable Treasury Rate on any Auction Date) or the Corporation
(in the case of a determination of such rate on any other day)
for the issue of United States Treasury Bills with a remaining
maturity equal to, or next lower than, the length of such Long-
Term Dividend Period. If any U.S. Government Securities Dealer
does not quote a rate required to determine the Applicable
Treasury Rate, the Applicable Treasury Rate shall be determined
on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or U.S. Government
Securities Dealers and any Substitute U.S. Government Securities
Dealer or Substitute U.S. Government Securities Dealers selected
by the Corporation to provide such rate or rates not being
supplied by any U.S. Government Securities Dealer or
Government Securities Dealers, as the case may be, or, if the
Corporation does not select any such Substitute U.S. Government
Securities Dealer or Substitute U.S. Government Securities
Dealers, by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers; provided that, in the event
the Corporation is unable to cause such quotations to be
furnished to the Auction Agent, (or, if applicable, to the
Corporation) by such sources, the Corporation may cause the
Applicable Treasury Rate to be furnished to the Auction Agent
(or, if applicable, the Corporation) by such alternative source
or sources as the Corporation in good faith deems to be reliable.
For purposes of this definition, the n interest equivalent" of a
rate stated on a discount basis shall be equal to the quotient of
(A) the discount rate divided by (B) the difference between 1.00
and the discount rate.
2
"Auction" means each periodic operation of the Auction
Procedures.
"Auction Agent" means the bank or trust company
appointed as auction agent by a resolution of the Board of
Directors.
"Auction Date" has the meaning specified in
paragraph 8(a) below.
"Auction Procedures" means the procedures set forth in
paragraph 8 below.
"Board of Directors" means the Board of Directors of
the Corporation.
"Business Day" means a day on which the New York Stock
Exchange is open for trading and which is not a Saturday, Sunday
or other day on which commercial banks in The City of New York
are authorized or required by law to close.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commercial Paper Dealers" means Goldman, Sachs & Co.,
Shearson Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, or in lieu of any thereof, their respective
affiliates or successors, provided that such entity is then a
commercial paper dealer.
"Common Stock" means the common stock, par value $1.00,
of the Corporation.
"Cut-Off Date" means the last day of the first taxable
year of the Corporation as of which the accumulated earnings and
profits of the Corporation, as calculated for federal income tax
purposes, exceed three times the aggregate amount of all
distributions on the STRAPS for such taxable year.
"Date of Original Issue" means the date on which the
Corporation originally issues the shares of STRAPS.
"Default in Preferred Stock Dividends" has the meaning
specified in paragraph 6(c) below.
"Dividend Payment Date" has the meaning specified in
paragraph 3 (b) (vi) below.
"Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
3
"Dividend Period Days has the meaning specified in
paragraph 3 (b) (ix) below.
"Dividend Quarter" has the meaning specified in
paragraph 3 (b) (vi) below.
"Dividends Received Deduction" means, with respect to
any share of STRAPS and any dividend paid thereon to the Holder
of such share, the deduction generally allowed to a corporate
holder of stock in a taxable domestic business corporation in
computing such Holder's taxable income for purposes of the
regular federal corporate income tax under section 243(a)(1) of
the Code, or any successor provision, equal to a percentage rate
multiplied by the dividends (as defined in section 316(a) of the
Code) received on such stock, determined (1) without regard to
the amount of the issuer's stock owned by such Holder and (2)
assuming that any limitations on such deduction based on the
facts or circumstances relating to particular Holders (such as
limitations based on a minimum holding period, the allocation of
interest expense or debt to the purchase of stock, or the
Holder's taxable income or status as a taxpayer) do not apply.
"Eight-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Failure to Deposit" means the failure by the
Corporation to pay to the Paying Agent, not later than noon (A)
on the Business Day next preceding any Dividend Payment Date in
funds available on such Dividend Payment Date in the City of New
York, New York, the full amount of any dividend (whether or not
earned or declared) to be paid on such Dividend Payment Date on
any shares of STRAPS or (B) on the Business Day next preceding
any redemption date in funds available on such redemption date in
the City of New York, New York, the Redemption Price of any
shares of STRAPS to be redeemed on such redemption date, plus
accumulated and unpaid dividends thereon to the redemption date.
In the event that the Corporation is acting as the Paying Agent,
Failure to Deposit shall mean that the Corporation has not, on
the applicable Dividend Payment Date for any Series of STRAPS,
deposited with the United States Postal Service for delivery by
first class mail, postage prepaid, to the registered holders of
the STRAPS, the dividend payment checks with respect to such
Dividend Payment Date.
"Five-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Four-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Gross-Up Payment" means a payment to a Qualified
Investor of an amount which, when taken together with the
4
aggregate Non-Qualifying Distributions paid to such Qualified
Investor during any taxable year ending on or before the Cut-Off
Date, would cause such Qualified Investor's net yield in dollars
(after federal income tax consequences and treating, for purposes
of calculating net yield in dollars, that portion of the Non-
Qualifying Distributions otherwise treated as a return of capital
as capital gain received upon the taxable sales of shares of
STRAPS at the time of such Non-Qualifying Distributions) from the
aggregate of both the Non-Qualifying Distribution and the Gross-
Up Payment to be equal to the net yield in dollars (after federal
income tax consequences) which would have been received by such
Qualified Investor if the amount of the aggregate Non-Qualifying
Distributions treated as a return of capital had instead been
treated as a dividend for federal income tax purposes. Such
Gross-Up Payments shall be calculated (1) without consideration
being given to the time value of money, (2) assuming that no
federal minimum tax or similar tax is imposed with respect to
dividends received from the Corporation, and (3) assuming that
the Qualified Investor is taxable at all times at the maximum
marginal regular federal income tax rate applicable to
corporations in effect during the taxable year in question on the
Non-Qualifying Distributions and the Gross-Up Payment and is able
to take full advantage of the Dividends Received Deduction with
respect to dividends received from the Corporation.
"Holder" means an individual or entity in whose name an
outstanding share of STRAPS is registered on the Stock Books.
"Holders' Dividend Period Notice" has the meaning
specified in paragraph 3 (b) (viii) (B) below.
"Initial Long-Term Dividend Period" means, with respect
to each of the Series A STRAPS, the Series B STRAPS, the Series C
STRAPS and the Series D STRAPS, the period from and including the
Date of Original Issue to and excluding December 31, 1993.
"Long-Term Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Maximum Rate" has the meaning specified in
paragraph 8(a) below.
"Minimum Holding Period" has the meaning specified in
paragraph 3 (b) ( ix) below.
"Moody's" means Moody' 8 Investors Service or any
successor thereto.
"Nine-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
5
"Non-Qualifying Distribution" means a distribution on
the shares of STRAPS with respect to any fiscal year of the
Corporation ended on or before the Cut-Off Date that constitutes,
in whole or in part, a return of capital.
"Normal Dividend Payment Date" has the meaning
specified in paragraph 3 (b) (ii) below.
"Notice of Dividend Period" has the meaning specified
in paragraph 3 (b) (viii) below.
"Notice of Redemption" has the meaning specified in
paragraph 5(e) below.
"Notice of Revocation" has the meaning specified in
paragraph 3 (b) (viii) below.
"One-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
"Paying Agent" means the bank or trust company that has
been appointed as paying agent by a resolution of the Board of
Directors, or, if the Corporation shall have elected not to
appoint a bank or trust company as Paying Agent for the initial
Dividend Period with respect to any series of STRAPS, the
Corporation.
"Qualified Investor" means a Holder that is or was a
Holder of the shares of STRAPS of any Series on the record date
for a Non-Qualifying Distribution.
"Rating Agencies," on any date of determination, means
(i) each of Moody's and Standard & Poor's, or (ii) if only one of
such rating agencies is then rating the shares of STRAPS, such
rating agency, or (iii) if neither of such rating agencies is
then rating the shares of STRAPS, any nationally recognized
statistical rating organization designated by the Corporation
with the consent of Goldman, Sachs & Co. provided such consent is
not unreasonably withheld.
"Securities Depository" has the meaning specified in
paragraph 8(a) below.
"Seven-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii ) below.
"Short-Term Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Six-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
6
"Standard & Poor's" means Standard & Poor's Corporation
or any successor thereto.
"Stock Books" means the stock transfer books of the
Corporation maintained by the Paying Agent with respect to the
shares of STRAPS.
"Substitute Commercial Paper Dealers" means The First
Boston Corporation or Morgan Stanley & Co. Incorporated, or in
lieu thereof, their respective affiliates or successors, provided
that such entity is then a commercial paper dealer.
"Substitute U.S. Government Securities Dealers" means
The First Boston Corporation and Morgan Stanley & Co.
Incorporated, or in lieu thereof, their respective affiliates or
successors, provided that such entity is then a U.S. government
securities dealer.
"Ten-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
"Thirty-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Three-year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii ) below.
"Twenty-year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Two-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
"U.S. Government Securities Dealers" means Goldman,
Sachs & Co., Shearson Lehman Government Securities Incorporated,
Salomon Brothers Inc and Morgan Guaranty Trust Company of New
York, or in lieu of any thereof, their respective affiliates or
successors, provided that such entity is then a government
securities dealer.
"Voting Parity Preferred Stock" has the meaning
specified in paragraph 6(c) below.
"Voting Period" has the meaning specified in paragraph
"60-day "AA" Composite Commercial Paper Rate," on any
date, means (i) the interest equivalent of the 60-day rate on
commercial paper placed on behalf of issuers whose corporate
bonds are rated AA by Standard & Poor's, or the equivalent of
such rating by another nationally recognized statistical rating
organization, as such 60-day rate is made available on a discount
7
basis or otherwise by the Federal Reserve Bank of New York for
the Business Day immediately preceding such date, or (ii) in the
event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the
interest equivalent of the 60-day rate on commercial paper placed
on behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction Agent
(in the case of determination of the 60-day "AA" Composite
Commercial Paper Rate on any Auction Date) or the Corporation (in
the case of determination of such rate on any other day) as of
the close of business on the Business Day immediately preceding
such date. If any of the Commercial Paper Dealers do not quote a
rate required to determine the 60-day "AA" Composite Commercial
Paper Rate, such 60-day "AA" Composite Commercial Paper Rate
shall be determined on the basis of the quotations or quotations
furnished by the remaining Commercial Paper Dealers or Commercial
Paper Dealer and any Substitute Commercial Paper Dealers or
Substitute Commercial Paper Dealer selected by the Corporation to
provide such quotation not being supplied by any Commercial Paper
Dealer or, if the Corporation does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers,
by the remaining Commercial Paper Dealers or Commercial Paper
Dealer; provided that, in the event the Corporation is unable to
cause such quotations to be furnished to the Auction Agent (or,
if applicable, to the Corporation) by such sources, the
Corporation may cause the 60-day "AA" Composite Commercial Paper
Rate to be furnished to the Auction Agent (or, if applicable, to
the Corporation) by such alternative source or sources as the
Corporation in good faith deems to be reliable. If the Board of
Directors shall adjust the number of days in a Short-Term
Dividend Period pursuant to paragraph (3)(b)(ix) below, then
(i) if the number of days in a Short-Term Dividend Period after
such adjustment shall be fewer than 70 days, such rate shall be
the interest equivalent of the 60-day rate on such commercial
paper, (ii) if the number of days in a Short-Term Dividend Period
after such adjustment shall be 70 or more days but fewer than 85
days, such rate shall be the arithmetic average of the interest
equivalent of the 60-day and 90-day rates on such commercial
paper, (iii) if the number of days in a Short-Term Dividend
Period shall be 85 or more days but fewer than 99 days, such rate
shall be the interest equivalent of the 90-day rate on such
commercial paper, and (iv) if the number of days in a Short-Term
Dividend Period after such adjustment shall be 99 or more days,
such rate shall be determined on the basis of the interest
equivalent of such commercial paper with a maturity (or an
average maturity of such commercial paper with different
maturities) as nearly as practicable equal to such number of days
in a Short-Term Dividend Period, as determined by the Corporation
in good faith. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis shall be equal
to the quotient of (A) the discount rate divided by (B) the
difference between (x) 1.00 and (y) a fraction the numerator of
8
which shall be the product of the discount rate times the number
of days in which such commercial paper matures and the
denominator of which shall be 360.
3. Dividends.
(a) Holders of shares of STRAPS shall be entitled to
receive, when, as and if declared by the Board of Directors, out
of funds legally available therefor, cumulative cash dividends at
the applicable dividend rate determined as set forth in
paragraph 3(c)(i) below, and no more, payable on the respective
dates set forth below. Accrued and unpaid dividends shall not
bear interest.
(b) (i) Dividends on the shares of each series of
STRAPS shall accumulate at the respective Applicable Rates
for such series (whether or not declared) from the Date of
Original Issue.
(ii) During the Initial Long Term Dividend Period,
dividends on the shares of each series of STRAPS shall be
payable quarterly on the last day of each March, June,
September and December of each year, commencing December 31,
1991, and the last dividend during this Period will be
payable on December 30, 1993, unless any such date is not a
Business Day, in which case, dividends on the STRAPS will be
payable on the next succeeding Business Day. Thereafter,
dividends on the shares of each series of STRAPS with a
Short-Term Dividend Period shall be payable, except as
provided below in this paragraph 3(b), on the seventh
Thursday following the immediately preceding Dividend
Payment Date for such series, and dividends on the shares of
each series of STRAPS with a Long-Term Dividend Period shall
be payable, except as provided below in this paragraph 3(b),
on the first day of the fourth month after the commencement
of such Long-Term Dividend Period, on the first day of each
succeeding third month thereafter and on the 49th (in the
case of a One-Year Dividend Period), 102nd (in the case of a
Two-Year Dividend Period), 158th (in the case of a Three-
Year Dividend Period), 206th (in the case of a Four-Year
Dividend Period), 259th (in the case of a Five-Year Dividend
Period), 310th (in the case of a Six-Year Dividend Period),
364th (in the case of a Seven-Year Dividend Period), 416th
(in the case of an Eight-Year Dividend Period), 468th (in
the case of a Nine-Year Dividend Period), 520th (in the case
of a Ten-Year Dividend Period), 1040th (in the case of a
Twenty-Year Dividend Period), or 1560th (in the case of a
Thirty-Year Dividend Period) Thursday after the commencement of
such Long-Term Dividend Period. Each day on which
dividends on shares of a series of STRAPS would be payable as
determined as set forth in this clause (ii) but for the
provisions set
forth below in this paragraph 3(b) is referred to herein as
a "Normal Dividend Payment Date."
(iii) In the case of dividends payable on the
shares of a series of STRAPS with a Short-Term Dividend
Period, if:
(A) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in next-day funds on the dates on which such dividends
are payable and (II) a Normal Dividend Payment Date for
such series is not a Business Day or the day next
succeeding such Normal Dividend Payment Date is not a
Business Day, then dividends shall be payable on the
first Business Day preceding such Normal Dividend
Payment Date that is next succeeded by a Business Day;
or
(B) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in immediately available funds on the dates on which
such dividends are payable (and the Securities
Depository shall have so advised the Auction Agent) and
(II) a Normal Dividend Payment Date for such series is
not a Business Day, then dividends shall be payable on
the first Business Day following such Normal Dividend
Payment Date.
(iv) In the case of dividends payable on the
shares of a series of STRAPS with a Long-Term Dividend
Period (other than the Initial Long-Term Dividend Period),
if:
(A) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in next-day funds on the dates on which such dividends
are payable and (II) a Normal Dividend Payment Date for
such series is not a Business Day or the day next
succeeding such Normal Dividend Payment Date is not a
Business Day, then dividends shall be payable on the
first Business Day following such Normal Dividend
Payment Date that is next succeeded by a Business Day;
or
(B) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in immediately available funds on the dates on which
such dividends are payable (and the Securities
Depository shall have so advised the Auction Agent) and
(II) a Normal Dividend Payment Date for such series is
not a Business Day, then dividends shall be payable on
the first Business Day following such Normal Dividend
Payment Date.
(v) Notwithstanding the foregoing, if the date on
which the dividends on the shares of any Series of STRAPS
would be payable as determined as set forth in clauses (ii),
(iii) or (iv) above is a day that would result in the number
of days between successive Auction Dates for such series
(determined by excluding the first Auction Date and
including the second Auction Date) not being at least equal
to the then-current Minimum Holding Period, then dividends
on such shares shall be payable, if either of
clauses (iii)(A) or (iv)(A) above would be applicable to
such series, on the first Business Day following such date
on which dividends would be so payable that is next
succeeded by a Business Day or, if either of
clauses (iii)(B) or (iv)(B) above would be applicable to
such series, on the first Business Day following such day on
which dividends would be so payable, that in either case
results in the number of days between such successive
Auction Dates for such series (determined as set forth
above) being at least equal to the then-current Minimum
Holding Period.
(vi) Each date on which dividends on the shares of
a series of STRAPS shall be payable as determined as set
forth above shall be referred to herein as a "Dividend
Payment Date" for such series. The period from the
preceding Dividend Payment Date to the next Dividend Payment
Date for any series of STRAPS with a Long-Term Dividend
Period is herein referred to as "Dividend Quarter."
Although any particular Dividend Payment Date for a series
of STRAPS may not occur on the originally scheduled Normal
Dividend Payment Date for such series because of the
foregoing provisions, each succeeding Dividend Payment Date
for such series shall be, subject to such provision, the
date determined as set forth in clause (ii) above as if all
preceding Dividend Payment Dates had occurred on their
respective originally scheduled Normal Dividend Payment
Dates.
(vii) After the Initial Long-Term Dividend Period
for each series of STRAPS, each subsequent Dividend Period
for such series will be, at the option of the Corporation by
action of its Board of Directors, a period of 49 days (each
such 49-day period, subject to any adjustment as a result of
a change in law lengthening the Minimum Holding Period as
provided in clause (ix) below, being referred to herein as a
"Short-Term Dividend Period"), 49 weeks (a "One-Year
11
Dividend Period"), 102 weeks (a "Two-Year Dividend Period"),
158 weeks (a "Three-Year Dividend Period"), 206 weeks (a
"Four-Year Dividend Period"), 259 weeks (a "Five-Year
Dividend Period"), 310 weeks (a "Six-Year Dividend Period"),
364 weeks (a "Seven-Year Dividend Period"), 416 weeks (an
"Eight-Year Dividend Period"), 468 weeks (a "Nine-Year
Dividend Period"), 520 weeks (a "Ten-Year Dividend Period"),
1040 weeks (a "Twenty-Year Dividend Period") or 1560 weeks
(a "Thirty-Year Dividend Period") (each such One-Year
Dividend Period, Two-Year Dividend Period, Three-Year
Dividend Period, Four-Year Dividend Period, Five-Year
Dividend Period, Six-Year Dividend Period, Seven-Year
Dividend Period, Eight-Year Dividend Period, Nine-Year
Dividend Period, Ten-Year Dividend Period, Twenty-Year
Dividend Period and Thirty-Year Dividend Period, together
with the Initial Long-Term Dividend Periods being referred
to herein as a "Long-Term Dividend Period," and each such
Short-Term Dividend Period and Long-Term Dividend Period,
being referred to herein as a "Dividend Period"). After the
Initial Long-Term Dividend Period for a series of STRAPS,
each successive Dividend Period for such series will
commence on the Dividend Payment Date ending the preceding
Dividend Period and will end (i) in the case of any series
of STRAPS with a Short-Term Dividend Period, on the next
Dividend Payment Date for such series and (ii) in the case
of any series of STRAPS with a Long-Term Dividend Period, on
the 49th (in the case of a One-Year Dividend Period), 102nd
(in the case of a Two-Year Dividend Period), 158th (in the
case of a Three-Year Dividend Period), 206th (in the case of
a Four-Year Dividend Period), 259th (in the case of a Five-
Year Dividend Period), 310th (in the case of a Six-Year
Dividend Period, 364th (in the case of a Seven-Year Dividend
Period, 416th (in the case of an Eight-Year Dividend Period,
468th (in the case of a Nine-Year Dividend Period, 520th (in
the case of a Ten-Year Dividend Period), 1040th (in the case
of a Twenty-Year Dividend Period), or 1560th (in the case of
a Thirty-Year Dividend Period) Thursday thereafter.
(viii) (A) On or prior to the 10th day but not more
than 30 days prior to an Auction Date for any series of
STRAPS, the Corporation shall, in accordance with the action
of its Board of Directors, by telephonic and written notice
(a "Notice of Dividend Period") to the Auction Agent and the
Securities Depository, specify the length of the next
succeeding Dividend Period for such series and, in
accordance with Section 5(b) hereof, the redemption
provisions that will apply to the series of STRAPS for such
Dividend Period; provided, that, with respect to any Auction
Date for any series of STRAPS occurring during a Short-Term
Dividend Period, the Corporation may not select a Long-Term
Dividend Period for such series (and any such notice shall
be null and void) unless Sufficient Clearing Bids were made
in the last occurring Auction for such series and full
cumulative dividends for all series of STRAPS payable prior
to such date have been paid in full. Any Notice of Dividend
Period may be revoked by the Corporation by action of its
Board of Directors by giving telephonic or written notice (a
"Notice of Revocation") to the Auction Agent and the
Securities Depository not less than two hours prior to the
Submission Deadline (as defined in paragraph 8 hereof) on
the related Auction Date, in which case the next Dividend
Period shall be a Short-Term Dividend Period. If the
Corporation does not give a Notice of Dividend Period with
respect to the next succeeding Dividend Period for any
series of STRAPS by the 10th day prior to the Auction Date
for such series, or gives a Notice of Revocation with
respect thereto, such next succeeding Dividend Period will
be a Short-Term Dividend Period. In addition, in the event
the Corporation has selected a Long-Term Dividend Period in
any Notice of Dividend Period with respect to the next
succeeding Dividend Period for any series of STRAPS, but
Sufficient Clearing Bids are not made in the related Auction
for such series or such Auction is not held for any reason,
such next succeeding Dividend Period will, notwithstanding
such Notice of Dividend Period, be a Short-Term Dividend
Period and the Corporation may not again select a Long-Term
Dividend Period (and any such Notice of Dividend Period
shall be null and void) for such series until Sufficient
Clearing Bids have been made in an Auction with respect to a
Short-Term Dividend Period for such series.
(B) At least 30 days prior to the initial
Auction Date with respect to any series of STRAPS, the
Corporation shall cause to be mailed by first-class mail,
postage prepaid, to each Holder of shares of such series as
its name and address appears on the Stock Books, a written
notice of the commencement of the next succeeding Dividend
Period (a "Holders' Dividend Period Notice"). The Holders'
Dividend Period Notice shall set forth, among other things:
(1) the date and day of the week of the initial
Auction Date, and, if then known, the length of the next
succeeding Dividend Period and the redemption provisions
applicable to such series of STRAPS for such Dividend
Period;
(2) the then-current credit ratings of the STRAPS;
(3) the name and address of the initial Broker-
Dealer or Broker-Dealers who will solicit bids for the
Auction for such series of STRAPS;
(4) the name and address of the Auction Agent;
(5) the name and address of the Securities
Depository;
(6) the names and addresses of members of or
participants in the Securities Depository who have consented
to be appointed to act on behalf of the Holders of the
STRAPS;
(7) that each Holder must deposit the certificates
representing the shares of STRAPS of such series in exchange
for evidence of such shares of STRAPS thereafter to be held
in book entry form by the Securities Depository;
(8) that unless a Holder submits a Bid or a Hold
Order with respect to each share of STRAPS of such series
held by such Holder, the Auction Agent will deem a Sell
Order to have been submitted by such Holder with respect to
any shares of STRAPS of such series not covered by a Bid or
Hold Order; and
(9) that each Holder must appoint a member of or
participant in the Securities Depository in order (x) to
submit Bids in the initial Auction and (y) to receive
payment for any shares of STRAPS such Holder sells in the
initial Auction.
(ix) Notwithstanding the foregoing, in the event
of a change in law altering the minimum holding period (the
"Minimum Holding Period") required for corporate taxpayers
generally to be entitled to the dividends received deduction
for federal income tax purposes in respect of dividends
(other than extraordinary dividends) paid on preferred stock
held by non-affiliated corporations, the Board of Directors
shall adjust the number of days in a Short-Term Dividend
Period commencing after the effective date of such change in
law such that the number of days (such number of days
without giving effect to the exceptions referred to above
being hereinafter referred to as "Dividend Period Days") in
a Short-Term Dividend Period shall equal or exceed the
Minimum Holding Period; provided that the number of Dividend
Period Days shall not exceed by more than nine days the
length of such Minimum Holding Period and in no event shall
be less than 15 days, and will be evenly divisible by seven.
Upon any such change in the number of days in a Short-Term
Dividend Period as a result of a change in law, the
Corporation shall cause to be mailed notice of such change
by first-class mail, postage prepaid, to the Auction Agent,
the Paying Agent and each Holder at such Holder's address as
it appears on the Stock Books, and to the Rating Agencies.
(x) Not later than noon on the Business Day
immediately preceding each Dividend Payment Date with
14
respect to which dividends on any shares of STRAPS have been
declared, the Corporation shall irrevocably deposit with the
Paying Agent sufficient funds for the payment of such
dividends and shall give the Paying Agent irrevocable
instructions to apply such funds and, if applicable, the
income and proceeds therefrom, to the payment of such
dividends.
(xi) Each dividend on the shares of any series of
STRAPS declared by the Board of Directors shall be paid to
Holders of such shares as such Holders' names appear on the
Stock Books on the related record date, which shall be (A)
during the Initial Long-Term Dividend Period for each series
of STRAPS, the opening of business on the fifteenth day of
the calendar month which next precedes the Dividend Payment
Date for such dividend, or if such day is not a Business
Day, on the next succeeding Business Day, and (B)
thereafter, the opening of business on the Business Day
immediately preceding the Dividend Payment Date for such
dividend. Subject to paragraph 3(d)(i) below, dividends on
the shares of any series of STRAPS in arrears for any past
Dividend Period (and for any Dividend Quarter during a Long-
Term Dividend Period) may be declared by the Board of
Directors and paid on any date fixed by the Board of
Directors, on a regular Dividend Payment Date or otherwise,
to Holders of such shares as such Holders' names appear on
the Stock Books on the related record date fixed by the
Board of Directors, which shall not be more than 15 days
before the date fixed for the payment of such dividends.
(c) (i) Subject to paragraph 3 (c) ( ii), (I) during the
Initial Long Term Dividend Period, the dividend rate per
annum applicable to each series of STRAPS shall be 8.0%, and
(II) the dividend rate on the shares of each series of
STRAPS (the "Applicable Rate") for each subsequent Dividend
Period shall be the rate per annum determined for such
series pursuant to the operation of the Auction Procedures
set forth in paragraph 8 below. Notwithstanding the
foregoing, in the event (A) that an Auction with respect to
any Dividend Period for any series is not held for any
reason (including the existence of a Failure to Deposit on
the Auction Date with respect to such Dividend Period), then
the next succeeding Dividend Period shall be a Short-Term
Dividend Period, and the dividend rate on the shares of such
series for such Dividend Period shall be equal to the
Maximum Rate on the Auction Date with respect to such
Dividend Period, provided that if an Auction is not held due
to the existence of a Failure to Deposit which is not cured
within three Business Days, the dividend rate will be as
provided in the immediately following clause (B), or (B) any
Failure to Deposit shall have occurred and the amounts to be
paid by the Corporation to the Paying Agent shall not have
1S
been paid within three Business Days following the Failure
to Deposit (or, in the event that the Corporation shall act
as the Paying Agent, the checks for such amounts shall not
have been deposited with the United States Postal Service
for delivery to the registered holders within three Business
Days following the Failure to Deposit), (w) Auctions for all
series of STRAPS will be suspended, (x) each Dividend Period
for each series of STRAPS commencing after the occurrence of
a Failure to Deposit shall be a Short-Term Dividend Period,
(y) the dividend rate on the shares of each series of STRAPS
for each Short-Term Dividend Period or part thereof
commencing thereafter shall be equal to 250% of the 60-day
"AA" Composite Commercial Paper Rate on the first day of
each such Dividend Period and (z) if such Failure to Deposit
occurs during a Long-Term Dividend Period with respect to
any series of STRAPS, then, for each series of STRAPS for
which a Long-Term Dividend Period is then applicable, the
dividend rate on the shares of such series of STRAPS for
each Dividend Quarter or part thereof commencing thereafter
until the Dividend Quarter within such Dividend Period
commencing after such Failure to Deposit has been cured will
be equal to 250% of the Applicable Treasury Rate on the
Auction Date for such Series (or, in the case of the Initial
Long-Term Dividend Period, on the date of issuance of such
Series). Any Failure to Deposit shall be deemed cured if
the Corporation shall have paid to the Paying Agent (or, in
the event that the Corporation shall act as the Paying
Agent, have deposited checks for such amounts with the
United States Postal Service for delivery by first class
mail, postage prepaid, to the registered holders) (i) all
accumulated and unpaid dividends on the shares of STRAPS of
each series to but excluding the immediately preceding
Dividend Payment Date therefor, including the full amount of
any dividends to be paid in respect of the Dividend Period
(or Dividend Quarter) with respect to which such failure
occurred and (ii) without duplication, the redemption price,
plus accumulated and unpaid dividends thereon to the
redemption date, of any shares of STRAPS called for
redemption. Notwithstanding the foregoing, if the Company
shall have cured a Failure to Deposit by making the
afore described payment to the Paying Agent, the Paying Agent
will give notice of such cure to the holders of the STRAPS
and (i) Auctions will resume, (ii) the Applicable Rate for
each Series for each Dividend Period commencing thereafter
will be determined thereafter as if such Failure to Deposit
had not occurred and (iii) in the case of each Series with a
Long-Term Dividend Period, the Applicable Rate for each
Dividend Quarter therefor commencing thereafter will equal
the Applicable Rate for such Series in effect prior to the
occurrence of such Failure to Deposit.
(ii) The amount of dividends per share of any
series of STRAPS during any Long-Term Dividend Period
(including the Initial Long-Term Dividend Period) shall be
computed on the basis of a year consisting of twelve 30-day
months. The amount of dividends per share of any series of
STRAPS payable for each Short-Term Dividend Period for such
series will be computed by multiplying the Applicable Rate
for such series for such Dividend Period by a fraction, the
numerator of which shall be the number of days in such
Dividend Period (determined by including the first day
thereof and excluding the last day thereof) during which
such share was outstanding and the denominator of which
shall be 360, and multiplying the result by $100,000.
Provisions regarding the dividend preferences and
rights of the Holders of STRAPS are set forth in Article IX
of the Articles of Redomestication of the Corporation.
(d) If any notice given by the Corporation pursuant
to paragraph 7(c) states that any distributions made by the
Corporation to Holders as dividends during any taxable year
were Non-Qualifying Distributions, the Corporation shall,
within 30 days of the date of such notice make a Gross-Up
Payment to each Qualified Investor.
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary
or involuntary, Holders shall be entitled to receive, out of the
assets of the Corporation available for distribution to
stockholders after satisfying claims of creditors but before any
payment or distribution on the Common Stock or on any other class
of stock ranking junior to the shares of STRAPS upon liquidation,
a liquidation distribution in the amount of $100,000 per share
plus an amount equal to accumulated and unpaid dividends on each
share (whether or not earned or declared) to the date of such
distribution. Additional provisions regarding the preferences
and rights of the Holders of STRAPS to receive liquidating
distributions are set forth in Article IX of the Articles of
Redomestication of the Corporation.
(b) Neither the sale, lease or exchange (for cash,
stock, securities or other consideration) of all or substantially
all of the property and assets of the Corporation, nor the
consolidation or merger of the Corporation with or into any other
entity, nor the merger or consolidation of any other entity with
or into the Corporation, shall be deemed to be a liquidation,
dissolution, or winding up of the affairs of the Corporation,
either voluntary or involuntary, for purposes of this paragraph
4.
5. Redemption.
Shares of STRAPS shall be redeemable by the Corporation
as provided below:
(a) The Corporation may, at its option, out of funds
legally available therefor, upon at least 15 but not more than
45 days' notice pursuant to a Notice of Redemption, redeem the
shares of any series of STRAPS, as a whole or in part (I) during
the Initial Long-Term Dividend Period for such series, on the
second Business Day preceding the last Dividend Payment for such
Initial Long-Term Dividend Period, (II) during a Short-Term
Dividend Period for such series, on the second Business Day
preceding any Dividend Payment Date for such series and
(III) during any Long-Term Dividend Period other than the Initial
Long-Term Dividend Period for such series, on the second Business
Day preceding the last Dividend Payment Date for such Long-Term
Dividend Period, in each case at a redemption price equal
to $100,000 per share plus an amount equal to the accumulated and
unpaid dividends on such shares (whether or not earned or
declared) to the redemption date.
(b) In addition, the Corporation may, at its option,
out of funds legally available therefor, during any Long-Term
Dividend Period with respect to any series of STRAPS other than
an Initial Long-Term Dividend Period, upon at least 15 but not
more than 45 days' notice pursuant to a Notice of Redemption,
redeem the shares of such series as a whole or from time to time
in part, pursuant to redemption provisions applicable to such
Long-Term Dividend Period selected by the Corporation by action
of its Board of Directors and specified in the Notice of Dividend
Period with respect to such Long-Term Dividend Period pursuant to
paragraph 3(b)(viii); Provided, that the redemption price so
selected by the Corporation shall be at least $100,000 per share,
and no more than $250,000 per share, plus any accumulated and
unpaid dividends thereon.
(c) In the event that fewer than all of the
outstanding shares of STRAPS are to be redeemed, the Corporation
may, at its option, determine to redeem all or a portion of the
shares of one series of STRAPS without redeeming shares of another
series, and/or may select by lot or other such method as the
Corporation shall deem to be fair and equitable the shares of
(d) Notwithstanding the other provisions of this
paragraph 5, the Corporation shall not redeem any shares of STRAPS
unless all accumulated and unpaid dividends on all outstanding
shares of STRAPS for all applicable past Dividend Periods (and all
past Dividend Quarters during any Long-Term Dividend Period) shall
have been or are contemporaneously paid or declared and a sum
18
sufficient irrevocably deposited with the Paying Agent for payment
of such dividends.
(e) Whenever shares of STRAPS are to be redeemed, the
Corporation shall cause to be mailed, within the time period
specified in paragraphs 5(a) or 5(b) above, a written notice of
redemption (a "Notice of Redemption") by first-class mail, postage
prepaid, to each Holder of shares of STRAPS to be redeemed as its
name and address appear on the Stock Books and to the Paying Agent.
Each Notice of Redemption shall state (A) the redemption date,
(B) the redemption price, (C) the series and number of shares of
such series of STRAPS to be redeemed and, in the event of
redemption of less than all of the outstanding shares of STRAPS of
a series, identification (by certificate number or otherwise) of
the shares of STRAPS to be redeemed, (D) the place or places where
shares of STRAPS to be redeemed are to be surrendered for payment
of the redemption price, (E) that dividends on the shares of STRAPS
to be redeemed will cease to accumulate on such redemption date and
(F) if applicable, that the Holders of shares of STRAPS being
called for redemption will not be entitled to participate, with
respect to such shares, in any Auction held subsequent to the date
of such Notice of Redemption. No defect in the Notice of
Redemption or in the mailing or publication thereof shall affect
the validity of the redemption proceedings, except as required by
applicable law. A Notice of Redemption shall be deemed given on
the day that it is mailed in accordance with the first sentence of
this paragraph 5(e).
(f) On or after the redemption date, each Holder of
shares of STRAPS that were called for redemption shall surrender
the certificate or other instrument evidencing such shares properly
endorsed in blank for transfer or accompanied by proper instruments
of assignment or transfer in blank, and bearing all necessary
transfer tax stamps thereto affixed and cancelled,
to the Corporation at the place designated in the Notice of
Redemption and shall then be entitled to receive payment of the
redemption price for such shares. If less than all of the shares
represented by one share certificate or other instrument are to be
redeemed, the Corporation shall issue a new share certificate for
the shares not redeemed.
(g) Not later than the close of business on the Business
Day immediately preceding the redemption date, the Corporation
shall irrevocably deposit with the Paying Agent sufficient funds
to redeem the shares of STRAPS to be redeemed and shall give the
Paying Agent irrevocable instructions to apply such funds and, if
applicable, the income and proceeds therefrom, to the payment of
the redemption price.
(h) If the Corporation shall have given or caused to
be given a Notice of Redemption as aforesaid, shall have
irrevocably deposited with the Paying Agent a sum sufficient to
redeem the shares of STRAPS as to which such Notice of Redemption
was given and shall have given the Paying Agent irrevocable
instructions and authority to pay the redemption price to the
Holders of such shares, then on the date of such deposit (or, if
no such deposit shall have been made, then on the date fixed for
redemption, unless the Corporation shall have defaulted in making
payment of the redemption price), all rights of the Holders of
such shares by reason of their ownership of such shares (except
their right to receive the redemption price thereof, but without
interest) shall terminate, and such shares shall no longer be
deemed outstanding for any purpose, including, without
limitation, the right of the Holders of such shares to vote on
any matter or to participate in any subsequent Auctions. In
addition, any shares of STRAPS as to which a Notice of Redemption
has been given by the Corporation will be deemed to be not
outstanding for purposes of any Auction held subsequent to the
date of such Notice of Redemption. The Corporation shall be
entitled to receive, from time to time, from the Paying Agent,
the income, if any, derived from the investment of monies and/or
other assets deposited with it (to the extent that such income is
not required to pay the redemption price of the shares to be
redeemed), and the Holders of shares to be redeemed shall have no
claim to any such income. In case the Holder of any shares
called for redemption shall not claim the redemption price for
his shares within two years after the redemption date, the Paying
Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Paying Agent shall thereupon be
relieved of all responsibility to the Holder with respect to such
shares, and such Holder shall thereafter look only to the
Corporation for payment of the redemption price of such shares.
(i) Nothing in this paragraph 5 shall limit any right
of the Corporation to purchase or otherwise acquire outside of
any Auction any shares of any series of Preferred Stock from any
holder thereof who consents to such purchase or other
acquisition, except as provided in Article IX of the Articles of
Redomestication of the Corporation.
(j) The Corporation shall not give a Notice of
Redemption unless at the time of giving of such notice the
Corporation shall in good faith believe that it will have
sufficient funds to effect the redemption of all of the shares of
STRAPS to be redeemed pursuant to such notice. The giving of a
Notice of Redemption shall obligate the Corporation to redeem the
shares of STRAPS specified in such Notice of Redemption on the
terms and conditions specified therein.
6. Voting Rights.
(a) General. Holders shall have no voting rights,
either general or special, except as provided by applicable law
or specified in this paragraph 6.
20
(b) Right to Vote in Certain Events. In addition to
any other vote or consent of Shareholders of the Corporation then
required by applicable law or by the Articles of Redomestication
of the Corporation, so long as any shares of a series of STRAPS
remain outstanding, the Corporation shall not, without the
affirmative vote or consent of the holders of at least two-thirds
of the shares of such series of the STRAPS outstanding at that
time, given in person or by proxy, either in writing or at a
meeting (i) authorize, create or issue, or increase the
authorized or issued amount, of any class or series of stock
ranking prior to such series of STRAPS with respect to payment of
dividends or the distribution of assets on liquidation,
dissolution or winding up of the Corporation, or reclassify any
authorized stock of the Corporation into any such shares, or
create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such
shares, or (ii) amend, alter or repeal any of the provisions of
the Corporation's Articles of Redomestication of the Corporation
or this Statement of Designation so as to adversely affect any
right, preference, privilege or voting power of such series of
the STRAPS; provided, however, that any increase in the amount of
the authorized preferred stock or the creation or issuance of any
series of preferred stock or any increase in the amount of
authorized shares of such series or of any other series of
preferred stock, in each case ranking on a parity with or junior
to each series of the STRAPS with regard to dividends, or upon
liquidation, dissolution or winding up of the Corporation, shall
not be deemed to adversely affect such rights, preferences,
privileges or voting powers.
(c) During any period (a "Voting Period") when a
"Default in Preferred Dividends" (as hereinafter defined) shall
exist on the shares of any series of the STRAPS, or any series of
preferred stock ranking on a parity with the shares of the STRAPS
as to dividends or upon liquidation, dissolution or winding up of
the Corporation and the terms of which expressly provide that
such shares are "Voting Parity Preferred Stock" within the
meaning of this paragraph and voting rights thereunder are then
exercisable (all such shares, and all shares of each series of
the STRAPS, being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number of
members of the Board of Directors shall automatically be
increased by two. The two vacancies so created shall be filled
by the vote of the holders of the Voting Parity Preferred Stock,
voting together as a single class without regard to series, to
the exclusion of the holders of the Common Stock of the
Corporation and any other class or series of stock other than
Voting Parity Preferred Stock. A "Default in Preferred Stock
Dividends" shall be deemed to have occurred whenever the amount
of unpaid accumulated dividends upon any series of the Voting
Parity Preferred Stock through the last preceding dividend period
therefor shall be equivalent to six quarterly dividends (which,
21
with respect to any series of the STRAPS or any other series of
Voting Parity Preferred Stock, shall be deemed to be dividends
with respect to a number of dividend periods containing not less
than 540 days) or more, and, having so occurred, such default
shall be deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends (whether or not earned or
declared) on all shares of all Voting Parity Preferred Stock of
each and every series then outstanding shall have been paid to
the end of the last preceding dividend period. Upon the
termination of a Voting Period, the voting rights described in
this paragraph 6(c) shall cease, subject always, however, to
revesting of such voting rights in the holders of Voting Parity
Preferred Stock upon the further occurrence of a Default in
Preferred Dividends. If any Voting Period shall have terminated
before the holders of Voting Parity Preferred Stock shall have
exercised the voting rights provided in this paragraph 6(c), the
holders of such Voting Parity Preferred Stock shall be deemed not
to have acquired such voting rights.
(d) Voting Procedures.
(i) As soon as practicable after the
commencement of a Voting Period, the Corporation shall call
or cause to be called a special meeting of the holders of
the Voting Parity Preferred Stock by mailing or causing to
be mailed a notice of such special meeting to such holders
not less than 10 nor more than 45 days after the date such
notice is given. If the Corporation does not call or cause
to be called such a special meeting, it may be called by any
of such holders on like notice. The record date for
determining the holders of Voting Parity Preferred Stock
entitled to notice of and to vote at such meeting shall be
the close of business on the Business Day preceding the day
on which such notice is mailed. At any such special meeting
and at each meeting of stockholders held during a Voting
Period at which directors are to be elected, removed or
replaced, the holders of the Voting Parity Preferred Stock
of all series, voting together as a single class (to the
exclusion of the holders of all other securities and classes
of capital stock of the Corporation), voting by a majority
of the votes of shares present in person or by proxy, shall
be entitled to elect two directors. In regard to such
elections, each share of STRAPS, and each share of any other
Voting Parity Preferred Stock, shall be entitled to one vote
on the basis of each $100,000 of liquidation preference
(excluding amounts in respect of accumulated and unpaid
dividends). Cumulative voting in such elections shall not
be permitted. Shares of Voting Parity Preferred Stock then
outstanding, present in person or represented by proxy,
representing one-third of the votes of the Voting Parity
Preferred Stock, will constitute a quorum for the election
of directors. Notice of all meetings at which holders of
the Voting Parity Preferred Stock of any series shall be
entitled to vote will be given to such holders at their
addresses as they appear on the Stock Books. At any such
meeting or adjournment thereof in the absence of a quorum,
holders of shares of Voting Parity Preferred Stock
representing a majority of the votes present in person or
represented by proxy shall have the power to adjourn the
meeting for the election of directors without notice, other
than an announcement at the meeting, until a quorum is
present. If any Voting Period shall terminate after the
notice of special meeting provided for in this
paragraph 6(d)(i) has been given but before the special
meeting shall have been held, the Corporation shall, as soon
as practicable after such termination, mail or cause to be
mailed to the holders of the Voting Parity Preferred Stock a
notice of cancellation of such special meeting.
(ii) The term of office of all persons who are
directors of the Corporation at the time of a special
meeting of the holders of the Voting Parity Preferred Stock
to elect directors shall continue, notwithstanding the
election at such meeting by such holders of the two
additional directors. The persons elected by holders of the
Voting Parity Preferred Stock, together with the incumbent
directors elected by the holders of the Common Stock, shall
constitute the duly elected directors of the Corporation.
(iii) Simultaneously with the expiration of a
Voting Period, the term of office of the directors elected
by the holders of the Voting Parity Preferred Stock shall
terminate, the persons who shall have been elected by the
holders of the Common Stock (or by the Board of Directors
prior to the beginning of the Voting Period) and who are
incumbent shall constitute the directors of the Corporation,
and the voting rights of the holders of the Voting Parity
Preferred Stock to elect directors shall cease.
(iv) For so long as a Voting Period continues,
the directors elected by the holders of the Voting Parity
Preferred Stock may be removed without cause by, and shall
not be removed without cause except by, the vote of the
holders of record of the outstanding shares of Voting Parity
Preferred Stock, voting together as a single class without
regard to series, at a meeting of the stockholders, or of
the holders of shares of Voting Parity Preferred Stock,
called for such purpose. So long as a Voting Period
continues, (A) any vacancy in the office of a director
elected by the holders of the Voting Parity Preferred Stock
may be filled (except as provided in the following clause
(B)) by the person appointed by an instrument in writing
signed by the remaining director elected by the holders of
the Voting Parity Preferred Stock and filed with the
Corporation or, in the event there is no remaining director
elected by the holders of the Voting Parity Preferred Stock,
by vote of the holders of the outstanding shares of Voting
Parity Preferred Stock, voting together as a single class
without regard to series, at a meeting of the stockholders
or at a meeting of the holders of shares of Voting Parity
Preferred Stock called for such purpose, and (B) in the case
of the removal of any director elected by the holders of the
Voting Parity Preferred Stock, the vacancy may be filled by
the person elected by the vote of the holders of the
outstanding shares of Voting Parity Preferred Stock, voting
together as a single class without regard to series, at the
same meeting at which such removal shall be voted or at any
subsequent meeting.
(e) Additional Vote. If any matter (including,
without limitation, election, removal or replacement of
directors) requires the consent or affirmative vote of shares of
any series of STRAPS, of all series of STRAPS, or of all
Preferred Stock of the Corporation, whether pursuant to the
provisions of such series, all such series or such Preferred
Stock or pursuant to the provisions of the Articles of
Redomestication of the Corporation or pursuant to applicable law,
and if any shares of any series of STRAPS entitled to vote are
held by the Corporation or by any of its Affiliates, then the
following additional consent or vote will be required: the same
consent or affirmative vote of shares otherwise required, except
that shares of STRAPS held by the Corporation and/or its
Affiliates shall be deemed not to be outstanding for purposes of
such additional consent or vote; provided, such additional
consent or vote will not be applicable if all outstanding shares
of the STRAPS of such series (in the case of a class vote of such
series) or of all series of STRAPS (in the case of a vote of all
series of STRAPS) are held by the Corporation and/or its
Affiliates.
7. Miscellaneous Provisions Relating to Dividends.
(a) Maintaining Shares of STRAPS in Book Entry Form.
Promptly after receiving the Holders' Dividend Period Notice
specified in paragraph 3(b)(viii), each Holder of shares of the
related series of STRAPS shall take such actions and shall
execute and deliver such documents and agreements as the
Corporation shall have reasonably requested in such Holders'
Dividend Period Notice, which actions, documents and/or
agreements may include but shall not be limited to the following:
(i) appointing a participant in or agent member
of the Securities Depository to act on its behalf;
24
(ii) delivering an executed copy of the
Purchaser's Letter, as described in paragraph 8(a), to
the Auction Agent; and
(iii) if the customary procedures of the
Securities
Depository shall so require, surrendering the
certificates representing the shares of STRAPS of such
series to the Corporation, the Auction Agent, the
Paying Agent or the Securities Depository, as described
in the Holders' Dividend Period Notice.
(b) Initial Auctions.
(i) At least 30 days prior to the initial
Auction
for Series A STRAPS, the Corporation will:
(A) appoint a bank or trust company to act
as the Auction Agent and enter into an Auction
Agency Agreement with such bank or trust company
to conduct Auctions for the STRAPS pursuant to the
Auction procedures set forth in paragraph 8
hereof; and
(B) request one or more broker-dealers to
enter into Broker-Dealer Agreements with the
Auction Agent and to solicit bids for the shares
of STRAPS in the initial Auction for each series
and each subsequent Auction therefor.
(ii) At least 30 days prior to the initial Auction
any series of STRAPS, the Corporation will:
(A) request The Depository Trust Company
(HDTC") to act as the Securities Depository to
maintain the shares of STRAPS of such series in
book entry form for the account of each Holder's
agent member which in turn will maintain records
of the Holder's beneficial ownership and, if DTC
declines to act as the Securities Depository, use
its best efforts to appoint another securities
depository or bank or trust company to act in such
capacity; and
(B) if the Corporation theretofore has
acted
as the Paying Agent with respect to such series,
appoint a bank or trust company to act as the
Paying Agent and enter into a Paying Agency
Agreement with such bank or trust company to make
dividend and redemption payments in accordance
with the provisions of this Statement of
Designation.
25
(c) (i) Annual Notice Concerning Return of Capital.
The Corporation shall, on or before January 31 of each year
prior to the Cut-Off Date, cause to be mailed by first-class
mail, postage prepaid, to each Holder a written notice
stating whether, to the best of its knowledge, based upon
information then available to the Corporation, any
distributions made as dividends on the shares of STRAPS
during the previous taxable year constituted Non-Qualifying
Distributions. In issuing such notice and making such
determination, the Corporation shall be entitled to rely
conclusively on the advice of its legal counsel and
independent public accountants. The Corporation may correct
any information in such notice that it determines to be
inaccurate by mailing in the same manner a corrected notice,
in which case such corrected notice shall be the notice
delivered under this provision.
(ii) The Corporation shall, promptly after the
occurrence thereof, cause to be mailed, by first-class mail,
postage prepaid, to the Paying Agent and each registered
Holder of shares of STRAPS, a written notice stating that it
has determined that the Cut-Off Date has occurred.
8. Auction Procedures.
(a) Certain Definitions. Capitalized terms not
defined in this paragraph 8 shall have the respective meanings
specified in paragraph 1 through paragraph 7 above. As used in
this paragraph 8, the following terms shall have the following
meanings, unless the context otherwise requires, and all defined
terms, unless the context otherwise requires, shall be deemed to
refer to Series A STRAPS, Series B STRAPS, Series C STRAPS or
Series D STRAPS, as the case may be:
"Affiliate" means any Person known to the Auction
Agent
to be controlled by, in control of, or under common control
with, the Corporation.
"Agent Member" means the member of the Securities
Depository that will act on behalf of a Bidder and/or an
Existing Holder.
"Auction" means the periodic operation of the
procedures set forth in this paragraph 8.
"Auction Date" means the Business Day next preceding
the first day of a Dividend Period.
"Available STRAPS" has the meaning specified in
paragraph 8(d)(i) below.
26
"Bid" has the meaning specified in paragraph 8(b)(i)
below.
"Bidder" has the meaning specified in paragraph
8(b)(i)
below.
"Broker-Dealer" means any broker-dealer, or other
entity permitted by law to perform the functions required of
a Broker-Dealer in this paragraph 8, that is a member of, or
a participant in, the Securities Depository, that has been
selected by the Corporation and that has entered into a
Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between
the Auction Agent and a Broker-Dealer pursuant to which such
Broker-Dealer agrees to follow the procedures specified in
this paragraph 8.
"Existing Holder", when used with respect to shares
of
STRAPS, means a Person who has executed a Purchaser's Letter
and is listed as the Existing Holder of such shares of
STRAPS in the records of the Auction Agent.
"Hold Order" has the meaning specified in paragraph
8(b)(i) below.
"Maximum Rate", means, on any date of determination,
with respect to a series of STRAPS with a Short-Term
Dividend Period, the percentage of the 60-day "AA" Composite
Commercial Paper Rate in effect on such date, and with
respect to a series of the STRAPS with a Long-Term Dividend
Period, the percentage of the Applicable Treasury Rate in
effect on such date, determined as set forth below based on
the Prevailing Credit Ratings of the STRAPS on the Business
Day immediately preceding such date of determination:
Prevailing Credit Ratings of STRAPS
Percentage
AA/ aa or Above . . . . . . . . . . . . . . . 125%
A/a . . . . . . . . . . . . . . . . . . . . . 150%
BBB / baa . . . . . . . . . . . . . . . . . . 175%
BB/ba . . . . . . . . . . . . . . . . . . . . 200%
Below BB/ba . . . . . . . . . . . . . . . . . 250%
Unless the context otherwise requires, "Maximum Rate," when
used in this paragraph 8, shall mean the Maximum Rate on the
Auction Date.
"Order" has the meaning specified in paragraph
8(b)(i)
below.
"Outstanding," with respect to shares of STRAPS,
means,
as of any date, shares of STRAPS theretofore issued by the
Corporation except, without duplication, (A) any shares of
STRAPS theretofore cancelled or delivered to the Auction
Agent for cancellation, or redeemed by the Corporation, (B)
except as provided in paragraph 5 above, any shares of
STRAPS as to which a Notice of Redemption shall have been
given by the Corporation, (C) any shares of STRAPS as to
which the Corporation or any Affiliate shall be an Existing
Holder and (D) any shares of STRAPS represented by any
certificate which has been replaced by a new certificate
executed and delivered by the Corporation.
"Person" means and includes an individual, a
partnership, a corporation, a trust, an unincorporated
association, a joint venture or other entity or a government
or an agency or political subdivision thereof.
"Potential Holder" means any Person, including any
Existing Holder, (A) who shall have executed a Purchaser's
Letter and (B) who may be interested in acquiring shares of
STRAPS (or, in the case of an Existing Holder, additional
shares of STRAPS).
"Prevailing Credit Ratings" means (A) AA/aa or above
if
the shares of STRAPS have ratings of AA- or better by
Standard & Poor's and "aa3 n or better by Moody's or the
equivalent of either or both of such ratings by the
applicable Rating Agencies, (B) if not AA/aa or above, then
A/a if the shares of STRAPS have a rating of A- or better by
Standard & Poors and "a3" or better by Moody's or the
equivalent of either or both of such ratings by the
applicable Rating Agencies, (C) if not AA/aa or above or
A/a, then BBB/baa, if the shares of STRAPS have ratings of
BBB- or better by Standard & Poor's and "baa3" or better by
Moody's or the equivalent of either or both of such ratings
by the applicable Rating Agencies, (D) if not AA/aa or
above, A/a, or BBB/baa, then BB/ba if the shares of STRAPS
have a rating of BB- or better by Standard & Poor's and
Hba3 H or better by Moody's or the equivalent of either or
both of such ratings by the applicable Rating Agencies, and
(E) if not AA/aa or above, A/a, BBB/baa or BB/ba, then below
BB/ba. In the event of credit ratings in different
categories, the lower credit rating shall control.
"Purchaser's Letter" means a purchaser's letter in
which a Person agrees, among other things, to offer to
purchase, purchase, offer to sell and/or sell shares of
STRAPS as set forth in this paragraph 8.
28
"Securities Depository" means the securities
depository
appointed as such by the Corporation pursuant to paragraph
7(b) that agrees to follow the procedures required to be
followed by such securities depository in connection with
shares of STRAPS.
"Sell Order" has the meaning specified in paragraph
8(b)(i) below.
"STRAPS" means Series A STRAPS, Series B STRAPS,
Series
C STRAPS or Series D STRAPS, as the case may be.
"Submission Deadline" means 1:00 p.m., New York City
Time, on any Auction Date or such other time on any Auction
Date by which Broker-Dealers are required to submit Orders
to the Auction Agent as from time to time specified by the
Auction Agent, with the consent of the Corporation, which
consent shall not be unreasonably withheld.
"Submitted Bid" has the meaning specified in
paragraph
8(d)(i) below.
"Submitted Hold Order" has the meaning specified in
paragraph 8(d)(i) below.
"Submitted Order" has the meaning specified in
paragraph 8(d)(i) below.
"Submitted Sell Order" has the meaning specified in
paragraph 8(d)(i) below.
"Sufficient Clearing Bids" has the meaning specified
in
paragraph 8(d)(i) below.
"Winning Bid Rate" has the meaning specified in
paragraph 8(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) On or prior to the Submission Deadline on each
Auction Date:
(A) each Existing Holder may submit to a Broker-
Dealer information as to:
(1) the number of Outstanding shares,
if any, of STRAPS held by such Existing Holder
which such Existing Holder desires to continue to
hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(2) the number of Outstanding shares,
if any, of STRAPS held by such Existing Holder
which such Existing Holder desires to continue to
hold, provided that the Applicable Rate for the
next succeeding Dividend Period shall not be less
than the rate per annum specified by such Existing
Holder; and/or
(3) the number of Outstanding shares,
if any, of STRAPS held by such Existing Holder
which such Existing Holder offers to sell without
regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential
Holders that shall be maintained by such Broker-Dealer in
good faith for the purpose of conducting a competitive
Auction, shall contact Potential Holders, including Persons
who are not Existing Holders, on such list to determine the
number of Outstanding shares, if any, of STRAPS which each
such Potential Holder offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer
of the information referred to in clause (A) or (B) of this
paragraph 8(b)(i) is hereinafter referred to as an "Order" and
each Existing Holder and each Potential Holder placing an Order
is hereinafter referred to as a "Bidder"; an Order containing the
information referred to in clause (A)(1) of this paragraph
8(b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of
this paragraph 8(b)(i) is hereinafter referred to as a "Bid"; and
an Order containing the information referred to in clause (A)(3)
of this paragraph 8(b)(i) is hereinafter referred to as a "Sell
Order".
(ii) (A) A Bid by an Existing Holder shall constitute
an irrevocable offer to
(1) the number of Outstanding shares of
STRAPS specified in such Bid if the Applicable Rate
determined on such Auction Date shall be less than the
rate specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of STRAPS determined as set forth in
paragraph 8(e)(i)(D) if the Applicable Rate determined
on such Auction Date shall be equal to the rate
specified in such Bid; or
30
(3) such number or a lesser number of
Outstanding shares of STRAPS to be determined as set
forth in paragraph 8(e)(ii)(C) if the rate specified in
such Bid shall be higher than the Maximum Rate and
Sufficient Clearing Bids have not been made.
(B) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding shares of
STRAPS specified in such Sell Order; or
(2) such number or a lesser number of
Outstanding shares of STRAPS as set forth in paragraph
8(e)(ii)(C) if Sufficient Clearing Bids have not been
made.
(C) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(1) the number of Outstanding shares of
STRAPS specified in such Bid if the Applicable Rate
determined on such Auction Date shall be higher than
the rate specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of STRAPS as set forth in paragraph
8(e)(i)(E) if the Applicable Rate determined on such
Auction Date shall be equal to the rate specified in
such Bid.
(c) Submission of Orders by Broker-Dealers to Auction
Agent.
(i) Each Broker-Dealer shall submit in writing to
the Auction Agent prior to the Submission Deadline on each
Auction Date all Orders obtained by such Broker-Dealer and
shall specify with respect to each Order;
(A) the name of the Bidder placing such
Order;
(B) the aggregate number of Outstanding
shares of STRAPS that are the subject of such Order;
(C) to the extent that such Bidder is an
Existing Holder:
(1) the number of Outstanding shares,
if any, of STRAPS subject to any Hold Order placed
by such Existing Holder; and
(2) the number of Outstanding shares,
if any, of STRAPS subject to any Bid placed by
such Existing Holder and the rate specified in
such Bid; and
(3) the number of Outstanding shares,
if any, of STRAPS subject to any Sell Order placed
by such Existing Holder; and
(D) to the extent that such Bidder is a
Potential Holder, the rate specified in such Potential
Holder's Bid.
(ii) If any rate specified in any Bid contains
more than three digits to the right of the decimal point,
the Auction Agent shall round such rate up to the next
highest one-thousandth (.001) of 1%.
(iii) (A) With respect to an Auction for a
Dividend Period immediately succeeding a Long-Term Dividend
Period and for each Auction thereafter until an Auction
occurs at which Sufficient Clearing Bids exist, if a Bid or
a Hold Order covering all of the Outstanding shares of
STRAPS held by an Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction
Agent shall deem a Sell Order to have been submitted on
behalf of such Existing Holder covering the number of
Outstanding shares of STRAPS held by such Existing Holder
not subject to a Bid or Hold Order submitted to the Auction
Agent and (B) with respect to any other Auction, if an Order
or Orders covering all of the Outstanding shares of STRAPS
held by an Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent
shall deem a Hold Order to have been submitted on behalf of
such Existing Holder covering the number of Outstanding
shares of STRAPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders covering in the
aggregate more than the number of Outstanding shares of
STRAPS held by an Existing Holder are submitted to the
Auction Agent, such Order or Orders shall be considered
valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of
such Existing Holder shall be considered valid up to
and including the number of Outstanding shares of
STRAPS held by such Existing Holder; provided that if
more than one Hold Order is submitted on behalf of such
Existing Holder and the number of shares of STRAPS
subject to such Hold Orders exceeds the number of
Outstanding shares of STRAPS held by such Existing
32
Holder, the number of shares of STRAPS subject to such
Hold Orders shall be reduced pro rata so that such Hold
Orders shall cover the number of Outstanding shares of
STRAPS held by such Existing Holder;
(B) (1) any Bid shall be considered valid
up to and including the excess of the number of
Outstanding shares of STRAPS held by such Existing
Holder over the number of shares of STRAPS subject to
Hold Orders referred to in paragraph 8(c)(iv)(A),
(2) subject to subclause (1) above, if
more than one Bid specifying the same rate is submitted
on behalf of such Existing Holder and the number of
Outstanding shares of STRAPS subject to such Bids is
greater than such excess, the number of shares of
STRAPS subject to such Bids shall be reduced pro rata
so that such Bids shall cover the number of shares of
STRAPS equal to such excess, and
(3) subject to subclause (1) above, if
more than one Bid specifying different rates is
submitted on behalf of such Existing Holder, such Bids
shall be considered valid in the ascending order of
their respective rates and in any such event the
number, if any, of such Outstanding shares subject to
Bids not valid under this clause (B) shall be treated
as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid
up to and including the excess of the number of
Outstanding shares of STRAPS held by such Existing
Holder over the number of shares of STRAPS subject to
Hold Orders referred to in paragraph 8(c)(iv)(A) and
Bids referred to in paragraph 8(c)(iv)(B).
(v) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a
separate Bid with the rate and the number of shares of
STRAPS therein specified.
(d) Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate.
(i) The Auction Agent shall assemble all Orders
submitted or deemed submitted to it by the Broker-Dealers
(each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as
a "Submitted Hold Order," a "Submitted Bid" or a "Submitted
Sell Order," as the case may be, or as a "Submitted Order")
and shall, after the Submission Deadline on each Auction
Date, determine:
(A) the excess of the total number of
Outstanding shares of STRAPS over the number of
Outstanding shares of STRAPS that are the subject of
Submitted Hold Orders (such excess being hereinafter
to as the "Available STRAPS");
(B) from the Submitted Orders whether:
(1) the number of Outstanding shares of
STRAPS that are the subject of Submitted Bids by
Potential Holders specifying one or more rates
equal to or lower than the Maximum Rate exceeds or
is equal to:
(2) the sum of (x) the number of
Outstanding shares of STRAPS that are the subject
of Submitted Bids by Existing Holders specifying
one or more rates higher than the Maximum Rate and
(y) the number of Outstanding shares of STRAPS
that are the subject of Submitted Sell Orders (if
such excess or such equality exists (other than
because the number of shares of STRAPS in
subclauses (x) and (y) above are each zero because
all of the Outstanding shares of STRAPS are the
subject of Submitted Hold Orders), such Submitted
Bids in subclause (1) above being hereinafter
referred to collectively as "Sufficient Clearing
Bids"); and
(C) If Sufficient Clearing Bids have been
made, the lowest rate specified in the Submitted Bids
(the "Winning Bid Rate") that, if:
(1) each Submitted Bid from Existing
Holders specifying such lowest rate and all other
Submitted Bids from Existing Holders specifying
lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of
STRAPS that are the subject of such Submitted
Bids, and
(2) each Submitted Bid from Potential
Holders specifying such lowest rate and all other
Submitted Bids from Potential Holders specifying
lower rates were accepted, thus requiring such
Potential Holders to purchase the shares of STRAPS
that are the subject of such Submitted Bids,
would result in the number of shares subject to all
Submitted Bids specifying such lowest rate or such
lower rates being not less than the Available STRAPS.
34
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 8(d)(i), the Auction
Agent shall advise the Corporation of the Maximum Rate and
the Applicable Rate for the next succeeding Dividend Period,
which shall be determined as follows:
(A) If Sufficient Clearing Bids have been
made, the Applicable Rate for the next succeeding
Dividend Period shall be equal to the Winning Bid Rate
so determined;
(B) If Sufficient Clearing Bids have not
been made (other than because all the Outstanding
shares of STRAPS are the subject of Submitted Hold
Orders), in an Auction for a Short-Term Dividend Period
(regardless of whether such Dividend Period is a Short-
Term Dividend Period because the Corporation did not
submit a Notice of Dividend Period, selected a Short-
Term Dividend Period in its Notice of Dividend Period
or submitted a Notice of Revocation earlier than two
hours prior to the Submission Deadline or because
Sufficient Clearing Bids did not exist at the previous
Auction) or if the Auction is not held for any reason,
(i) notwithstanding any Notice of Dividend Period
submitted with respect thereto, such next succeeding
Dividend Period will be a Short-Term Dividend Period
and (ii) the Applicable Rate for the next succeeding
Dividend Period will be the Maximum Rate on the Auction
Date for a Short-Term Dividend Period;
(C) If Sufficient Clearing Bids have not
been made (other than because all of the Outstanding
shares of STRAPS are the subject of Submitted Hold
Orders) in an Auction for a Long-Term Dividend Period
or if the Auction is not held for any reason, then (i)
notwithstanding any Notice of Dividend Period submitted
with respect thereto, such next succeeding Dividend
Period will be a Short-Term Dividend Period, (ii) the
Applicable Rate for the next succeeding Dividend Period
will be the Maximum Rate on the Auction Date for a
Short-Term Dividend Period and (iii) the Corporation
may not again give a Notice of Dividend Period
selecting a Long-Term Dividend Period until Sufficient
Clearing Bids have been made with respect to a Short-
Term Dividend Period; or
(D) if all of the Outstanding shares of
STRAPS are the subject of Submitted Hold Orders, the
Applicable Rate for the next succeeding Dividend Period
shall be equal to (i) for a Short-Term Dividend Period,
59% of the 60-day "AA" Composite Commercial Paper Rate
on the date of such Auction or (ii) for a Long-Term
Dividend Period, 50% of the Applicable Treasury Rate on
the date of such Auction.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Based on the
determinations made pursuant to paragraph 8(d)(i), the Submitted
Bids and Submitted Sell Orders shall be accepted or rejected and
the Auction Agent shall take such other action as set forth
below:
(i) If Sufficient Clearing Bids have been made,
subject to the provisions of paragraph 8(e)(iv) and
paragraph 8(e)(v), Submitted Bids and Submitted Sell Orders
shall be accepted or rejected in the following order of
priority and all Submitted Bids to the extent not accepted
as provided in this clause (i) shall be rejected:
(A) the Submitted Sell Orders of Existing
Holders shall be accepted and the Submitted Bid of each
of the Existing Holders specifying any rate that is
higher than the Winning Bid Rate shall be accepted,
thus requiring each such Existing Holder to sell the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid;
(B) the Submitted Bid of each of the
Existing Holders specifying any rate that is lower than
the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid;
(C) the Submitted Bid of each of the
Potential Holders specifying any rate that is lower
than the Winning Bid Rate shall be accepted, thus
requiring each such Potential Holder to purchase the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid;
(D) the Submitted Bid of each of the
Existing Holders specifying a rate that is equal to the
Winning Bid Rate shall be rejected, thus entitling each
such Existing Holder to continue to hold the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid, unless the number of Outstanding
shares of STRAPS that are the subject of such Submitted
Bids shall be greater than the number of shares of
STRAPS ("remaining shares") equal to the excess of the
Available STRAPS over the number of shares of STRAPS
subject to Submitted Bids described in paragraph
8(e)(i)(B) and paragraph 8(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be
accepted, and each such Existing Holder shall be
required to sell Outstanding shares of STRAPS, but only
in an amount equal to the difference between (1) the
number of Outstanding shares of STRAPS then held by
such Existing Holder subject to such Submitted Bid and
(2) the number of shares of STRAPS obtained by
multiplying (x) the number of the remaining shares by
(y) a fraction, the numerator of which shall be the
number of Outstanding shares of STRAPS held by such
Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the number of
Outstanding shares of STRAPS subject to such Submitted
Bids made by all such Existing Holders that specified a
rate equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the
Potential Holders specifying a rate that is equal to
the Winning Bid Rate shall be accepted but only in an
amount equal to the number of Outstanding shares of
STRAPS obtained by multiplying (x) the difference
between the Available STRAPS and the number of
Outstanding shares of STRAPS subject to Submitted Bids
described in paragraph 8(e)(i)(B), paragraph 8(e)(i)(C)
and paragraph 8(e)(i)(D) by (y) a fraction, the
numerator of which shall be the number of Outstanding
shares of STRAPS subject to such Submitted Bid and the
denominator of which shall be the sum of the number of
Outstanding shares of STRAPS subject to such Submitted
Bids made by all such Potential Holders that specified
rates equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding shares of
STRAPS are subject to Submitted Hold Orders) in an Auction
for a Short-Term Dividend Period (regardless of whether such
Dividend Period is a Short-Term Period because the
Corporation did not submit a Notice of Dividend Period,
selected a Short-Term Dividend Period in its Notice of
Dividend Period or submitted a Notice of Revocation earlier
than two hours prior to the Submission Deadline or because
Sufficient Clearing Bids did not exist at the previous
Auction), subject to the provisions of paragraph 8(e)(iv),
Submitted Orders shall be accepted or rejected as follows in
the following order of priority and all Submitted Bids to
the extent not accepted as provided in this clause (ii)
shall be rejected:
(A) the Submitted Bid of each Existing
Holder specifying any rate that is equal to or lower
than the Maximum Rate shall be rejected, thus entitling
such Existing Holder to continue to hold the shares of
STRAPS that are the subject of such Submitted Bid;
37
(B) the Submitted Bid of each Potential
Holder specifying any rate that is equal to or lower
than the Maximum Rate shall be accepted, thus requiring
such Potential Holder to purchase the shares of STRAPS
that are the subject of such Submitted Bid; and
(C) the Submitted Bid of each Existing
Holder specifying any rate that is higher than the
Maximum Rate shall be accepted, thus requiring each
such Existing Holder to sell the Outstanding shares of
STRAPS that are the subject of such Submitted Bid, and
the Submitted Sell Order of each Existing Holder shall
be accepted, in both cases only in an amount equal to
the difference between (1) the number of Outstanding
shares of STRAPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of STRAPS obtained by
multiplying (x) the difference between the Available
STRAPS and the aggregate number of shares of STRAPS
subject to Submitted Bids described in paragraph
8(e) (ii)(A) and paragraph 8(e) (ii) (B) by (y) a
fraction, the numerator of which shall be the number of
Outstanding shares of STRAPS held by such Existing
Holder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which shall be the number
of Outstanding shares of STRAPS subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding shares of
STRAPS are subject to Submitted Hold Orders) in an Auction
for a Long-Term Dividend Period:
(A) Each Existing Holder that placed a
Submitted Bid or a Submitted Hold Order (regardless of
the rate specified therein) will continue to hold all
Outstanding shares of STRAPS held by such Existing
Holder immediately prior to the applicable Auction;
(B) Each Submitted Bid placed by a Potential
Holder will be rejected;
(C) The next succeeding Dividend Period will
be a Short-Term Dividend Period; and
(D) The Corporation may not again give a
Notice of Dividend Period selecting a Long-Term
Dividend Period (and any such notice shall be null and
void) until Sufficient Clearing Bids have been made in
an Auction with respect to a Short-Term Dividend
Period.
(iv) If, as a result of the procedures described
in paragraph 8(e)(i) and paragraph 8(e)(ii), any Existing
Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase,
a fraction of a share of STRAPS on any Auction Date, the
Auction Agent shall, in such manner as, in its sole
discretion, it shall determine, round up or down the number
of shares of STRAPS to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date so that the
number of shares purchased or sold by each Existing Holder
or Potential Holder on such Auction Date shall be whole
shares of STRAPS.
(v) If, as a result of the procedures described
in paragraph 8(e)(i), any Potential Holder would be entitled
or required to purchase less than a whole share of STRAPS on
any Auction Date, the Auction Agent shall, in such manner
as, in its sole discretion, it shall determine, allocate
shares for purchase among Potential Holders so that only
whole shares of STRAPS are purchased on such Auction Date by
any Potential Holder, even if such allocation results in one
or more of such Potential Holders not purchasing shares of
STRAPS on such Auction Date.
(vi) Based on the results of each Auction, the
Auction Agent shall determine the number of shares of STRAPS
to be purchased and the aggregate number of shares of STRAPS
to be sold by Potential Holders and Existing Holders on
whose behalf each Broker-Dealer submitted Bids or Sell
Orders, and, with respect to each Broker-Dealer, to the
extent that such aggregate number of shares to be purchased
and such aggregate number of shares to be sold differ,
determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers
acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Outstanding shares of STRAPS.
(vii) In no circumstance shall an Existing Holder
be required to sell shares of STRAPS that are subject to a
Hold Order submitted (or deemed to be submitted) by such
Existing Holder.
(f) Miscellaneous. The Board of Directors may
interpret the provisions of this paragraph 8 to resolve any
inconsistency or ambiguity. Neither the Corporation nor any
Affiliate shall submit any Order in any Auction. At the time of
the initial Auction for any Series of STRAPS, all of the
Outstanding shares of such series of STRAPS shall, to the extent
then required by the Securities Depository, be represented by a
single certificate, registered in the name of the nominee of the
Securities Depository. Neither the Corporation nor any of its
agents, including, without limitation, the Auction Agent, shall
have any liability with respect to the failure of a Potential
Holder, Existing Holder or Agent Member to deliver, or to pay
for, shares of STRAPS sold or purchased in an Auction or
otherwise.
(g) Headings of Subdivisions. The headings of the
various subdivisions of this paragraph 8 are for convenience of
reference only and shall not affect the interpretation of any of
the provisions hereof.
40
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING FOUR SERIES OF PREFERRED STOCK
Pursuant to Section 7-4-102 of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company, a Colorado
corporation (the "Corporation"), hereby submits the following
statement for the purpose of establishing and designating four
series of preferred stock and fixing and determining the relative
rights and preferences thereof.
1. The name of the Corporation is Great-West Life &
Annuity
Insurance Company.
2. On September 18, 1991, the following resolution
establishing and designating four series of shares of the
Corporation's preferred stock was duly adopted by the Board of
Directors of the Corporation pursuant to authority conferred upon
the Board by the Corporation's Articles of Redomestication:
RESOLVED, that the Board of Directors
hereby creates and establishes four series of
Stated Rate Auction Preferred Stock in
accordance with the terms set forth in
Exhibit A attached hereto [a copy of which is
attached to this Statement of Resolution and
is incorporated herein by this reference],
and authorizes the officers of the
Corporation to file this resolution with the
Colorado Secretary of State in accordance
with the Colorado Corporation Code.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: September 18, 1991 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice
President, General Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
COUNTY OF
Before me, , a notary
public, personally appeared William T. McCallum, who acknowledged
that he is the President of Great-West Life & Annuity Insurance
Company, a Colorado corporation, and that he signed the foregoing
Statement of Resolution Establishing Four Series of Preferred
Stock as his voluntary act and deed, and that the facts contained
therein are true.
In witness whereof, I have hereunto set my hand and
seal this 18th day of September, 1991.
Notary Public
My commission expires:
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado
corporation, hereby consents to the following corporate action
which shall, pursuant to Section 7-4-122 of the Colorado
Corporation Code, have the same force and effect as unanimous
action taken at a duly called and held meeting of shareholders:
"Resolved, that the Amendment to the Articles
of Redomestication of GWL&A, in the form
attached hereto, and the filing thereof with
the appropriate government authorities, are
hereby approved."
September 18, 1991 GREAT-WEST LIFE FINANCIAL
CORP.
Per:
O.T. Dackow, President and
Chief Executive Officer
Per:
W. T. McCallum, Executive
Vice President and
Chief Executive Officer
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the "Corpora-
tion") hereby adopts the following Articles of Amendment to its
Articles of Redomestication:
FIRST: the name of the Corporation is Great-West Life
& Annuity Insurance Company.
SECOND: the amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the Corp-
oration on September 18, 1991. The number of shares voted for
the Amendment was sufficient for approval.
THIRD: the amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the Corpo-
ration.
FOURTH: the amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: September 18, 1991 By:
William T. McCallum, its Presi-
dent & Chief Executive Officer
By:
D. Craig Lennox, its Senior Vice
President, General Counsel and
Secretary
<PAGE>
STATE OF COLORADO )
COUNTY
Before me, , a notary
public, personally appeared William T. McCallum, who acknowledged
that he is the President of Great-West Life & Annuity Insurance
Company, a Colorado corporation, and that he signed the foregoing
Articles of Amendment to Articles of Redomestication as his
voluntary act and deed, and that the facts contained therein are
true.
In witness whereof, I have hereunto set my hand and
seal this 18th day of September, 1991.
Notary Public
My commission expires:
<PAGE>
Exhibit
1
Great-West Life & Annuity Insurance Company hereby
amends and restates ARTICLE IX of its Articles of Redomestication
to read in its entirety as follows:
ARTICLE IX
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital
stock which the corporation is authorized to issue is 100,000,000
shares, of which 50,000,000 shares shall be Common Stock, of a
par value of $1 (one dollar) per share (the "Common Stock"), and
50,000,000 shares shall be Preferred Stock, of a par value of $1
(one dollar) per share (the "Preferred Stock").
A. COMMON STOCK
The powers, designations, preferences and relative,
participating, optional or other special rights (and the quali-
fications, limitations or restriction6 thereof) in respect of the
Common Stock are as follows:
1. Rank. The Common Stock shall rank junior to the
Preferred Stock with respect to payment of dividends and distri-
bution6 on liquidation or dissolution and shall have such other
qualifications, limitations or restrictions as provided in this
Article IX.
2. Voting Rights. Except as otherwise expressly pro-
vided by law or as provided for any series ff Preferred Stock by
the board of directors of the corporation in accordance with this
Article IX, all voting rights shall be vested in the holders of
shares of the Common Stock, and at every meeting of stockholders
of the corporation (or with respect to any action by written
consent in lieu of a meeting of stockholders), each share of
Common Stock shall be entitled to one vote (whether voted in
person by the holder thereof or by proxy or pursuant to a stock-
holders' consent) on all matters to come before such meeting of
the stockholders of the corporation.
3. Dividend and Liquidation Preference as between the
Common Stock and the Preferred Stock. For 80 long as any shares
of Preferred Stock are outstanding, the corporation shall not
declare, pay or set apart for payment any dividend or other
distribution (other than any dividend or distribution payable
solely in shares of Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock as to
dividends and liquidation) in respect of the Common Stock or any
other stock of the corporation ranking junior to the shares of
Preferred Stock as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consider-
ation any shares of the Common Stock or any other stock of the
<PAGE>
corporation ranking junior to the shares of Preferred Stock as to
dividends or upon liquidation, unless (i) full cumulative
dividends on all shares of Preferred Stock for all past dividend
periods have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment of
such dividends, and (ii) the corporation has redeemed the full
number of shares of Preferred Stock, if any, it is then obligated
to redeem in accordance with the terms of any series of Preferred
Stock as fixed by the board of directors of the corporation in
accordance with this Article IX.
4. Assets Remaining After Liquidation. In the event
of the dissolution, liquidation or winding up of the corporation,
whether voluntary or involuntary, after payment in full of the
amounts, if any, required to be paid to the holders of the Pre-
ferred Stock, the holders of shares of the Common Stock shall be
entitled, to the exclusion of the holders of shares of the Pre-
ferred Stock, to share ratably in all remaining assets of the
corporation.
B. PREFERRED STOCK
1. The Preferred Stock may be divided into and issued
in series. The board of directors of the corporation is autho-
rized to divide the authorized shares of Preferred Stock into one
or more series, each of which shall be 60 designated as to dis-
tinguish the shares thereof from the shares of all other series
and classes. The board of directors of the corporation is
authorized, within any limitations prescribed by law and this
Article IX, to fix and determine the designations, rights, quali-
fications, preferences, limitations and terms of the shares of
any series of Preferred Stock including but not limited to the
following:
(a) The rate of dividend, the time of payment of
dividends, whether dividends are cumulative, and the date
from which any dividends shall accrue;
(b) Whether shares may be redeemed, and, if so, the
redemption price and the terms and conditions of redemption;
(c) The amount payable upon shares in event of
invol-
untary liquidation;
(d) The amount payable upon shares in event of
volun-
tary liquidation;
(e) Sinking fund or other provisions, if any, for
the
redemption or purchase of shares;
(f) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the
privilege of conversion;
2
<PAGE>
(g) Voting powers, if any; and
(h) Such other terms, qualifications, privileges,
limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares of such series as
the board of directors of the corporation may, at the time
so acting, lawfully fix and determine under the laws of the
State of Colorado.
2. No Dividend Preference Between Series of Preferred
Stock. No dividends shall be declared on shares of any series of
Preferred Stock for any dividend period or part thereof unless
full cumulative dividends have been or contemporaneously are
declared on the shares of each other series of Preferred Stock
through the mo t recent dividend payment date for each such other
series. If at any time any accrued dividends on shares of any
series of Preferred Stock have not been paid in full, then the
corporation will, if paying any dividends on any shares of any
series of Preferred Stock, pay dividends on shares of all series
of Preferred Stock pro rata in proportion to the sums which would
be payable on such series if all accrued but unpaid dividends, if
any, were declared and paid in full. Dividends on any series of
Preferred Stock shall be cumulative only to the extent provided
in the terms of that series.
3. Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, holders of shares
of any series of Preferred Stock shall be entitled to receive,
out of the assets of the corporation available for distribution
to stockholders after satisfying claims of creditors but before
any payment or distribution on the Common Stock or on any other
class of stock ranking junior to the shares of Preferred Stock
upon liquidation, a liquidation distribution per share in the
amount of the liquidation preference fixed or determined in
accordance with the terms of the shares of such series of Pre-
ferred Stock plus, if so provided in such terms, an amount equal
to accumulated and unpaid dividends on each share of such series
(whether or not earned or declared) to the date of such dis-
tribution. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the assets of the
corporation are insufficient to pay in full the holders of shares
of any series of Preferred Stock the preferential amount to which
they are entitled, holders of shares of all series of Preferred
Stock will share ratably in any such distribution of such assets
in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full.
Unless and until payment in full has been made to holders of
shares of all series of Preferred Stock of the liquidation dis-
tributions to which they are entitled as provided in this Article
IX, no dividends or distributions will be made to holders of the
Common Stock or any other stock ranking junior to the shares of
any series of Preferred Stock on liquidation and no purchase,
3
<PAGE>
redemption or other acquisition for any consideration by the
corporation will be made in respect of the Common Stock or any
stock ranking junior to the shares of any series of Preferred
Stock upon liquidation. After the payment to all holders of
series of Preferred Stock of the full amount of the liquidation
distributions to which they are entitled pursuant to the
preceding sentences, such holders (in their capacity as such
holders) shall have no right or claim to any of the remaining
assets of the corporation.
(b) Neither the sale, lease or exchange (for cash,
stock, securities or other consideration) of all or substantially
all of the property and assets of the corporation, nor the con-
solidation or merger of the corporation with or into any other
entity, nor the merger or con601idation of any other entity with
or into the corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the
purposes of this Article IX.
4. Conversion Rights. Preferred Stock of any series
may be convertible into shares of any other class or into shares
of any series of the same or any other class, except as may
otherwise be limited by law, if the terms and conditions of such
conversion are fixed and determined by the board of directors of
the corporation in establishing such series of Preferred Stock.
5. Dividend Rate Periods of the Preferred Stock. The
periods during which a dividend rate would be applicable for any
series of the Preferred Stock shall be determined in accordance
with the terms of that series. Such terms may provide that the
board of directors of the corporation shall have the discretion
to establish the duration of the period during which a dividend
rate would be applicable. Such terms may provide that a dividend
rate may be applicable during all or part of the time any shares
of such series are outstanding. If a dividend rate is applicable
during only part of the time any shares of a series are
outstanding, such terms may provide that the board of directors
of the corporation may select, from time to time, one or more
subsequent time periods of the same or varying lengths during
which a dividend rate will be applicable; provided, that the
board of directors of the corporation at the time of establishing
such series shall state in the terms of such series a minimum and
a maximum length for such time periods.
6. Redemption Provisions. (a) Shares of any series
of the Preferred Stock shall be subject to the right of the
corporation to redeem any of such shares if so provided in the
terms of such series. Such terms may provide that the board of
directors of the corporation may change from time to time, the
redemption terms and conditions including the redemption price,
for shares of such series, provided, that the board of directors
of the corporation at the time of establishing such series shall
4
<PAGE>
state in the terms of such series a minimum and a maximum
redemption price.
(b) The corporation shall not purchase or otherwise
acquire any shares of any series of Preferred Stock while any
accumulated and unpaid dividends exist with respect to such
series or any other series of Preferred Stock, unless
contemporaneously with such purchase or acquisition such
accumulated and unpaid dividends are (i) paid or (ii) declared
and a sum sufficient irrevocably deposited with the paying agent
for payment of such dividends; provided, however, that the
corporation may purchase or otherwise acquire shares pursuant to
a voluntary purchase or exchange offer made on an equal basis to
all holders of shares of all series of Preferred Stock.
5
<PAGE>
Mr. Bruce N. Smith, Deputy Commissioner
Colorado Insurance Division
303 West Colfax, 5th Floor
Denver, CO 80204
October 16, 1991
Re: Great-West Life & Annuity Insurance Company
Amendment to Articles of Redomestication
and Statement of Resolution
Dear Mr. Smith:
On October 9, 1991, I filed with your office a certified
copy of Great-West Life & Annuity Insurance
Company's ("Company") Articles of Amendment to Articles of
Redomestication and Statement of Resolution
establishing four series of preferred stock as set forth in
Exhibit A attached thereto. The Secretary of State's
certification is dated October 2, 1991, File #911078115.
In order to complete our corporate records, I would
appreciate, by your signature below, or by any
other appropriate certification from the Insurance Division,
affirmative indication that the Company has met
all requirements of Section 10-3-101(3) as to the filings of
Amended Articles of Incorporation and that thee
Commissioner, with the advice of the Attorney General, finds
the Company's Articles of Amendment to
Articles of Redomestication and Statement of Resolution to
be legally adopted and in due legal form and not
in conflict with the provisions of law governing the
Company.
Sincerely,
Ruth B. Lurie
Vice President and
Counsel
APPROVED:
COLORADO INSURANCE DIVISION
By:
Printed Name &
title: Bruce Smith. Deputy Commissioner
Date:
<PAGE>
pc: Frank Dino, Chief of Corporate Affairs, State of
Colorado Division of Insurance, 303 West Colfax
Avenue, Suite 500, Denver, Colorado 80204
<PAGE>
Great -West
LIFE & ANNUITY INSURANCE COMPANY
HAND DELIVERED
Bruce Smith, Deputy Commissioner
State of Colorado Division of Insurance
Department of Regulatory Agencies
First Western Plaza
303 West Colfax Avenue, Suite 500
Denver, Colorado 80204
Dear Mr. Smith:
September 19, 1991
I am writing on behalf of Great-West Life & Annuity
Insurance
Company ("GWL&A") in connection with the contemplated
issuance by
GWL&A of preferred shares later this month to Great-West Life
Financial Corp. ("Financial"). This filing is a replacement,
with
minor changes as noted below, for the July 23, 1991 filing.
We have enclosed three executed copies of (1) an amendment
to
the Articles of Redomestication of GWL&A, and three executed
copies
of (2) a Statement of Resolution, each of which is to be
filed with
the Colorado Secretary of State before the new preferred
shares are
issued. Each of these documents has been approved by the
Board of
Directors of GWL&A. These documents are quite similar to
corresponding documents submitted to you last December in
connection with a proposed sale of preferred shares by GWL&A
which
was never consummated.
The enclosed amendment to the Articles is identical to the
amendment submitted last December, except that paragraph 6(a)
has
been modified to provide that no series of preferred stock is
to be
redeemed while a dividend arrearage exists with respect to
any
other series.
The enclosed Statement of Resolution contains various
technical changes from the version submitted last December
and, in
addition, specifies the 8.0% dividend rates which will apply
to the
new preferred shares through the end of 1993. Thereafter, the
dividend rate will be set in accordance with the auction
process.
Colorado counsel for the Company (Dennis Jackson and Mark
Levy
of the Denver firm of Holland & Hart) has participated in the
preparation of the enclosed amendment to Articles and
Statement of
Resolution, and, upon issuance of the new preferred shares,
will
<PAGE>
Bruce Smith, Deputy Commissioner
September 19, 1991
Page 2
render an opinion that they have been validly authorized and issued
under Colorado corporate law.
Of course, despite the complicated mechanics, the new
preferred shares will be equity, and the general preferences of the
new preferred stock with respect to dividends and distributions on
liquidation will be the same as the preferences which would be
applicable to more traditional preferred stock.
The following changes have been made to the July 23 filing:
(1) ARTICLES OF AMENDMENT TO ARTICLES OF
REDOMESTICATION. SECOND. Exhibit A has been changed to
Exhibit 1. to avoid confusion with the Statement of
Resolution Exhibit.
(2) The statutory reference on the Statement of
Resolution has been corrected to read "Section 7-4-102 of
the Colorado Corporation Code," and
(3) Statement of Resolution changes:
(a) p. 9 - changes of initial payment date to
January 1, 1992
(b) p. 15 - the dividend rate is changed to 8% per
annum during the initial long term dividend
period
(c) p. 19 - correction of typographical error.
I would be pleased to answer any questions you may have
concerning the enclosed documents.
Sincerely,
Ruth B. Lurie
Vice President, Counsel
and Associate Secretary
RBL1178C. krlm
Enclosures (to Mr. Dino only)
pc\enc: Frank Dino, Chief of Corporate Affairs, State of Colorado
Division of Insurance, 303 West Colfax Avenue, Suite 500,
Denver, Colorado 80204
<PAGE>
Bruce Smith, Deputy Commissioner
September 19, 1991
Page 3
RBL1178C. knm
bpc: Dennis Jackson, Esq., Holland & Hart, Attorneys at Law,
P. O. Box 8749, Denver, Colorado 80201-8749
Don Stern, Esq., Cleary, Gottlieb, Steen & Hamilton,
One Liberty Plaza, New York, New York 10006
D. Craig Lennox, Sr. V.P., General Counsel & Sec'y, GWL&A,
6T2
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLES OF MERGER
Pursuant to the Provisions of the Colorado
Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Merger:
FIRST: Pursuant to C.R.S. Section 7-7-106, the plan of
merger, attached as Exhibit A, and incorporated into and
made a
part of these Articles of Merger, was approved by unanimous
vote of
the Board of Directors of the Corporation on October 22,
1991.
SECOND: The plan of merger was approved by unanimous
vote of the Board of Directors of Great-West Life Financial
Corp.
("Financial Corp."), the parent corporation and holder of
6,468,217
shares of the Corporation's common stock prior to the
merger, which
stock (1) constitutes more than ninety percent (90%) of the
outstanding shares of common stock of the Corporation, (2)
is the
only class of stock eligible to vote on this issue, and (3)
the
vote of which is sufficient to approve the plan of merger.
THIRD: The Great-West Life Assurance Company ("Great-
West Life"), is the owner of 613,965 shares of the common
stock of
Financial Corp., which number represents all of the issued
and
outstanding shares of Financial Corp. The Board of
Directors of
Great-West Life, acting on its behalf as sole shareholder
of
Financial Corp., has (1) waived prior mailing of the plan
of
merger, and (2) voted unanimously to approve the plan of
merger on
October 24, 1991.
FOURTH: The plan of merger was delivered to Financial
Corp., the parent corporation and shareholder of the
Corporation,
on October 21, 1991.
FIFTH: The Articles of Redomestication of the
Corporation, as amended, to the extent that they are not
affected
by these Articles of Merger, remain unchanged.
SIXTH: These Articles of Merger are to become effective
on December 13, 1991, unless sooner withdrawn by a proper
filing of
a certificate of withdrawal prior to or on such date.
SEVENTH: After the effective date of the merger, the
surviving corporation is Great-West Life & Annuity
Insurance
Company.
<PAGE>
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: November 22, 1991
STATE OF COLORADO )
COUNTY OF ARAPAHOE
By:
William T. McCallum, its President
& Chief Executive Officer
By:
D. Craig Lennox, its Senior Vice-
President, General Counsel
and Secretary
Before me, , a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Merger Amending Articles of Redomestication as his voluntary act
and deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and
affixed my
official seal this day of , 1991.
Notary Public
My Commission Expires:
<PAGE>
PLAN AND AGREEMENT OF MERGER
This PLAN AND AGREEMENT OF MERGER ("Agreement") is to be
effective as of December 13, 1991, by and between GREAT-WEST
LIFE
& ANNUITY INSURANCE COMPANY, a Colorado domestic insurance
company
("GWL&A"), and GREAT-WEST LIFE FINANCIAL CORP., a Colorado
holding
company ("Financial Corp."). GWL&A and Financial Corp. shall
sometimes be referred to collectively as the "Constituent
Corporations."
RECITALS
A. GWL&A is a wholly-owned subsidiary of Financial Corp.
As
of the date hereof, GWL&A has 50,000,000 shares of stock
authorized, $1.00 par value, of which 6,468,217 shares are
currently issued and outstanding.
B. Financial Corp. is an insurance holding company wholly
owned by The Great-West Life Assurance Company, a Canadian
corporation ("GWL"), with 100,000,000 shares of stock
authorized,
no par value, with 613,965 shares currently issued and
outstanding.
C. The purpose of this Agreement is to reposition certain
United States operating subsidiaries of GWL as directly owned
subsidiaries of GWL&A.
D. In order to accomplish this, the Boards of Directors of
the Constituent Corporations deem it advisable and in the best
interests of both such corporations and their stockholders
that
Financial Corp. merge with and into GWL&A. The surviving
corporation shall be GWL&A.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and for
the
purpose of stating the terms and conditions of the merger, it
is
agreed, subject to the terms and conditions hereinafter set
forth,
as follows:
1. MERGER AND EFFECTIVE DATE. In accordance with the
provisions of the laws of Colorado and subject to the terms
and
conditions of this Agreement, Financial Corp. shall be merged
with
and into GWL&A. The effect of the merger shall be as
prescribed by
Colorado law, and the effective date of the merger shall be
December 13, 1991. The merger shall take place pursuant to the
requirements of Colorado Revised Statutes, Section 10-3-801, et
seq.,
titled Insurance Holding Company Systems, C.R.S. Section 10-3-101,
and
Article 7 of the Colorado Corporate Code.
-1-
<PAGE>
2. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
2.1 Directors. The directors of GWL&A in office on the
effective date of the merger shall be the directors of GWL&A
and
shall hold office for the terms for which they have been
elected
until their successors are duly elected and qualified pursuant
to
the bylaws of GWL&A.
2.2 Officers and Committees. All persons who, on the
effective date of the merger, are officers or members of any
committee of GWL&A shall, after the effective date, hold the
same
office in GWL&A as they theretofore held in GWL&A, subject to
the
provisions of the bylaws of GWL&A.
3. CONDITIONS PRECEDENT TO MERGER. The merger shall not be
effective unless and until the following conditions have been
fulfilled:
3.1 Compliance with Holding Company Requirements. The
requirements of C.R.S. S10-3-801, et seq., have been complied
with
and approval of the Colorado Division of Insurance has been
obtained or an exemption therefrom under C.R.S.
Section 10-3-803(8)(C) has
been obtained.
3.2 Shareholder Approval. The merger has been submitted to
and duly approved by The Great-West Life Assurance Company
("GWL")
as the shareholder of Financial Corp.
3.3 Procedure. The procedure established in C.R.S.
S7-7-106
for merging a parent and corporation, including adopting
Articles
of Merger, has been complied with.
3.4 State Regulatory Matters. When all necessary corporate
and other consents, authorizations and approvals of this
Agreement
have been obtained and provided that this Agreement has not
been
terminated, the Constituent Corporations will each cause a
copy of
this Agreement, with officers' certificates of each
Constituent
Corporation along with Articles of Merger pursuant to C.R.S.
S7-7-
106, to be filed with the Colorado Insurance Department in
accordance with C.R.S. S10-3-101. Upon attaining approval of
the
Colorado Department, the Articles of Merger along with the
Plan and
Agreement of Merger shall be filed with the Secretary of State
of
Colorado. The filing of such documents will be coordinated and
accomplished on the same date. Thereafter and without any
further
act or deed, Financial Corp. shall be merged into GWL&A, which
shall continue its corporate existence under the laws of the
State
of Colorado.
3.5 Tax Matters. The merger will qualify as a
reorganization
within the meaning of Section 368 of the Internal Revenue Code
of
1986, as amended (the "Code"). GWL&A shall continue the same
-2-
<PAGE>
business and operations in which it is currently engaged, without
substantial modifications.
4. CONVERSION OF SECURITIES UPON MERGER. On the effective
date, GWL&A will transfer ownership of the 6,468,217 shares of
GWL&A owned by Financial Corp. to GWL in consideration of the
surrender by GWL to GWL&A of the 613,965 shares representing all of
the issued and outstanding shares of stock in Financial Corp.
5. EFFECT OF MERGER. On the effective date, Financial
Corp.
and GWL&A shall be a single corporation, the separate existence of
Financial Corp. shall cease and, in accordance with the terms of
this Agreement, GWL&A shall possess all of the rights, privileges,
powers, immunities and franchises, of both a public and a private
nature, all property, real, personal and mixed, and all and every
other interest of each of the Constituent Corporations, as
effectually as did the respective Constituent Corporations. All
debts due to either of the Constituent Corporations on whatever
account, including stock subscriptions and all other things in
action belonging to each Constituent Corporation shall be vested in
GWL&A without further act or deed. The title to any real estate or
interest therein, vested by deed or otherwise in either of the
Constituent Corporations, shall not revert or be in any way
impaired by reason of the merger. Neither the rights of creditors
nor any liens upon the property of either of the Constituent
Corporations shall be impaired by the merger, and all debts,
liabilities, obligations, restrictions, disabilities and duties of
each of said Constituent Corporations shall thenceforth attach to
GWL&A and may be enforced against it to the same extent as if the
same had been incurred or contracted by it. Any claim existing or
action or proceeding pending by or against either of said
Constituent Corporations may be prosecuted as if the merger had not
taken place or GWL&A may be substituted in its place.
6. TERMINATION OR P0STPONMENT OF MERGER. Notwithstanding
any of the provisions of this Agreement, at any time prior to the
effective date, and notwithstanding the approval hereof by GWL as
the sole shareholder of the Financial Corp., the Board of Directors
of either of the Constituent Corporations may cause the merger and
all transactions contemplated by this Agreement to be abandoned or
delayed for any reason that such Board may deem sufficient and
proper.
7. GENERAL PROVISIONS.
7.1 Further Instruments. Each party shall execute and
deliver all further instruments, documents and papers, and shall
perform any and all acts necessary, to give full force and effect
to all of the terms and provisions of this Agreement
7.2 Severability. If any provision of this Agreement, as
applied to any party or to any circumstance, shall be found by a
<PAGE>
court of competent jurisdiction to be void, invalid or
unenforceable, the same shall in no way affect any other provision
of this Agreement, the application of any such provision in any
other circumstance, or the validity or enforceability of this
Agreement.
7.3 Notices. All notices, statements or demands shall be
in
writing and shall be served in person, by telegraph, by express
mail, by certified mail or by private overnight delivery. Service
shall be deemed conclusively made (a) at time of service, if
personally served, (b) at the time (as confirmed in writing by the
telegraphic agency) of delivery thereof to the addressee, if served
telegraphically, (c) twenty-four (24) hours after deposit in the
United States mail, properly addressed and postage prepaid, if
served by express mail, (d) five (5) days after deposit in the
United States mail, properly addressed and postage prepaid, return
receipt requested, if served by certified mail and (e) twenty-four
(24) hours after delivery by the party giving the notice, statement
or demand to the private overnight deliverer, if served by private
overnight delivery.
Any notice or demand to either of the Constituent
Corporations shall be given to:
Great-West Life & Annuity Insurance Company
Attn: William T. McCallum, President
and Chief Executive Officer
8515 E. Orchard Road
Englewood, Colorado 80112
Great-West Life Financial Corp.
Attn: D. Craig Lennox, Sr. Vice President
and Secretary
8515 E. Orchard Road
Englewood, Colorado 80112
Any party may, by virtue of written notice in compliance with this
Paragraph, alter or change the address or the identity of the
person to whom any notice, or copy thereof, is to be sent.
7.4 Waivers. A waiver by any party of any of the terms
and
conditions of this Agreement in any one instance shall not be
deemed or construed to be a waiver of such term or condition for
the future, or of any subsequent breach thereof, nor shall it be
deemed a waiver of performance of any other obligation hereunder.
7.5 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter
hereof and supersedes all prior and collateral agreements,
understandings, statements and negotiations of the parties. Each
party acknowledges that no representations, inducements, promises,
or agreements, oral or written, with reference to the subject
-4-
<PAGE>
matter hereof have been made other than as expressly set forth
herein.
7.6 Successors and Assigns. This Agreement shall be
binding
upon and shall inure to the benefit of the parties hereto and their
respective estates, successors, legal or personal representatives,
heirs, distributees, designees and assigns.
7.7 Governing Law. This Agreement shall be governed by
and
construed in accordance with the laws of the State of Colorado.
7.8 Gender and Number. In all matters of interpretation,
whenever necessary to give effect to any provision of this
Agreement, each gender shall include the other, the singular shall
include the plural, and the plural shall include the singular.
7.9 Paragraph and Subparagraph Headings. The titles of
the
paragraphs of this Agreement are for convenience only and shall not
in any way affect the interpretation of any provision or condition
of this Agreement.
7.10 Third Parties. Except as may be expressly set forth
herein, the parties hereto do not intend to confer any rights or
remedies upon any person other than the parties hereto.
7.11 Legal Action. In the event of any litigation between
or
among the parties hereto respecting or arising out of this
Agreement, the prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and costs, whether or not such
litigation proceeds to final judgment or determination.
7.12 Counterparts. This Agreement may be executed in
counterparts which, taken together, shall constitute the whole of
the Agreement as between the parties.
-5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement
the day and year first above written.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY, a
Colorado
corporation
By:
Title: President and Chief
Executive Officer
By:
Senior Vice-President,
Chief
Title: Financial Officer
and Treasurer
GREAT-WEST LIFE FINANCIAL
CORP., a Colorado
corporation
By:
Executive
Vice-President and
Title: Chief
Operating Officer
By:
Senior
Vice-President and
Title: Secretary
-6
<PAGE>
MERGER CONSOLIDATION
CANCELLATION OF LIMITED PARTNERSHIP DUE TO MERGER
DOMESTIC FOREIGN PROFIT XXXX NONPROFIT
GREAT-WEST LIFE FINANCIAL CORP. DP881105091
-
A COLORADO CORPORATION
INTO
GREAT-WEST-LIFE & ANNUITY INSURANCE COMPANY IC871033618
A COLORADO INSURANCE CORPORATION
Delayed Effective date - 12/13/91
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: June 16, 1992 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: June 16, 1992 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: June 16, 1992 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
June 16, 1992
THE GREAT-WEST LIFE ASSURANCE
COMPANY
Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted
for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
William T. McCallum, President
and Chief Executive
Officer
By:
D. Craig Lennox, Senior
Vice-
President, General Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing, Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires: September 11, 1994
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires: September 11, 1994
<PAGE>
EXHIBIT 1
Great-West Life & Annuity Insurance Company hereby amends
parts of its Articles of Redomestication consisting of the
Statement of Resolution Establishing Four Series of Preferred
Stock dated as of September 18, 1991 and filed with the Secretary
of State of Colorado on September 30, 1991 (the "Statement") as
follows:
1. The definition of "Initial Long-Term Dividend Period"
contained in paragraph 2 of the Statement is hereby amended to
read in its entirety as follows:
"Initial Long-Term Dividend Period" means (i) with
respect to the Series A STRAPS, Series C STRAPS and Series D
STRAPS, the period from and including the respective Dates
of Original Issues for such series to and excluding
December 31, 1993, and (ii) with respect to the Series B
STRAPS, the period from and including the Date of Original
Issue for such series to and excluding December 31, 1995.
2. The first sentence of paragraph 3(b)(ii) of the
Statement is hereby amended to read as follows:
(ii) During the Initial Long-Term Dividend Period,
dividends on the shares of each series of STRAPS shall be
payable quarterly on the last day of each March, June,
September and December of each year, and the last dividend
during this Period will be payable on the last day of the
Initial Long-Term Dividend Period for such series, unless
any such date is not a Business Day, in which case dividends
on the STRAPS will be payable on the next succeeding
Business Day.
3. The first sentence of paragraph 3(c)(i) of the
Statement is hereby amended to read as follows:
(c) (i) Subject to paragraph 3(c)(ii), (I) during the
Initial Long-Term Dividend Period for each series of STRAPS,
the respective dividend rates per annum applicable to such
series shall be as follows: Series A, Series C and
Series D, 8% and Series B, 7%; and (II) the respective
dividend rates on the shares of each series of STRAPS (the
"Applicable Rate") for each subsequent Dividend Period shall
be the rate per annum determined for such series pursuant to
the operation of the Auction Procedures set forth in
paragraph 8 below.
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado
corporation, hereby consents to the following corporate action
which shall, pursuant to section 7-4-122 of the Colorado
Corporation Code, have the same force and effect as unanimous
action taken at a duly called and held meeting of shareholders:
RESOLVED, that the Amendments to the Articles
of Redomestication of GWL&A, in the form
attached hereto as Exhibits 1 and 2 (which
concern preferred stock), and the filing
thereof with the appropriate government
authorities, are hereby approved.
September 15, 1992 THE GREAT-WEST LIFE ASSURANCE
COMPANY
By: O.T. Dackow, President
By: D. L. Wooden, Senior
Vice-President
and Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity
Insurance Company ("GWL&A"), a Colorado corporation, hereby
consents to the
following corporate action which shall, pursuant to section 7-4-122
of the
Colorado Corporation Code, have the same force and effect as
unanimous action
taken at a duly called and held meeting of shareholders:
RESOLVED, that the Amendments to the Articles of
Redomestication
of GWL&A, in the form attached hereto as Exhibits 1 and 2
(which
concern preferred shares), and the filing thereof with the
appropriate
government authorities, are hereby approved.
September 15, 1992
THE GREAT-WEST LIFE ASSURANCE COMPANY
By:
Name: O.T. Dackow
Title: President
Name:
Title:
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendments set forth on Exhibit 1 and
Exhibit 2 attached hereto were adopted by a vote of the sole
shareholder of the Corporation on September 15, 1992. The
number
of shares voted for the Amendments was sufficient for
approval.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The amendments do not effect a change in the
amount of stated capital of the Corporation.
Dated: September 15, 1992 THE GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
William T. McCallum,
President
and Chief Executive
Officer
By:
D. Craig Lennox, Senior
Vice
President, General
Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared D. Craig Lennox, who acknowledged that he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
-2-
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby
amends the following parts of the terms for four series of Stated
Rate Option Preferred Stock as set forth in the Statement of
Resolution Establishing Four Series of Preferred Stock dated as
of September 18, 1991 and filed with the Secretary of State of
Colorado on September 30, i991:
Paragraphs 6(c), 6(d) and 6(e) are hereby amended to
read in their entirety as follows:
(c) Default in Dividend.
(i) During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of any series of the
STRAPS, or any class or series of preferred stock
ranking on a parity with the shares of the STRAPS as to
dividends or upon liquidation, dissolution or winding
up of the Corporation and the terms of which expressly
provide that such shares are "Voting Parity Preferred
Stock" within the meaning of this paragraph and voting
rights thereunder are then exercisable (all such
shares, and all shares of each series of the STRAPS,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock. A
"Default in Preferred Dividends" means any default or
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to any series of
STRAPS shall be deemed to have occurred whenever the
amount of unpaid accumulated dividends upon such series
through the last preceding dividend period therefor
shall be equivalent to six quarterly dividends (which,
with respect to any series of the STRAPS, shall be
deemed to be dividends with respect to a number of
dividend periods containing not less than 540 days) or
more, and, having so occurred, such default shall be
<PAGE>
deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends (whether or not earned
or declared) on all shares of all STRAPS of each and
every series then outstanding shall have been paid to
the end of the last preceding dividend period.
"Defaulted Voting Parity Preferred Stock" at any time
shall mean those classes and series of Voting Parity
Preferred Stock in respect of which, at or prior to
such time, a Default in Preferred Dividends has
occurred and of which the holders are entitled at that
time by the terms of such Voting Parity Preferred Stock
to elect directors of the Corporation. Upon the
termination of a Voting Period with respect to any
class or series of Defaulted Voting Parity Preferred
Stock, the voting rights described in this paragraph
6(c) shall cease for such class or series of Defaulted
Voting Parity Preferred Stock, subject always, however,
to revesting of such voting rights in the holders of
such Voting Parity Preferred Stock upon the further
occurrence of a Default in Preferred Dividends. If any
Voting Period shall have terminated before the holders
of a class or series of Voting Parity Preferred Stock
shall have exercised the voting rights provided in this
paragraph 6(c), the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(ii) If the holders of any class or series of
Defaulted Voting Parity Preferred Stock (the "first
Defaulted Voting Parity Preferred Stock") have elected
one or more directors prior to the happening of the
default or event permitting the holders of any other
class or series of Defaulted Voting Parity Preferred
Stock to elect directors, then the directors so
previously elected will be deemed to have been elected
by and on behalf of the holders of such other class or
series of Defaulted Voting Parity Preferred Stock as
well as the first Defaulted Voting Parity Preferred
Stock, without prejudice to the right of the holders of
such other class or series to vote for directors if
such previously elected directors shall resign, cease
to serve or stand for reelection while the holders of
such other class or series are entitled to vote. If
the holders of any first Defaulted Voting Parity
Preferred Stock are entitled to elect in excess of two
directors, the holders of such other class or series
shall not participate in the election of more than two
such directors.
(iii) No shares of any Defaulted Voting
Parity Preferred Stock held by the Corporation or any
of the Corporation's Affiliates shall be voted, or
counted in determining a quorum, for the election,
-2-
<PAGE>
removal or replacement of any director elected by any
Defaulted Voting Parity Preferred Stock.
(d) Voting Procedures.
(i) As soon as practicable after the
commencement of a Voting Period, the Corporation shall
call or cause to be called a special meeting of the
holders of Defaulted Voting Parity Preferred Stock by
mailing or causing to be mailed a notice of such
special meeting to such holders not less than 10 nor
more than 45 days after the date such notice is given.
If the Corporation does not call or cause to be called
such a special meeting, it may be called by any of such
holders on like notice. The record date for
determining the holders of Defaulted Voting Parity
Preferred Stock entitled to notice of and to vote at
such meeting shall be the close of business on the
Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each
meeting of stockholders held during a Voting Period at
which directors are to be elected, removed or replaced,
the holders of Defaulted Voting Parity Preferred Stock,
voting together as a single class (to the exclusion of
the holders of all other securities, series and classes
of capital stock of the Corporation), voting by a
majority of the votes of shares present in person or by
proxy, shall be entitled to elect two directors. In
regard to such elections, holders of shares of
Defaulted Voting Parity Preferred Stock shall be
entitled to one or more votes and/or a fractional vote
on the basis of one vote for each $100,000 of
liquidation preference (excluding amounts in respect of
accumulated and unpaid dividends) attributable to such
shares. Cumulative voting in such elections shall not
be permitted. Shares of Defaulted Voting Parity
Preferred Stock then outstanding, present in person or
represented by proxy, representing one-third of the
votes of the Defaulted Voting Parity Preferred Stock,
will constitute a quorum for the election of directors.
Notice of all meetings at which holders of Defaulted
Voting Parity Preferred Stock of any series shall be
entitled to vote will be given to such holders at their
addresses as they appear on the Stock Books. At any
such meeting or adjournment thereof in the absence of a
quorum, holders of shares of Defaulted Voting Parity
Preferred Stock representing a majority of the votes
present in person or represented by proxy shall have
the power to adjourn the meeting for the election of
directors without notice, other than an announcement at
the meeting, until a quorum is present. If any Voting
Period shall terminate after the notice of special
meeting provided for in this paragraph 6(d)(i) has been
given but before the special meeting shall have been
-3-
<PAGE>
held, the Corporation shall, as soon as practicable
after such termination, mail or cause to be mailed to
the holders of Defaulted Voting Parity Preferred Stock
a notice of cancellation of such special meeting.
(ii) The term of office of all persons who
are directors of the Corporation at the time of a
special meeting of the holders of Defaulted Voting
Parity Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting
by such holders of the two additional directors.
(iii) Simultaneously with the expiration of a
Voting Period for all classes and series of Defaulted
Voting Parity Preferred Stock, the term of office of
the directors elected by the holders of Defaulted
Voting Parity Preferred Stock shall terminate, the
other persons who shall have been elected by the
holders of stock of the Corporation (or by the Board of
Directors prior to the beginning of the Voting Period)
and who are incumbent shall constitute the directors of
the Corporation, and the voting rights of the holders
of Voting Parity Preferred Stock to elect directors
shall cease.
(iv) For so long as a Voting Period
continues, the directors elected at any time by the
holders of Defaulted Voting Parity Preferred Stock may
be removed without cause by, and shall not be removed
without cause except by, the vote of the holders of
record of the outstanding shares of Defaulted Voting
Parity Preferred Stock at any subsequent time, voting
together as a single class without regard to class or
series, at a meeting of the stockholders, or of the
holders of shares of Defaulted Voting Parity Preferred
Stock, called for such purpose. So long as a Voting
Period continues, (A) any vacancy in the office of a
director elected by the holders of Defaulted Voting
Parity Preferred Stock may be filled (except as
provided in the following clause (B)) by the person
appointed by an instrument in writing signed by the
remaining director elected by the holders of Defaulted
Voting Parity Preferred Stock and filed with the
Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
-4-
<PAGE>
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
(e) Additional Vote. If any matter (excluding
the election, removal or replacement of directors)
requires the consent or affirmative vote of shares of
any series of STRAPS, of all series of STRAPS, or of
all Preferred Stock of the Corporation, whether
pursuant to the provisions of such series, all such
series or such Preferred Stock or pursuant to the
provisions of the Articles of Redomestication of the
Corporation or pursuant to applicable law, and if any
shares of any series of STRAPS entitled to vote are
held by the Corporation or by any of its Affiliates,
then the following additional consent or vote will be
required: the same consent or affirmative vote of
shares otherwise required, except that shares of STRAPS
held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such
additional consent or vote: provided, such additional
consent or vote will not be applicable if all
outstanding shares of the STRAPS of such series (in the
case of a class vote of such series) or of all series
STRAPS (in the case of a vote of all series of STRAPS)
are held by the Corporation and/or its Affiliates.
238850.3
-5-
<PAGE>
Exhibit 2
Great-West Life & Annuity Insurance Company hereby
amends parts of ARTICLE IX of its Articles of Redomestication as
follows:
1. Article IX, Section A, paragraph 3 is hereby
amended to read in its entirety as follows:
3. Dividend and Liquidation Preference as
between the Common Stock and the Preferred Stock. For so
long as any shares of Preferred Stock are outstanding, the
corporation shall not declare, pay or set apart for payment
any dividend or other distribution (other than any dividend
or distribution payable solely in shares of Common Stock or
any other stock of the corporation ranking junior to the
shares of Preferred Stock as to dividends and liquidation)
in respect of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any
shares of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, unless (i) full
cumulative dividends on all shares of Preferred Stock as to
which dividends are cumulative for all past dividend periods
have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment
of such dividends, and (ii) the corporation has redeemed the
full number of shares of Preferred Stock, if any, it is then
obligated to redeem in accordance with the terms of any
series of Preferred Stock as fixed by the board of directors
of the corporation in accordance with this Article IX.
2. Article IX, Section B, paragraph 2 is hereby
amended to read in its entirety as follows:
2. No Dividend Preference Between Series of
Preferred Stock. No dividends shall be declared on shares
of any series of Preferred Stock for any dividend period or
part thereof unless full cumulative dividends have been or
contemporaneously are declared on the shares of each other
series of Preferred Stock as to which dividends are
cumulative through the most recent dividend payment date for
each such other series. If at any time any accrued
dividends on shares of any series of Preferred Stock as to
which dividends are cumulative (a "cumulative series") have
not been paid in full, then the corporation will, if paying
any dividends on any shares of any cumulative series of
<PAGE>
Preferred Stock, pay dividends on shares of all cumulative
series of Preferred Stock pro rata in proportion to the sums
which would be payable on such cumulative series if all
accrued but unpaid dividends, if any, through the most
recent dividend payment date were declared and paid in full.
Dividends on any series of Preferred Stock shall be
cumulative only to the extent provided in the terms of that
series .
0216633.01 2
<PAGE>
9/10/92
Exhibit 2
Great-West Life & Annuity Insurance Company hereby
amends parts of ARTICLE IX of its Articles of Redomestication as
follows:
1. Article IX, Section A, paragraph 3 is hereby
amended to read in its entirety as follows:
3. Dividend and Liquidation Preference as
between the Common Stock and the Preferred Stock. For so
long as any shares of Preferred Stock are outstanding, the
corporation shall not declare, pay or set apart for payment
any dividend or other distribution (other than any dividend
or distribution payable solely in shares of Common Stock or
any other stock of the corporation ranking junior to the
shares of Preferred Stock as to dividends and liquidation)
in respect of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any
shares of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, unless (i) full
cumulative dividends on all shares of Preferred Stock as to
which dividends are cumulative for all past dividend periods
have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment
of such dividends, and (ii) the corporation has redeemed the
full number of shares of Preferred Stock, if any, it is then
obligated to redeem in accordance with the terms of any
series of Preferred Stock as fixed by the board of directors
of the corporation in accordance with this Article IX.
2. Article IX, Section B, paragraph 2 is hereby
amended to read in its entirety as follows:
2. No Dividend Preference Between Series of
Preferred Stock. No dividends shall be declared on shares
of any series of Preferred Stock for any dividend period or
part thereof unless full cumulative dividends have been or
contemporaneously are declared on the shares of each other
series of Preferred Stock as to which dividends are
cumulative through the most recent dividend payment date for
each such other series of Preferred Stock as to
which dividends are cumulative (a "cumulative series") have
not been paid in full, then the corporation will, if paying
any dividends on any shares of any cumulative series of
<PAGE>
Preferred Stock, pay dividends on shares of all cumulative
series of Preferred Stock pro rata in proportion to the sums
which would be payable on such cumulative series if all
accrued but unpaid dividends, if any, through the most
recent dividend payment date were declared and paid in full.
Dividends on any series of Preferred Stock shall be
cumulative only to the extent provided in the terms of that
series.
0216633.
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING SERIES E PREFERRED STOCK
Pursuant to Section 7-4-102 of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company, a Colorado
corporation (the "Corporation"), hereby submits the following
statement for the purpose of establishing and designating one
series of preferred stock and fixing and determining the relative
rights and preferences thereof.
1. The name of the Corporation is Great-West Life &
Annuity Insurance Company.
2. On September 15, 1992, the following resolution
establishing and designating one series of shares of the
Corporation's preferred stock was duly adopted by the Board of
Directors of the Corporation pursuant to authority conferred upon
the Board by the Corporation's Articles of Redomestication:
RESOLVED, that the Board of Directors
hereby creates and establishes a series of
Non-Cumulative Perpetual Preferred Stock,
Series E, in accordance with the terms set
forth in Exhibit A attached hereto [a copy of
which is attached to this Statement of
Resolution and is incorporated herein by this
reference], and authorizes the officers of
the Corporation to file this resolution with
the Colorado Secretary of State in accordance
with the Colorado Corporation Code.
Dated: September 15, 1992 GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
William T. McCallum, President
and Chief Executive Officer
BY:
D. Craig Lennox, Senior Vice
President, General Counsel
and Secretary
238830 .
<PAGE>
STATE OF COLORADO )
) ss.
CoUNTY OF ARAPAHOE)
Before me, Florence A. Aston, a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Statement of Resolution Establishing Series
E Preferred Stock as his voluntary act and deed, and that the
facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE)
Before me, Florence A. Aston, a notary public,
personally appeared D. Craig Lennox, who acknowledged that he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Statement of
Resolution Establishing Series E Preferred Stock as his voluntary
act and deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
238830.
<PAGE>
EXHIBIT A
STATEMENT OF RESOLUTION ESTABLISHING
A SERIES OF PREFERRED STOCK
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
PREFERRED STOCK, SERIES E
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
The Board of Directors of Great-West Life & Annuity
Insurance Company (the "Corporation") hereby creates a fifth
series of Preferred Stock, designated as the Non-Cumulative
Perpetual Preferred Stock, Series E (hereinafter referred to as
the "Series E Preferred Stock") consisting of 2,000,000 shares of
Preferred Stock The Series E Preferred Stock shall be subject
to and governed by the provisions of the Articles of
Redomestication of the Corporation as amended from time to time
in accordance with applicable law (including, but not limited to,
the provisions of the Articles of Redomestication concerning
dividend and liquidation preferences) and shall, in addition to
the rights, privileges, restrictions and conditions stated in
such Articles of Redomestication for the Preferred Stock as a
class, have the following rights, privileges, restrictions and
conditions
ARTICLE 1
INTERPRETATION AND APPLICATION
1.1 Definitions
(a) "Affiliate," as used herein, means any entity other
than the Corporation (i) which owns beneficially,
directly or indirectly 10% or more of the outstanding
shares of the Common Stock, (ii) which is in control of
the Corporation, as "control" is defined under
Section 230.405 of the Rules and Regulations of the
Securities and Exchange Commission, 17 C.F.R.
Section 230.405, as in effect on the date of this Statement,
(iii) of which 10% or more of the outstanding shares of
common stock, or in which a 10% or greater general
partnership or joint venture interest, is owned
beneficially, directly or indirectly, by any entity
described in clause (i) or (ii) above, or (iv) which
controlled by any entity described in clause (i) or
(ii) above, as "controlled by" is defined under such
Section 230.405
(b) "Common Stock" shall mean the shares of common stock,
par value $1.00, in the capital of the Corporation;
<PAGE>
(c) "Corporation's Conversion Notice" shall have the
meaning ascribed thereto in subsection 3.2(b) hereof;
(d) "Conversion Number" shall mean the number of shares of
Common Stock which are to be issued on a conversion of
one share of the Series E Preferred Stock, which shall
be either the Negotiated Conversion Number or the
Formula Conversion Number:
(e) "Formula Conversion Number" shall mean the number of
shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.6 hereof;
(f) "Holder's Conversion Notice" shall have the meaning
ascribed thereto in subsection 4.2(a) hereof; and
(g) "Negotiated Conversion Number" shall mean that number
of shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.5 hereof.
1.2 Regulatory Approvals
Notwithstanding anything to the contrary contained
herein, the Corporation shall not redeem, purchase for
cancellation or otherwise retire, reduce or make any return of
capital in respect of any Series E Preferred Stock or exercise
its option to convert the Series E Preferred Stock into shares of
common stock or modify the rights, privileges, restrictions or
conditions of the Series E Preferred Stock unless the same is in
accordance with the Colorado law and all the necessary or
appropriate consents of the Colorado Insurance Division and other
regulatory authorities having jurisdiction have been obtained
prior thereto.
ARTICLE 2
DIVIDENDS
2.1 Dividend Payment Dates and Dividend Periods
The dividend payment dates (the "Dividend Payment
Dates") in respect of the dividends payable on the Series E
Preferred Stock shall be the last day of each of the months of
March, June, September and December in each year. A Dividend
Period shall mean the period from and including the date of issue
of the Series E Preferred Stock to but excluding the first
Dividend Payment Date and, thereafter, the period from and
<PAGE>
including each Dividend Payment Date to but excluding the next
succeeding Dividend Payment Date.
2.2 Payment of Dividends
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors of the Corporation,
out of moneys of the Corporation properly applicable to the
payment of dividends, non-cumulative cash dividends (the
"Quarterly Dividends") payable, with respect to each Dividend
Period, on the Dividend Payment Date immediately following the
end of such Dividend Period, the first of such dividends to be
payable on December 31, 1992 and to be in an amount per share
determined in accordance with section 2.3 hereof. For all
subsequent Dividend Periods, dividends, subject to section 2.3
hereof, as and when declared by the board of directors of the
Corporation, out of moneys of the Corporation properly applicable
to the payment of dividends, shall be paid in an amount per share
of Series E Preferred Stock equal to $0.39188.
2.3 Dividend for other than a Full Dividend Period
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors, out of moneys of the
Corporation properly applicable to the payment of dividends,
non-cumulative cash dividends for any period which is less than a
full Dividend Period as follows:
(a) an initial dividend per share in respect of the period
from and including the date of the initial issue of the
Series E Preferred Stock to but excluding December 31,
1992 (the "Initial Dividend Period") equal to $0.57976;
and
(b) a dividend in an amount per share with respect to any
Series E Preferred Stock:
(i) which is issued, redeemed or purchased by the
Corporation or converted during any Dividend
Period; or
(ii) where the assets of the Corporation are
distributed in the liquidation, dissolution or
winding up of the Corporation to the holders of
the Series E Preferred Stock with an effective
date during any Dividend Period;
equal to the amount obtained (rounded to five decimal
places) when $1.5675 is multiplied by a fraction of
which the numerator is the number of days in such
<PAGE>
Dividend Period that such share has been outstanding
(excluding the date of issue, redemption, purchase or
conversion or the effective date for the distribution
of assets) and the denominator of which is the number
of days in the year in which such Dividend Period
falls.
2.4 Payment Procedure
The Corporation shall pay the dividends on the Series E
Preferred Stock to the holders of record thereof at the close of
business on the second business day immediately preceding the
relevant Dividend Payment Date (less any tax required to be
deducted or withheld by the Corporation) by check drawn on a bank
or trust company and payable in lawful money of the United States
at any branch of such bank or trust company in the United States.
The delivery or mailing of any check to a holder of Series E
Preferred Stock shall be a full and complete discharge of the
Corporation's obligation to pay the dividends to such holder
(plus any tax required to be and in fact deducted and withheld
therefrom and remitted to the proper taxing authority) unless
such check is not honored when presented for payment. Dividends
which are represented by a check which has not been presented to
the Corporation's bankers for payment or that otherwise remain
unclaimed for a period of two years from the date on which they
were declared to be payable may be reclaimed (including without
limitation by cancellation of any check) and after such
reclaiming the holders of Series E Preferred Stock entitled to
the funds so reclaimed shall look only to the Corporation for
such payment, without interest.
ARTICLE 3
REDEMPTION, CONVERSION AND PURCHASE
3.1 General
(a) Subject to the Articles of Redomestication and to the
extent permitted by applicable law, the Series E
Preferred Stock may be redeemed, converted or purchased
by the Corporation as provided in this Article 3 and
Article 4 but not otherwise.
(b) For the purposes hereof, the Common Stock of the
Corporation (the "Common Stock") shall mean (i) such
common stock as currently constituted and (ii) any
shares attributable to such common stock and resulting
from a reclassification of the common stock of the
Corporation or from a capital reorganization of the
Corporation or a consolidation or merger of the
Corporation with or into any other corporation (other
<PAGE>
than a capital reorganization, consolidation or merger
which does not result in any reclassification of the
common stock or a change of the common stock into other
stock, shares or securities).
3.2 Redemption and Conversion Rights
(a) The Series E Preferred Stock shall not be redeemable
prior to April 1, 1999. The Corporation may, upon
giving notice as hereinafter provided, redeem on or
after April 1, 1999 at any time the whole or from time
to time any part of the then outstanding Series E
Preferred Stock, by the payment of an amount in cash
for each share of Series E Preferred Stock so redeemed
equal to the sum of $20.90 plus an amount equal to all
declared and unpaid dividends thereon up to but
excluding the date fixed for redemption (the
"Redemption Price").
(b) The Series E Preferred Stock shall not be convertible
at the option of the Corporation prior to April 1,
1999. Subject to compliance with the rights,
privileges, restrictions and conditions of the Common
Stock and receipt of any required regulatory approval,
the Corporation may, by giving notice as hereinafter
provided (the "Corporation's Conversion Notice"),
convert the whole or from time to time any part of the
then outstanding Series E Preferred Stock into fully
paid and non-assessable shares of Common Stock on the
basis that the Series E Preferred Stock of each holder
called for conversion by the Corporation will be
converted into (subject to that exception as to
fractions contained in section 3.7 hereof) that number
(the "Conversion Number") of shares of Common Stock
determined pursuant to Article 4 and that the Formula
Conversion Number as provided in section 4.6 shall be
used for this purpose.
(c) If less than all of the outstanding Series E Preferred
Stock are to be redeemed or converted, the shares to be
redeemed or converted shall be selected by lot, pro
rata (disregarding fractions) or in such other manner
as the board of directors or a committee thereof in its
sole discretion shall by resolution determine.
3.3 Manner of Redemption or Conversion
(a) Notice of redemption or conversion of Series E
Preferred Stock shall be given by the Corporation not
less than 25 nor more than 60 calendar days prior to
the date fixed for redemption and not less than 35 nor
more than 60 calendar days prior to the date fixed for
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<PAGE>
conversion, to each holder of Series E Preferred Stock
to be redeemed or converted, as the case may be. Such
notice shall set out (i) the date (the "Redemption
Date" or the "Conversion Date", as the case may be) on
which the redemption or conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder to whom it is addressed is to be redeemed or
converted, the number of shares of Series E Preferred
Stock so held which are to be redeemed or converted;
(iii) whether the Corporation shall redeem or convert
such Series E Preferred stock; (iv) the Redemption
Price or the method of determining the Conversion
Number, as the case may be; and (v) where the Series E
Preferred Stock is to be converted into Common Stock,
the advice that such Common Stock will be registered in
the name of the registered holder of the Series E
Preferred Stock to be converted unless the Corporation
receives from such holder, on or before the tenth
calendar day prior to the Conversion Date (the
"Transferee Notice Date"), at the head office of the
Corporation, written notice in a form and executed in a
manner satisfactory to the Corporation directing the
Corporation to register such Common Stock in some other
name or names (the "Transferee") and stating the name
or names (with addresses) accompanied by payment to the
Corporation of any transfer tax that may be payable by
reason thereof and a written declaration of such
matters as may be required by law in order to determine
the entitlement of such Transferee to hold such Common
Stock.
(b) In the case of a redemption, on and after the
Redemption Date the Corporation shall pay or cause to
be paid to the holders of the Series E Preferred Stock
so called for redemption the Redemption Price therefor
on presentation and delivery at the head office of the
Corporation or such other place or places in the United
States designated in the notice referred to in
subsection 3.3(a), of the certificate or certificates
representing the Series E Preferred Stock so called for
redemption. Such payment shall be made by check and
shall be a full and complete discharge of the
Corporation's obligation to pay the Redemption Price
owed to the holders of Series E Preferred Stock so
called for redemption unless the check is not honored
when presented for payment. From and after the
Redemption Date, the holders of Series E Preferred
Stock called for redemption shall cease to be entitled
to dividends or to exercise any of the rights of
holders of Series E Preferred Stock in respect of such
shares except the right to receive therefor the
Redemption Price, provided that if payment of such
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<PAGE>
Redemption Price is not duly made in accordance with
the provisions hereof, then the rights of such holders
shall remain unimpaired.
(c) In the case of a redemption, the Corporation shall have
the right at any time after mailing a notice of redemp-
tion to deposit irrevocably (subject to the repayment
right set forth below in this subsection) the aggregate
Redemption Price of the Series E Preferred Stock
thereby called for redemption, or such part thereof as
at the time of deposit has not been claimed by the
holders entitled thereto, in a special account with a
bank or trust company designated by the Corporation for
the holders of such shares, and upon such deposit being
made or upon the date fixed for redemption, whichever
is the later, the Series E Preferred Stock in respect
of which such deposit shall have been made shall be
deemed to be redeemed and the rights of each holder
thereof shall be limited to receiving, without
interest, his proportionate part of the Redemption
Price so deposited upon presentation and surrender of
the certificates representing the Series E Preferred
Stock so redeemed. Any interest on any such deposit
shall belong to the Corporation. Redemption moneys
which remain unclaimed for a period of two years from
the Redemption Date shall be repaid to the Corporation,
and after such repayment, the holders of Series E
Preferred Stock entitled to the funds so repaid to the
Corporation shall look only to the Corporation for such
payment, without interest.
d) In the case of a conversion of Series E Preferred Stock
into Common Stock, on and after the Conversion Date the
Corporation shall deliver the Conversion Number of
Common Stock on presentation and delivery by the
holders at the head office of the Corporation or such
other place or places in the United States designated
in the notice referred to in subsection 3.3(a), of the
certificate or certificates representing the Series E
Preferred Stock so called for conversion. The
Corporation shall deliver or cause to be delivered
certificates representing such Common Stock registered
in the name of the holders of Series E Preferred Stock
to be converted, or as such holders shall have directed
as aforesaid. Series E Preferred Stock so converted
shall be converted effective on the Conversion Date.
From and after the Conversion Date, the holders of
Series E Preferred stock so converted who have not
presented and delivered the certificate or certificates
representing such shares as herein required shall cease
to be entitled to dividends on such Series E Preferred
Stock or to exercise any of the rights of holders of
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<PAGE>
Series E Preferred Stock in respect of such shares
except the right to receive a certificate for the
Conversion Number of Common Stock and any payment with
respect to a fraction of a share of Series E Preferred
Stock.
(e) If less than all the Series E Preferred Stock
represented by any certificate shall be redeemed or
converted, a new certificate for the balance shall be
issued without cost to the holder.
3.4 Purchase
The Corporation may purchase at any time all or from
time to time any part of the outstanding Series E Preferred Stock
in the open market (including purchases through or from an
investment dealer or firm holding membership on a stock exchange)
or pursuant to tenders received by the Corporation upon an
invitation for tenders addressed to all holders of the Series E
Preferred Stock, at a price per share in each case not exceeding
the applicable Redemption Price at the time of purchase plus
costs of purchase. If upon any invitation for tenders the
Corporation receives tenders for Series E Preferred Stock at the
same price in an aggregate number greater than the number for
which the Corporation is prepared to accept tenders, the shares
to be purchased shall be selected from the shares offered at such
price as nearly as may be pro rata (to the nearest 10 shares)
according to the number of shares of Series E Preferred Stock
offered in each such tender, in such manner as the board of
directors or a committee thereof in its sole discretion shall by
resolution determine. If part only of the Series E Preferred
Stock represented by any certificate shall be issued
without cost to the holder.
3.5 Conversion into Another Series of Preferred Stock
To the extent permitted by applicable law and the
Articles of Redomestication and by-laws of the corporation, and
with any required approval of the Colorado Insurance Division,
the Corporation may at any time on or after September 30, 1997,
designate a further series of preferred stock of the same class
as the Series E Preferred Stock which qualifies as regulatory
capital for Canadian insurance law purposes (the "New Preferred
Stock") and notify the holders of Series E Preferred Stock that
they have the right pursuant to the terms of the Series E
Preferred Stock, at their option, to convert their Series E
Preferred Stock into fully paid and non-assessable New Preferred
Stock on a share for share basis on a date specified by the
Corporation in such notice (the "Exchange Date"). Such notice
shall provide the details of the terms and conditions of the New
Preferred Stock and instructions on how to convert Series E
<PAGE>
Preferred Stock into New Preferred Stock and shall be accompanied
by the proper form of instrument of surrender.
3.6 Manner of Conversion into Another
Series of Preferred Stock
Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation on or prior to the
Exchange Date the certificate or certificates representing the
Series E Preferred Stock to be so converted accompanied by a
written instrument of surrender in form satisfactory to the
Corporation and duly executed by the registered holder of the
Series E Preferred Stock represented by the certificate or
certificates so surrendered in which instrument the holder may
elect to convert all or a portion of the Series E Preferred Stock
represented by such certificate or certificates into New
Preferred Stock.
The Corporation shall, on presentation and delivery at
the head office of the Corporation or such other place or places
in the United States as the Corporation may agree of the
certificate or certificates representing the Series E Preferred
Stock to be converted, issue and deliver or cause to be delivered
as soon as is reasonably practicable after the Exchange Date a
certificate or certificates representing the New Preferred Stock
into which such Series E Preferred Stock have been converted.
Such certificate or certificates shall be registered in the name
of the holder of the Series E Preferred Stock so converted or in
such name or names as the holder may specify in the written
instrument accompanying the Series E Preferred Stock to be
converted. The Series E Preferred Stock so converted shall be
converted, and the holder thereof shall become a holder of record
of New Preferred Stock, effective on the Exchange Date. The
provisions of subsection 3.3(e) shall apply, mutatis mutandis, in
the event of a conversion into New Preferred Stock of less than
all of the Series E Preferred Stock represented by a particular
share certificate.
3.7 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock, the Corporation shall adjust such
fractional interest by payment by check in an amount equal to the
value of such fractional interest computed on the basis of $20.90
divided by the Conversion Number determined in respect of the
relevant Conversion Date.
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<PAGE>
ARTICLE 4
HOLDER'S CONVERSION RIGHT
4.1 Conversion Right
Subject to the option of the Corporation in section 4.3
hereof and to the provisions of section 1.2 hereof, each share of
Series E Preferred Stock shall, on and after September 30, 1993,
at the option of the holder, be convertible on the last day of
March, June, September and December in each year (a "permitted
conversion date") into (subject to the exception as to fractions
contained in section 4.4) that number of shares of fully paid and
non-assessable Common Stock as is equal to the Conversion Number.
The holder of Series E Preferred Stock to be converted is
entitled to receive any dividend which has been declared and is
payable on the date of such conversion.
Not less than 90 nor more than 120 calendar days prior
to September 30, 1999, the Corporation shall give to the
registered holders of the Series E Preferred Stock notice of the
conversion right containing instructions to such holders as to
the method by which such conversion right may be exercised, as
set out in section 4.2. However, a failure to give such notice
shall not affect the conversion rights of the Series E Preferred
Stock.
4.2 Manner of Conversion
(a) Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation not less
than 55 calendar days prior to the date (which must be
a permitted conversion date) fixed for conversion by
such holder the certificate or certificates for the
Series E Preferred Stock to be converted with the
notice of conversion on the reverse side thereof (the
"Holder's Conversion Notice") duly completed. Subject
to section 4.3 and to the right to accept an offer to
convert Series E Preferred Stock into New Preferred
Stock under section 3.5, such Conversion Notice shall
be irrevocable and shall set out:
(i) the date (the "Conversion Date") on which the
conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder by whom such notice is given is to be
converted, the number of shares of Series E
Preferred Stock so held which are to be converted:
and
<PAGE>
(iii) an acknowledgement that the Common Stock into
which the Series E Preferred Stock is to be
converted is to be registered in the name of the
registered holder of the Series E Preferred Stock
to be converted unless such holder, on or before
the tenth calendar day prior to the Conversion
Date (the "Transferee Notice Date") provides to
the Corporation written notice in the form and
executed in a manner satisfactory to the
Corporation directing the Corporation to register
such Common Stock in some other name or names (the
"Transferee") and stating the name or names (with
addresses) accompanied by payment to the
Corporation of any transfer tax that may be
payable by reason thereof and a written
declaration of any matters as may be required by
law in order to determine the entitlement of such
Transferee to hold such common Stock.
(b) Subject to section 4.3 hereof, the Corporation shall,
on presentation and delivery at the head office of the
corporation or such other place or places in the United States as
the Corporation may agree of the certificate or certificates
representing the Series E Preferred Stock so surrendered for
conversion, issue and deliver or cause to be delivered certifi-
cates representing the number of whole shares of Common Stock
into which such Series E Preferred Stock is to be converted,
registered in the name of the holder of the Series E Preferred
Stock to be converted, or as such holder shall have directed as
aforesaid, as the case may be, on the Conversion Date. The
Series E Preferred Stock so converted shall be converted, and the
holder thereof shall become a holder of Common Stock of record,
effective on the Conversion Date.
(c) If less than all the Series E Preferred Stock
represented by any certificate shall be converted, a new
certificate for the balance shall be issued without cost to the
holder.
4.3 Option of the Corporation
Prior to any Conversion Date, the Corporation may, by
notice given not less than 35 calendar days before such
Conversion Date to all holders who have given a Conversion
Notice,
(a) redeem on the Conversion Date all but not less than all
of the Series E Preferred Stock forming the subject
matter of the applicable Conversion Notice at the
Redemption Price provided for in Article 3 hereof; or
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<PAGE>
(b) request such holders to sell on the Conversion Date
such Series E Preferred Stock to another purchaser or
purchasers in the event that a purchaser or purchasers
willing to purchase all but not less than all of such
Series E Preferred Stock at a price equal to the
Redemption Price is or are found by the Corporation and
such holders shall sell such Series E Preferred Stock
at a price equal to the Redemption Price to such
purchaser or purchasers.
Any such redemption or purchase shall be made on the Conversion
Date by mailing a check of the Corporation or the Corporation's
causing such purchaser to mail a check (as the case may be) in an
amount equal to the Redemption Price to the holder of the
Series E Preferred Stock entitled thereto. The provisions of
subsection 3.3(e) shall apply, mutatis mutandis, in the event of
a redemption or purchase of less than all the Series E Preferred
Stock represented by a particular share certificate. The
Series E Preferred Stock so purchased or redeemed shall not be
converted on the Conversion Date. In the event that for any
reason the redemption or purchase provided for in this section is
not effected in respect of a share or shares of Series E
Preferred Stock on the Conversion Date, the option of the
Corporation in respect of such Series E Preferred Stock shall
lapse and such Series E Preferred Stock shall be deemed to have
been converted on the Conversion Date.
4.4 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock under this Article 4, the Corporation
shall adjust such fractional interest by the payment by check in
an amount equal to the value of such fractional interest computed
on the basis of $20.90 divided by the Conversion Number deter-
mined in respect of the relevant Conversion Date.
4.5 Negotiated Conversion Number
(a) No later than 10 days following the receipt of a
Holder's Conversion Notice, the Corporation may notify
the holders of the Series E Preferred Stock, or such
holders as have delivered a Holder's Conversion Notice,
of a proposed Conversion Number in connection with the
conversion of the Series E Preferred Stock into Common
Stock. Such notification to holders shall also:
(i) specify a date by which each holder must notify
the Corporation in writing of its acceptance of
the proposed Conversion Number, if such holder
intends to accept such number, which date shall be
at least 25 days prior to the Conversion Date, and
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<PAGE>
(ii) specify that the proposed Conversion Number
shall
become effective for the purposes of
determining
the number of Common Stock to be issued upon
the
conversion of the Series E Preferred Stock
only if
all of the holders of Series E Preferred
Stock who
have delivered a Holder's Conversion Notice
accept
such number.
(b) If, by the time prescribed in clause (a)(i), all
of the
holders of Series E Preferred Stock who have
delivered
a Holder's Conversion Notice have accepted the
proposed
Conversion Number, as evidenced by notice in
writing to
the Corporation, and at least 20 days prior to the
Conversion Date the Corporation has notified all
of
such holders that each of them has agreed with the
Corporation as to such number, then such
Conversion
Number (the "Negotiated Conversion Number") shall
apply
for the purposes of determining the number of
shares of
Common Stock to be issued upon the conversion of
the
Series E Preferred Stock in respect of the
Holder's
Conversion Notice then outstanding in accordance
with
the provisions of section 4.7 hereof.
4.6 Formula Conversion Number
(a) Subject to the provisions of subsection (b)
hereof, the
Corporation shall determine a Conversion Number
(the
"Formula Conversion Number") which shall be equal
to
the quotient obtained when (i) an amount equal to
the
total assets minus all preferred stock minus
undistributed participating policyholder earnings
as
shown on the Corporation's balance sheet as at the
end
of the most recently completed calendar quarter,
prepared in accordance with U.S. generally
accepted
accounting principles as in effect at the time of
determination and applicable to the Corporation,
is
divided by (ii) the number of shares of Common
Stock
outstanding, on a fully diluted basis (excluding
any
shares issuable upon conversion of the Series E
Preferred Stock), at such quarter-end.
(b) In the event that the Corporation proposes to
utilize
the Formula Conversion Number, it shall so notify
all
of the holders of Series E Preferred Stock (in the
case
of the issuance of a Corporation's Conversion
Notice)
or each holder of Series E Preferred Stock who has
submitted a Holder's Conversion Notice, not less
than 5
days prior to the Conversion Date, that the
Corporation
intends to use the Formula Conversion Number in
respect
of such Conversion Date and notifying such holders
of
the basis upon which such Number has been
determined.
The Corporation will, if requested by any holder
of
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<PAGE>
Series E Preferred Stock converting the same into
Common Stock, provide such holder with a letter
from
the auditors of the Corporation stating that: (i)
if
the above-referenced quarter-end is not also the
end of
a fiscal year of the Corporation, (A) on the basis
of a
review of such unaudited quarter-end financial
state-
ments, nothing has come to the attention of the
auditors that cause them to believe that the
unaudited
financial statements for the completed quarter
referenced above are not in conformity with
generally
accepted accounting principles, and (B) in using
the
numbers contained in such unaudited quarter-end
financial statements and information provided by
the
Corporation's management, the auditors have
recalculated the Financial Conversion Number and
found
it to be accurate or (ii) if the above-referenced
quarter is the end of a fiscal year of the
Corporation,
(A) the auditors indicate that they have issued
their
opinion on the audited financial statement for
such
fiscal year and (B) in using the numbers contained
in
such audited financial statements and information
provided by the Corporation's management, the
auditors
have recalculated the Financial Conversion Number
and
found it to be accurate.
4.7 Conversion Ratio
Each share of Series E Preferred Stock shall be
convertible into that number of shares of Common Stock which
is
equal to the Conversion Number, with the result of such
calculation being rounded down to the nearest share of
Common
Stock. For these purposes, the Conversion Number shall be
the
Negotiated Conversion Number agreed to in accordance with
the
provisions of section 4.5 hereof with respect to shares of
Series E Preferred Stock subject to a Holder's Conversion
Notice
or, if no such number be agreed upon, the Formula Conversion
Number determined pursuant to the provisions of section 4.6
hereof.
4.8 Reservation of Shares
The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its
authorized
Common Stock, for the purpose of effecting the conversion of
shares of Series E Preferred Stock, at least the full number
of
shares of Common Stock then deliverable upon conversion of
all
shares of Series E Preferred Stock then outstanding on the
basis
of the Formula Conversion Number.
4.9 Governmental Approvals
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<PAGE>
If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series E Preferred Stock
require registration with or approval of any governmental
authority under any federal or state law before such shares may
be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may
be.
ARTICLE 5
VOTING RIGHTS
5.1 No Voting
Except as required by law and except as otherwise
provided herein or in the Corporation's Articles of
Redomestication, the holders of Series E Preferred Stock shall
have no voting rights and shall not be entitled as such to
receive notice of or to attend any meeting of shareholders of the
Corporation.
5.2 Default in Dividend
(a) The shares of Series E Preferred Stock are intended to
be "Voting Parity Preferred Stock" as that term is used
in the Voting Rights of Stated Rate Auction Preferred
Stock, Series A through Series D, of the Corporation
(the "STRAPS"). During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of Series E
Preferred Stock, or any class or series of preferred
stock ranking on a parity with the shares of Series E
Preferred Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation and the
terms of which expressly provide that such shares are
"Voting Parity Preferred Stock" within the meaning of
this paragraph or the terms of the STRAPS and voting
rights thereunder are then exercisable (all such
shares, and all shares of Series E Preferred Stock,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock. A
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<PAGE>
"Default in Preferred Dividends" means any default or
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to Series E Preferred
Stock shall be deemed to have occurred whenever the
Corporation fails to declare and pay the whole amount
of Quarterly Dividend for any Dividend Period on or
before the last day of such Dividend Period, and,
having so occurred, such default shall be deemed to
exist thereafter until, but only until, the Corporation
declares and pays the full amount of Quarterly Dividend
for a Dividend Period. At such time as the Corporation
may again fail to declare the full amount of any
Quarterly Dividend upon any Series E Preferred Stock
for any Dividend Period, a "Default in Preferred
Dividends" shall again have occurred. "Defaulted
Voting Parity Preferred Stock" at any time shall mean
those classes and series of Voting Parity Preferred
Stock in respect of which, at or prior to such time, a
Default in Preferred Dividends has occurred and of
which the holders are entitled at that time by the
terms of such Voting Parity Preferred Stock to elect
directors of the Corporation. Upon the termination of
a Voting Period with respect to any class or series of
Defaulted Voting Parity Preferred Stock, the voting
rights described in this section 5.2 shall cease for
such class or series of Defaulted Voting Parity
Preferred Stock, subject always, however, to revesting
of such voting rights in the holders of such Voting
Parity Preferred Stock upon the further occurrence of a
Default in Preferred Dividends. If any Voting Period
shall have terminated before the holders of a class or
series of Voting Parity Preferred Stock shall have
exercised the voting rights provided in this
section 5.2, the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(b) If the holders of any class or series of Defaulted
Voting Parity Preferred Stock (the "first Defaulted
Voting Parity Preferred Stock") have elected one or
more directors prior to the happening of the default or
event permitting the holders of any other class or
series of Defaulted Voting Parity Preferred Stock to
elect directors, then the directors so previously
elected will be deemed to have been elected by and on
behalf of the holders of such other class or series of
Defaulted Voting Parity Preferred Stock as well as the
first Defaulted Voting Parity Preferred Stock, without
prejudice to the right of the holders of such other
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<PAGE>
class or series to vote for directors if such
previously elected directors shall resign, cease to
serve or stand for reelection while the holders of such
other class or series are entitled to vote. If the
holders of any first Defaulted Voting Parity Preferred
Stock are entitled to elect in excess of two directors,
the holders of such other class or series shall not
participate in the election of more than two such
directors.
(c) No shares of any Defaulted Voting Parity Preferred
Stock held by the Corporation or any of the
Corporation's Affiliates shall be voted, or counted in
determining a quorum, for the election, removal or
replacement of any director elected by any Defaulted
Voting Parity Preferred Stock.
5.3 Voting Procedures
(a) As soon as practicable after the commencement of a
Voting Period, the Corporation shall call or cause to
be called a special meeting of the holders of Defaulted
Voting Parity Preferred Stock by mailing or causing to
be mailed a notice of such special meeting to such
holders not less than 10 nor more than 45 days after
the date such notice is given. If the Corporation does
not call or cause to be called such a special meeting,
it may be called by any of such holders on like notice.
The record date for determining the holders of
Defaulted Voting Parity Preferred Stock entitled to
notice of and to vote at such meeting shall be the
close of business on the Business Day preceding the day
on which such notice is mailed. At any such special
meeting and at each meeting of stockholders held during
a Voting Period at which directors are to be elected,
removed or replaced, the holders of Defaulted Voting
Parity Preferred Stock, voting together as a single
class (to the exclusion of the holders of all other
securities, series and classes of capital stock of the
Corporation), voting by a majority of the votes of
shares present in person or by proxy, shall be entitled
to elect two directors. In regard to such elections,
each holder of shares of Defaulted Voting Parity
Preferred Stock shall be entitled to one or more votes
and/or a fractional vote on the basis of one vote for
each $100,000 of liquidation preference (excluding
amounts in respect of accumulated and unpaid dividends)
attributable to such shares. Cumulative voting in such
elections shall not be permitted. Shares of Defaulted
Voting Parity Preferred Stock then outstanding, present
in person or represented by proxy, representing
one-third of the votes of the Defaulted Voting Parity
<PAGE>
Preferred Stock, will constitute a quorum for the
election of directors. Notice of all meetings at which
holders of Defaulted Voting Parity Preferred Stock of
any series shall be entitled to vote will be given to
such holders at their addresses as they appear on the
Stock Books. At any such meeting or adjournment
thereof in the absence of a quorum, holders of shares
of Defaulted Voting Parity Preferred Stock representing
a majority of the votes present in person or
represented by proxy shall have the power to adjourn
the meeting for the election of directors without
notice, other than an announcement at the meeting,
until a quorum is present. If any Voting Period shall
terminate after the notice of special meeting provided
for in this section 5.3 has been given but before the
special meeting shall have been held, the Corporation
shall, as soon as practicable after such termination,
mail or cause to be mailed to the holders of Defaulted
Voting Parity Preferred Stock a notice of cancellation
of such special meeting.
(b) The term of office of all persons who are directors of
the Corporation at the time of a special meeting of the
holders of Defaulted Voting Parity Preferred Stock to
elect directors shall continue, notwithstanding the
election at such meeting by such holders of the two
additional directors.
(c) Simultaneously with the expiration of a Voting Period
for all classes and series of Defaulted Voting Parity
Preferred Stock, the term of office of the directors
elected by the holders of Defaulted Voting Parity
Preferred Stock shall terminate, the other persons who
shall have been elected by the holders of stock of the
Corporation (or by the Board of Directors prior to the
beginning of the Voting Period) and who are incumbent
shall constitute the directors of the Corporation, and
the voting rights of the holders of Voting Parity
Preferred Stock to elect directors shall cease.
(d) For so long as a Voting Period continues, the directors
elected at any time by the holders of Defaulted Voting
Parity Preferred Stock may be removed without cause by,
and shall not be removed without cause except by, the
vote of the holders of record of the outstanding shares
of Defaulted Voting Parity Preferred Stock at any
subsequent time, voting together as a single class
without regard to class or series, at a meeting of the
stockholders, or of the holders of shares of Defaulted
Voting Parity Preferred Stock, called for such purpose.
So long as a Voting Period continues, (A) any vacancy
in the office of a director elected by the holders of
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Defaulted Voting Parity Preferred Stock may be filled
(except as provided in the following clause (B)) by the
person appointed by an instrument in writing signed by
the remaining director elected by the holders of
Defaulted Voting Parity Preferred Stock and filed with
the Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
5.4 Additional Vote
If any matter (excluding the election, removal or
replacement of directors) requires the consent or affirmative
vote of shares of Series E Preferred Stock or of all Preferred
Stock of the Corporation, whether pursuant to the provisions of
such Series or such Preferred Stock or pursuant to the provisions
of the Articles of Redomestication of the Corporation or pursuant
to applicable law, and if any shares of Series E Preferred Stock
entitled to vote are held by the Corporation or by any of its
Affiliates, then the following additional consent or vote will be
required: the same consent or affirmative vote of shares
otherwise required, except that shares of Series E Preferred
Stock held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such additional
consent or vote; provided, such additional consent or vote will
not be applicable if all outstanding shares of Series E Preferred
Stock are held by the Corporation and/or its Affiliates.
ARTICLE 6
ISSUE PRICE
The price or consideration for which each share of
Series E Preferred Stock shall be issued is $20.90 and, upon
payment of such price, each such share shall be issued as fully
paid and non-assessable.
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<PAGE>
ARTICLE 7
NOTICE AND INTERPRETATION
7.1 Notices
(a) Any notice, check, invitation for tenders or other
Communication from the Corporation herein provided for
shall be sufficiently given if delivered or if sent by
first class unregistered mail, postage prepaid, to the
holders of the Series E Preferred Stock at their
respective addresses appearing on the books of the
Corporation or, in the event of the address of any of
such holders not so appearing, then at the last address
of such holder known to the Corporation. Except for
notices required by law, accidental failure to give
such notice, invitation for tenders or other communica-
tion to one or more holders of the Series E Preferred
Stock shall-not affect the validity of the notices,
invitations for tenders or other communications
properly given or any action taken pursuant to such
notice, invitation for tenders or other communication
but, upon such failure being discovered, the notice,
invitation for tenders or other communication, as the
case may be, shall be sent forthwith to such holder or
holders.
(b) If any notice, check, invitation for tenders or other
communication from the Corporation given to a holder of
Series E Preferred Stock pursuant to paragraph (a) is
returned on three consecutive occasions because he
cannot be found, the Corporation shall not be required
to give or mail any further notices, checks, invita-
tions for tenders or other communications, to such
shareholder until another address for such shareholder
is made known to the Corporation.
7.2 Interpretation
(a) In the event that any day on which any dividend on the
Series E Preferred Stock is payable or on or by which
any other action is required to be taken hereunder is
not a business day, then such dividend shall be payable
or such other action shall be required to be taken on
or before the next succeeding day that is a business
day. A "business day" means a day other than a
Saturday, a Sunday or any other day that is a legal
holiday on which banking institutions in the place
where the Corporation has its head office are closed.
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<PAGE>
(b) All references herein to a holder of Series E Preferred
stock shall be interpreted as referring to a registered
holder of the Series E Preferred Stock.
ARTICLE 8
CERTAIN MODIFICATIONS
In addition to any other vote or consent of
shareholders of the Corporation then required by applicable law
or by the Articles of Redomestication of the Corporation, subject
to any regulatory consents referred to in section 1.2 hereof, so
long as any shares of Series E Preferred Stock remain
outstanding, the Corporation shall not, without the prior
approval of the holders of Series E Preferred Stock outstanding
at that time, given in accordance with Article 9 below in person
or by proxy, either in writing or at a meeting (i) authorize,
create or issue, or increase the authorized or issued amount, of
any class or series of stock ranking prior to Series E Preferred
Stock with respect to payment of dividends or the distribution of
assets on liquidation, dissolution or winding up of the
Corporation, or reclassify any authorized stock of the
Corporation into any such shares, or create, authorize or issue
any obligations or security convertible into or evidencing the
right to purchase any such shares, or (ii) amend, alter or repeal
any of the provisions of the Corporation's Articles of
Redomestication of the Corporation or this Statement of
Designation so as to adversely affect any right, preference,
privilege or voting power of Series E Preferred Stock: provided,
however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any series of
preferred stock or any increase in the amount of authorized
shares of such series or of any other series of preferred stock,
in each case ranking on a parity with or junior to Series E
Preferred Stock with regard to dividends, or upon liquidation,
dissolution or winding up of the Corporation (which includes
without limitation any shares of the same class of preferred
stock as the Series E Preferred Stock, whether or not providing
for cumulative dividends), shall not be deemed to adversely
affect such rights, preferences, privileges or voting powers.
ARTICLE 9
APPROVAL OF SERIES E PREFERRED STOCKHOLDERS
When holders of Series E Preferred Stock are voting
separately as a class, any approval of the holders of Series E
Preferred Stock with respect to any and all matters referred to
herein or of any other matters requiring the consent of the
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<PAGE>
holders of the Series E Preferred Stock may be given in such
manner as may then be required by law, subject to a minimum
requirement that such approval be given by resolution signed by
the holders of a majority of the outstanding Series E Preferred
Stock (or, if required at that time by applicable law, signed by
all holders of the outstanding Series E Preferred Stock) or
passed by the affirmative vote of a majority of the votes cast by
the holders of Series E Preferred Stock who voted in respect of
the resolution at a general meeting of the holders of the
Series E Preferred Stock duly called for that purpose and held
upon at least 10 days notice at which the holders of at least
one-third of the outstanding Series E Preferred Stock (which
shall constitute a quorum) are present in person or represented
by proxy. The proxy rules applicable to the giving of notice of
and the formalities to be observed in respect of the conduct of,
any such meeting or any adjourned meeting shall be those from
time to time prescribed by the Articles of Redomestication and
by-laws of the Corporation with respect to meetings of the
holders of Preferred Stock, or if not so prescribed, as required
by the Colorado Corporation Code or by such other federal or
state legislation as may be applicable in the circumstances.
Subject to Article 5 hereof, on every vote taken at every meeting
of holders of Series E Preferred Stock, each holder of Series E
Preferred Stock entitled to vote thereat shall be entitled to one
vote for each share of Series E Preferred Stock held.
ARTICLE 10
RIGHTS ON LIQUIDATION
In the event of the liquidation, dissolution or
winding-up of the affairs of the Corporation, whether voluntary
or involuntary, the holders of Series E Preferred Stock shall be
entitled to receive, out of assets of the Corporation available
for distribution to stockholders after satisfying claims of
creditors but before any payment or distribution on the Common
Stock or on any other class of stock ranking junior to the shares
of Series E Preferred Stock upon liquidation, a liquidation
distribution in the amount of S20.90 per share plus an amount
equal to all dividends declared and unpaid on each share to the
date of such distribution. Additional provisions regarding the
preferences and rights of holders of Series E Preferred Stock to
receive liquidating distributions are set forth in Article IX of
the Articles of Redomestication of the Corporation. Neither the
sale, lease or exchange (for cash, stock, securities or other
consideration) of all or substantially all of the property and
assets of the Corporation, nor the consolidation or merger of the
Corporation with or into any other entity, nor the merger or
consolidation of any other entity with or into the Corporation,
shall be deemed to be a liquidation, dissolution, or winding up
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<PAGE>
of the affairs of the Corporation, either voluntary or
involuntary, for purposes of this Article 10.
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING SERIES E PREFERRED STOCK
Pursuant to Section 7-4-102 of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company, a
Colorado
corporation (the "Corporation"), hereby submits the
following
statement for the purpose of establishing and designating
one
series of preferred stock and fixing and determining the
relative
rights and preferences thereof.
1. The name of the Corporation is Great-West Life &
Annuity Insurance Company.
2. On September 15, 1992, the following resolution
establishing and designating one series of shares of the
Corporation's preferred stock was duly adopted by the
Board of
Directors of the Corporation pursuant to authority
conferred upon
the Board by the Corporation's Articles of
Redomestication:
RESOLVED, that the Board of Directors
hereby creates and establishes a series of
Non-Cumulative Perpetual Preferred Stock,
Series E, in accordance with the terms set
forth in Exhibit A attached hereto [a copy of
which is attached to this Statement of
Resolution and is incorporated herein by this
reference], and authorizes the officers of
the Corporation to file this resolution with
the Colorado Secretary of State in accordance
with the Colorado Corporation Code.
Dated: September 15, 1992 GREAT-WEST LIFE &
ANNUITY
INSURANCE COMPANY
By:
William T. McCallum,
President
and Chief Executive
Officer
By:
D. Craig Lennox, Senior
Vice
President, General
Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared D. Craig Lennox, who acknowledged that he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
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<PAGE>
EXHIBIT A
STATEMENT OF RESOLUTIONS ESTABLISHING
A SERIES OF PREFERRED STOCK
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
PREFERRED STOCK, SERIES E
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
The Board of Directors of Great-West Life & Annuity
Insurance Company (the "Corporation") hereby creates a fifth
series of Preferred Stock, designated as the Non-Cumulative
Perpetual Preferred Stock, Series E (hereinafter referred to
as
the "Series E Preferred Stock") consisting of 2,000,000
shares of
Preferred Stock The Series E Preferred Stock shall be
subject
to and governed by the provisions of the Articles of
Redomestication of the Corporation as amended from time to
time
in accordance with applicable law (including, but not
limited to,
the provisions of the Articles of Redomestication concerning
dividend and liquidation preferences) and shall, in addition
to
the rights, privileges, restrictions and conditions stated
in
such Articles of Redomestication for the Preferred Stock as
a
class, have the following rights, privileges, restrictions
and
conditions
ARTICLE 1
INTERPRETATION AND APPLICATION
1.1 Definitions
(a) "Affiliate," as used herein, means any entity
other
than the Corporation (i) which owns beneficially,
directly or indirectly, 10% or more of the
outstanding
shares of the Common Stock, (ii) which is in
control of
the Corporation, as "control" is defined under
Section 230.405 of the Rules and Regulations of
the
Securities and Exchange Commission, 17 C.F.R.
Section 230.405, as in effect on the date of this
Statement,
(iii) of which 10% or more of the outstanding
shares of
common stock, or in which a 10% or greater general
partnership or joint venture interest, is owned
beneficially, directly or indirectly, by any
entity
described in clause (i) or (ii) above, or (iv)
which is
controlled by any entity described in clause (i)
or
(ii) above, as "controlled by" is defined under
such
Section 230.405.
(b) "common Stock" shall mean the shares of common
stock,
par value $1.00, in the capital of the
Corporation;
<PAGE>
(c) "Corporation's Conversion Notice" shall have the
meaning ascribed thereto in subsection 3.2(b) hereof;
(d) "Conversion Number" shall mean the number of shares of
Common Stock which are to be issued on a conversion of
one share of the Series E Preferred Stock, which shall
be either the Negotiated Conversion Number or the
Formula Conversion Number;
(e) "Formula Conversion Number" shall mean the number of
shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.6 hereof;
(f) "Holder's Conversion Notice" shall have the meaning
ascribed thereto in subsection 4.2(a) hereof; and
(g) "Negotiated Conversion Number" shall mean that number
of shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.5 hereof.
1.2 Regulatory Approvals
Notwithstanding anything to the contrary contained
herein, the Corporation shall not redeem, purchase for
cancellation or otherwise retire, reduce or make any return of
capital in respect of any Series E Preferred Stock or exercise
its option to convert the Series E Preferred Stock into shares of
common stock or modify the rights, privileges, restrictions or
conditions of the Series E Preferred Stock unless the same is in
accordance with the Colorado law and all the necessary or
appropriate consents of the Colorado Insurance Division and other
regulatory authorities having jurisdiction have been obtained
prior thereto.
ARTICLE 2
DIVIDENDS
2.1 Dividend Payment Dates and Dividend Periods
The dividend payment dates (the "Dividend Payment
Dates") in respect of the dividends payable on the Series E
Preferred Stock shall be the last day of each of the months of
March, June, September and December in each year. A Dividend
Period shall mean the period from and including the date of issue
of the Series E Preferred Stock to but excluding the first
Dividend Payment Date and, thereafter, the period from and
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<PAGE>
including each Dividend Payment Date to but excluding the next
succeeding Dividend Payment Date.
2.2 Payment of Dividends
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors of the Corporation,
out of moneys of the Corporation properly applicable to the
payment of dividends, non-cumulative cash dividends (the
"Quarterly Dividends") payable, with respect to each Dividend
Period, on the Dividend Payment Date immediately following the
end of such Dividend Period, the first of such dividends to be
payable on December 31, 1992 and to be in an amount per share
determined in accordance with section 2.3 hereof. For all
subsequent Dividend Periods, dividends, subject to section 2.3
hereof, as and when declared by the board of directors of the
Corporation, out of moneys of the Corporation properly applicable
to the payment of dividends, shall be paid in an amount per share
of Series E Preferred Stock equal to $0.39188.
2.3 Dividend for other than a Full Dividend Period
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors, out of moneys of the
Corporation properly applicable to the payment of dividends,
non-cumulative cash dividends for any period which is less than a
full Dividend Period as follows:
(a) an initial dividend per share in respect of the period
from and including the date of the initial issue of the
Series E Preferred Stock to but excluding December 31,
1992 (the "Initial Dividend Period") equal to $0.57976;
and
(b) a dividend in an amount per share with respect to any
Series E Preferred Stock:
(i) which is issued, redeemed or purchased by the
Corporation or converted during any Dividend
Period; or
(ii) where the assets of the Corporation are
distributed in the liquidation, dissolution or
winding up of the Corporation to the holders of
the Series E Preferred Stock with an effective
date during any Dividend Period;
equal to the amount obtained (rounded to five decimal
places) when $1.5675 is multiplied by a fraction of
which the numerator is the number of days in such
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<PAGE>
Dividend Period that such share has been outstanding
(excluding the date of issue, redemption, purchase or
conversion or the effective date for the distribution
of assets) and the denominator of which is the number
of days in the year in which such Dividend Period
falls.
2.4 Payment Procedure
The Corporation shall pay the dividends on the Series E
Preferred Stock to the holders of record thereof at the close of
business on the second business day immediately preceding the
relevant Dividend Payment Date (less any tax required to be
deducted or withheld by the Corporation) by check drawn on a bank
or trust company and payable in lawful money of the United States
at any branch of such bank or trust company in the United States.
The delivery or mailing of any check to a holder of Series E
Preferred Stock shall be a full and complete discharge of the
Corporation's obligation to pay the dividends to such holder
(plus any tax required to be and in fact deducted and withheld
therefrom and remitted to the proper taxing authority) unless
such check is not honored when presented for payment. Dividends
which are represented by a check which has not been presented to
the Corporation's bankers for payment or that otherwise remain
unclaimed for a period of two years from the date on which they
were declared to be payable may be reclaimed (including without
limitation by cancellation of any check) and after such
reclaiming the holders of Series E Preferred Stock entitled to
the funds so reclaimed shall look only to the Corporation for
such payment, without interest.
ARTICLE 3
REDEMPTION, CONVERSION AND PURCHASE
3.1 General
(a) Subject to the Articles of Redomestication and to the
extent permitted by applicable law, the Series E
Preferred Stock may be redeemed, converted or purchased
by the Corporation as provided in this Article 3 and
Article 4 but not otherwise.
(b) For the purposes hereof, the Common Stock of the
Corporation (the "Common Stock") shall mean (i) such
common stock as currently constituted and (ii) any
shares attributable to such common stock and resulting
from a reclassification of the common stock of the
Corporation or from a capital reorganization of the
Corporation or a consolidation or merger of the
Corporation with or into any other corporation (other
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<PAGE>
than a capital reorganization, consolidation or
merger
which does not result in any reclassification of
the
common stock or a change of the common stock into
other
stock, shares or securities).
3.2 Redemption and Conversion Rights
(a) The Series E Preferred Stock shall not be
redeemable
prior to April 1, 1999. The Corporation may, upon
giving notice as hereinafter provided, redeem on or
after April 1, 1999 at any time the whole or from
time
to time any part of the then outstanding Series E
Preferred Stock, by the payment of an amount in
cash
for each share of Series E Preferred Stock so
redeemed
equal to the sum of $20.90 plus an amount equal to
all
declared and unpaid dividends thereon up to but
excluding the date fixed for redemption (the
"Redemption Price").
(b) The Series E Preferred Stock shall not be
convertible
at the option of the Corporation prior to April 1,
1999. Subject to compliance with the rights,
privileges, restrictions and conditions of the
Common
Stock and receipt of any required regulatory
approval,
the Corporation may, by giving notice as
hereinafter
provided (the "Corporation's Conversion Notice"),
convert the whole or from time to time any part of
the
then outstanding Series E Preferred Stock into
fully
paid and non-assessable shares of Common Stock on
the
basis that the Series E Preferred Stock of each
holder
called for conversion by the Corporation will be
converted into (subject to that exception as to
fractions contained in section 3.7 hereof) that
number
(the "Conversion Number") of shares of Common Stock
determined pursuant to Article 4 and that the
Formula
Conversion Number as provided in section 4.6 shall
be
used for this purpose.
(c) If less than all of the outstanding Series E
Preferred
Stock are to be redeemed or converted, the shares
to be
redeemed or converted shall be selected by lot, pro
rata (disregarding fractions) or in such other
manner
as the board of directors or a committee thereof in
its
sole discretion shall by resolution determine.
3.3 Manner of Redemption or Conversion
(a) Notice of redemption or conversion of Series E
Preferred Stock shall be given by the Corporation
not
less than 25 nor more than 60 calendar days prior
to
the date fixed for redemption and not less than 35
nor
more than 60 calendar days prior to the date fixed
for
<PAGE>
conversion, to each holder of Series E Preferred Stock
to be redeemed or converted, as the case may be. Such
notice shall set out (i) the date (the "Redemption
Date" or the "Conversion Date", as the case may be) on
which the redemption or conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder to whom it is addressed is to be redeemed or
converted, the number of shares of Series E Preferred
Stock so held which are to be redeemed or converted:
(iii) whether the Corporation shall redeem or convert
such Series E Preferred stock; (iv) the Redemption
Price or the method of determining the Conversion
Number, as the case may be; and (v) where the Series E
Preferred Stock is to be converted into Common Stock,
the advice that such Common Stock will be registered in
the name of the registered holder of the Series E
Preferred Stock to be converted unless the Corporation
receives from such holder, on or before the tenth
calendar day prior to the Conversion Date (the
"Transferee Notice Date"), at the head office of the
Corporation, written notice in a form and executed in a
manner satisfactory to the Corporation directing the
Corporation to register such Common Stock in some other
name or names (the "Transferee") and stating the name
or names (with addresses) accompanied by payment to the
Corporation of any transfer tax that may be payable by
reason thereof and a written declaration of such
matters as may be required by law in order to determine
the entitlement of such Transferee to hold such Common
Stock.
(b) In the case of a redemption, on and after the
Redemption Date the Corporation shall pay or cause to
be paid to the holders of the Series E Preferred Stock
so called for redemption the Redemption Price therefor
on presentation and delivery at the head office of the
Corporation or such other place or places in the United
States designated in the notice referred to in
subsection 3.3(a), of the certificate or certificates
representing the Series E Preferred Stock so called for
redemption. Such payment shall be made by check and
shall be a full and complete discharge of the
Corporation's obligation to pay the Redemption Price
owed to the holders of Series E Preferred Stock so
called for redemption unless the check is not honored
when presented for payment. From and after the
Redemption Date, the holders of Series E Preferred
Stock called for redemption shall cease to be entitled
to dividends or to exercise any of the rights of
holders of Series E Preferred Stock in respect of such
shares except the right to receive therefor the
Redemption Price, provided that if payment of such
<PAGE>
Redemption Price is not duly made in accordance with
the provisions hereof, then the rights of such holders
shall remain unimpaired.
(c) In the case of a redemption, the Corporation shall have
the right at any time after mailing a notice of redemp-
tion to deposit irrevocably (subject to the repayment
right set forth below in this subsection) the aggregate
Redemption Price of the Series E Preferred Stock
thereby called for redemption, or such part thereof as
at the time of deposit has not been claimed by the
holders entitled thereto, in a special account with a
bank or trust company designated by the Corporation for
the holders of such shares, and upon such deposit being
made or upon the date fixed for redemption, whichever
is the later, the Series E Preferred Stock in respect
of which such deposit shall have been made shall be
deemed to be redeemed and the rights of each holder
thereof shall be limited to receiving, without
interest, his proportionate part of the Redemption
Price so deposited upon presentation and surrender of
the certificates representing the Series E Preferred
Stock so redeemed. Any interest on any such deposit
shall belong to the Corporation. Redemption moneys
which remain unclaimed for a period of two years from
the Redemption Date shall be repaid to the Corporation,
and after such repayment, the holders of Series E
Preferred Stock entitled to the funds so repaid to the
Corporation shall look only to the Corporation for such
payment, without interest.
(d) In the case of a conversion of Series E Preferred Stock
into Common Stock, on and after the Conversion Date the
Corporation shall deliver the Conversion Number of
Common Stock on presentation and delivery by the
holders at the head office of the Corporation or such
other place or places in the United States designated
in the notice referred to in subsection 3.3(a), of the
certificate or certificates representing the Series E
Preferred Stock so called for conversion. The
Corporation shall deliver or cause to be delivered
certificates representing such Common Stock registered
in the name of the holders of Series E Preferred Stock
to be converted, or as such holders shall have directed
as aforesaid. Series E Preferred Stock so converted
shall be converted effective on the Conversion Date.
From and after the Conversion Date, the holders of
Series E Preferred stock so converted who have not
presented and delivered the certificate or certificates
representing such shares as herein required shall cease
to be entitled to dividends on such Series E Preferred
Stock or to exercise any of the rights of holders of
<PAGE>
Series E Preferred Stock in respect of such shares
except the right to receive a certificate for the
Conversion Number of Common Stock and any payment
with
respect to a fraction of a share of Series E
Preferred
Stock.
(e) If less than all the Series E Preferred Stock
represented by any certificate shall be redeemed
or
converted, a new certificate for the balance shall
be
issued without cost to the holder.
3.4 Purchase
The Corporation may purchase at any time all or from
time to time any part of the outstanding Series E Preferred
Stock
in the open market (including purchases through or from an
investment dealer or firm holding membership on a stock
exchange)
or pursuant to tenders received by the Corporation upon an
invitation for tenders addressed to all holders of the Series
E
Preferred Stock, at a price per share in each case not
exceeding
the applicable Redemption Price at the time of purchase plus
costs of purchase. If upon any invitation for tenders the
Corporation receives tenders for Series E Preferred Stock at
the
same price in an aggregate number greater than the number for
which the Corporation is prepared to accept tenders, the
shares
to be purchased shall be selected from the shares offered at
such
price as nearly as may be pro rata (to the nearest 10 shares)
according to the number of shares of Series E Preferred Stock
offered in each such tender, in such manner as the board of
directors or a committee thereof in its sole discretion
shall by
resolution determine. If part only of the Series E Preferred
Stock represented by any certificate shall be purchased, a
new
certificate for the balance of such shares shall be issued
without cost to the holder.
3.5 Conversion into Another Series of Preferred Stock
To the extent permitted by applicable law and the
Articles of Redomestication and by-laws of the corporation,
and
with any required approval of the Colorado Insurance
Division,
the Corporation may at any time on or after September 30,
1997,
designate a further series of preferred stock of the same
class
as the Series E Preferred Stock which qualifies as
regulatory
capital for Canadian insurance law purposes (the "New
Preferred
Stock") and notify the holders of Series E Preferred Stock
that
they have the right pursuant to the terms of the Series E
Preferred Stock, at their option, to convert their Series E
Preferred Stock into fully paid and non-assessable New
Preferred
Stock on a share for share basis on a date specified by the
Corporation in such notice (the "Exchange Date"). Such
notice
shall provide the details of the terms and conditions of the
New
Preferred Stock and instructions on how to convert Series E
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<PAGE>
Preferred Stock into New Preferred Stock and shall be accompanied
by the proper form of instrument of surrender.
3.6 Manner of Conversion into Another
Series of Preferred Stock
Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation on or prior to the
Exchange Date the certificate or certificates representing the
Series E Preferred Stock to be so converted accompanied by a
written instrument of surrender in form satisfactory to the
Corporation and duly executed by the registered holder of the
Series E Preferred Stock represented by the certificate or
certificates so surrendered in which instrument the holder may
elect to convert all or a portion of the Series E Preferred Stock
represented by such certificate or certificates into New
Preferred Stock.
The Corporation shall, on presentation and delivery at
the head office of the Corporation or such other place or places
in the United States as the Corporation may agree of the
certificate or certificates representing the Series E Preferred
Stock to be converted, issue and deliver or cause to be delivered
as soon as is reasonably practicable after the Exchange Date a
certificate or certificates representing the New Preferred Stock
into which such Series E Preferred Stock have been converted.
Such certificate or certificates shall be registered in the name
of the holder of the Series E Preferred Stock so converted or in
such name or names as the holder may specify in the written
instrument accompanying the Series E Preferred Stock to be
converted. The Series E Preferred Stock so converted shall be
converted, and the holder thereof shall become a holder of record
of New Preferred Stock, effective on the Exchange Date. The
provisions of subsection 3.3(e) shall apply, mutatis mutandis, in
the event of a conversion into New Preferred Stock of less than
all of the Series E Preferred Stock represented by a particular
share certificate.
3.7 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock, the Corporation shall adjust such
fractional interest by payment by check in an amount equal to the
value of such fractional interest computed on the basis of $20.90
divided by the Conversion Number determined in respect of the
relevant Conversion Date.
<PAGE>
ARTICLE 4
HOLDER'S CONVERSION RIGHT
4.1 Conversion Right
Subject to the option of the Corporation in section 4.3
hereof and to the provisions of section 1.2 hereof, each share of
Series E Preferred Stock shall, on and after September 30, 1999,
at the option of the holder, be convertible on the last day of
March, June, September and December in each year (a "permitted
conversion date") into (subject to the exception as to fractions
contained in section 4.4) that number of shares of fully paid and
non-assessable Common Stock as is equal to the Conversion Number.
The holder of Series E Preferred Stock to be converted is
entitled to receive any dividend which has been declared and is
payable on the date of such conversion.
Not less than 90 nor more than 120 calendar days prior
to September 30, 1999, the Corporation shall give to the
registered holders of the Series E Preferred Stock notice of the
conversion right containing instructions to such holders as to
the method by which such conversion right may be exercised, as
set out in section 4.2. However, a failure to give such notice
shall not affect the conversion rights of the Series E Preferred
Stock.
4.2 Manner of Conversion
(a) Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation not less
than 55 calendar days prior to the date (which must be
a permitted conversion date) fixed for conversion by
such holder the certificate or certificates for the
Series E Preferred Stock to be converted with the
notice of conversion on the reverse side thereof (the
"Holder's Conversion Notice") duly completed. Subject
to section 4.3 and to the right to accept an offer to
convert Series E Preferred Stock into New Preferred
Stock under section 3.5, such Conversion Notice shall
be irrevocable and shall set out:
(i) the date (the "Conversion Date") on which the
conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder by whom such notice is given is to be
converted, the number of shares of Series E
Preferred Stock so held which are to be converted;
and
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<PAGE>
(iii) an acknowledgement that the Common Stock into
which the Series E Preferred Stock is to be
converted is to be registered in the name of the
registered holder of the Series E Preferred Stock
to be converted unless such holder, on or before
the tenth calendar day prior to the Conversion
Date (the "Transferee Notice Date") provides to
the Corporation written notice in the form and
executed in a manner satisfactory to the
Corporation directing the Corporation to register
such Common Stock in some other name or names (the
"Transferee") and stating the name or names (with
addresses) accompanied by payment to the
Corporation of any transfer tax that may be
payable by reason thereof and a written
declaration of any matters as may be required by
law in order to determine the entitlement of such
Transferee to hold such common Stock.
(b) Subject to section 4.3 hereof, the Corporation shall,
on presentation and delivery at the head office of the
corporation or such other place or places in the United States as
the Corporation may agree of the certificate or certificates
representing the Series E Preferred Stock so surrendered for
conversion, issue and deliver or cause to be delivered certifi-
cates representing the number of whole shares of Common Stock
into which such Series E Preferred Stock is to be converted,
registered in the name of the holder of the Series E Preferred
Stock to be converted, or as such holder shall have directed as
aforesaid, as the case may be, on the Conversion Date. The
Series E Preferred Stock so converted shall be converted, and the
holder thereof shall become a holder of Common Stock of record,
effective on the Conversion Date.
(c) If less than all the Series E Preferred Stock
represented by any certificate shall be converted, a new
certificate for the balance shall be issued without cost to the
holder.
4.3 Option of the Corporation
Prior to any Conversion Date, the Corporation may, by
notice given not less than 35 calendar days before such
Conversion Date to all holders who have given a Conversion
Notice,
(a) redeem on the Conversion Date all but not less than all
of the Series E Preferred Stock forming the subject
matter of the applicable Conversion Notice at the
Redemption Price provided for in Article 3 hereof; or
<PAGE>
(b) request such holders to sell on the Conversion Date
such Series E Preferred Stock to another purchaser or
purchasers in the event that a purchaser or purchasers
willing to purchase all but not less than all of such
Series E Preferred Stock at a price equal to the
Redemption Price is or are found by the Corporation and
such holders shall sell such Series E Preferred Stock
at a price equal to the Redemption Price to such
purchaser or purchasers.
Any such redemption or purchase shall be made on the Conversion
Date by mailing a check of the Corporation or the Corporation's
causing such purchaser to mail a check (as the case may be) in an
amount equal to the Redemption Price to the holder of the
Series E Preferred Stock entitled thereto. The provisions of
subsection 3.3(e) shall apply, mutatis mutandis, in the event of
a redemption or purchase of less than all the Series E Preferred
Stock represented by a particular share certificate. The
Series E Preferred Stock so purchased or redeemed shall not be
converted on the Conversion Date. In the event that for any
reason the redemption or purchase provided for in this section is
not effected in respect of a share or shares of Series E
Preferred Stock on the Conversion Date, the option of the
Corporation in respect of such Series E Preferred Stock shall
lapse and such Series E Preferred Stock shall be deemed to have
been converted on the Conversion Date.
4.4 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock under this Article 4, the Corporation
shall adjust such fractional interest by the payment by check in
an amount equal to the value of such fractional interest computed
on the basis of $20.90 divided by the Conversion Number deter-
mined in respect of the relevant Conversion Date.
4.5 Negotiated Conversion Number
(a) No later than 10 days following the receipt of a
Holder's Conversion Notice, the Corporation may notify
the holders of the Series E Preferred Stock, or such
holders as have delivered a Holder's Conversion Notice,
of a proposed Conversion Number in connection with the
conversion of the Series E Preferred Stock into Common
Stock. Such notification to holders shall also:
(i) specify a date by which each holder must notify
the Corporation in writing of its acceptance of
the proposed Conversion Number, if such holder
intends to accept such number, which date shall be
at least 25 days prior to the Conversion Date, and
<PAGE>
(ii) specify that the proposed Conversion Number shall
become effective for the purposes of determining
the number of Common Stock to be issued upon the
conversion of the Series E Preferred Stock only if
all of the holders of Series E Preferred Stock who
have delivered a Holder's Conversion Notice accept
such number.
(b) If, by the time prescribed in clause (a)(i), all of the
holders of Series E Preferred Stock who have delivered
a Holder's Conversion Notice have accepted the proposed
Conversion Number, as evidenced by notice in writing to
the Corporation, and at least 20 days prior to the
Conversion Date the Corporation has notified all of
such holders that each of them has agreed with the
Corporation as to such number, then such Conversion
Number (the "Negotiated Conversion Number") shall apply
for the purposes of determining the number of shares of
Common Stock to be issued upon the conversion of the
Series E Preferred Stock in respect of the Holder's
Conversion Notice then outstanding in accordance with
the provisions of section 4.7 hereof.
4.6 Formula Conversion Number
(a) Subject to the provisions of subsection (b) hereof, the
Corporation shall determine a Conversion Number (the
"Formula Conversion Number") which shall be equal to
the quotient obtained when (i) an amount equal to the
total assets minus all preferred stock minus
undistributed participating policyholder earnings as
shown on the Corporation's balance sheet as at the end
of the most recently completed calendar quarter,
prepared in accordance with U.S. generally accepted
accounting principles as in effect at the time of
determination and applicable to the Corporation, is
divided by (ii) the number of shares of Common Stock
outstanding, on a fully diluted basis (excluding any
shares issuable upon conversion of the Series E
Preferred Stock), at such quarter-end.
(b) In the event that the Corporation proposes to utilize
the Formula Conversion Number, it shall so notify all
of the holders of Series E Preferred Stock (in the case
of the issuance of a Corporation's Conversion Notice)
or each holder of Series E Preferred Stock who has
submitted a Holder's Conversion Notice, not less than 5
days prior to the Conversion Date, that the Corporation
intends to use the Formula Conversion Number in respect
of such Conversion Date and notifying such holders of
the basis upon which such Number has been determined.
The Corporation will, if requested by any holder of
<PAGE>
Series E Preferred Stock converting the same into
Common Stock, provide such holder with a letter from
the auditors of the Corporation stating that: (i) if
the above-referenced quarter-end is not also the end of
a fiscal year of the Corporation, (A) on the basis of a
review of such unaudited quarter-end financial state-
ments, nothing has come to the attention of the
auditors that cause them to believe that the unaudited
financial statements for the completed quarter
referenced above are not in conformity with generally
accepted accounting principles, and (B) in using the
numbers contained in such unaudited quarter-end
financial statements and information provided by the
Corporation's management, the auditors have
recalculated the Financial Conversion Number and found
it to be accurate or (ii) if the above-referenced
quarter is the end of a fiscal year of the Corporation,
(A) the auditors indicate that they have issued their
opinion on the audited financial statement for such
fiscal year and (B) in using the numbers contained in
such audited financial statements and information
provided by the Corporation's management, the auditors
have recalculated the Financial Conversion Number and
found it to be accurate.
4.7 Conversion Ratio
Each share of Series E Preferred Stock shall be
convertible into that number of shares of Common Stock which is
equal to the Conversion Number, with the result of such
calculation being rounded down to the nearest share of Common
Stock. For these purposes, the Conversion Number shall be the
Negotiated Conversion Number agreed to in accordance with the
provisions of section 4.5 hereof with respect to shares of
Series E Preferred Stock subject to a Holder's Conversion Notice
or, if no such number be agreed upon, the Formula Conversion
Number determined pursuant to the provisions of section 4.6
hereof.
4.8 Reservation of Shares
The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized
Common Stock, for the purpose of effecting the conversion of
shares of Series E Preferred Stock, at least the full number of
shares of Common Stock then deliverable upon conversion of all
shares of Series E Preferred Stock then outstanding on the basis
of the Formula Conversion Number.
4.9 Governmental Approvals
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<PAGE>
If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series E Preferred Stock
require registration with or approval of any governmental
authority under any federal or state law before such shares may
be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may
be.
ARTICLE 5
VOTING RIGHTS
5.1 No Voting
Except as required by law and except as otherwise
provided herein or in the Corporation's Articles of
Redomestication, the holders of Series E Preferred Stock shall
have no voting rights and shall not be entitled as such to
receive notice of or to attend any meeting of shareholders of the
corporation.
5.2 Default in Dividend
(a) The shares of Series E Preferred Stock are intended to
be "Voting Parity Preferred Stock" as that term is used
in the Voting Rights of Stated Rate Auction Preferred
Stock, Series A through Series D, of the Corporation
(the " STRAPS n ) . During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of Series E
Preferred Stock, or any class or series of preferred
stock ranking on a parity with the shares of Series E
Preferred Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation and the
terms of which expressly provide that such shares are
"Voting Parity Preferred Stock" within the meaning of
this paragraph or the terms of the STRAPS and voting
rights thereunder are then exercisable (all such
shares, and all shares of Series E Preferred Stock,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock. A
<PAGE>
"Default in Preferred Dividends" means any default or
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to Series E Preferred
Stock shall be deemed to have occurred whenever the
Corporation fails to declare and pay the whole amount
of Quarterly Dividend for any Dividend Period on or
before the last day of such Dividend Period, and,
having so occurred, such default shall be deemed to
exist thereafter until, but only until, the Corporation
declares and pays the full amount of Quarterly Dividend
for a Dividend Period. At such time as the Corporation
may again fail to declare the full amount of any
Quarterly Dividend upon any Series E Preferred Stock
for any Dividend Period, a "Default in Preferred
Dividends" shall again have occurred. "Defaulted
Voting Parity Preferred Stock" at any time shall mean
those classes and series of Voting Parity Preferred
Stock in respect of which, at or prior to such time, a
Default in Preferred Dividends has occurred and of
which the holders are entitled at that time by the
terms of such Voting Parity Preferred Stock to elect
directors of the Corporation. Upon the termination of
a Voting Period with respect to any class or series of
Defaulted Voting Parity Preferred Stock, the voting
rights described in this section 5.2 shall cease for
such class or series of Defaulted Voting Parity
Preferred Stock, subject always, however, to revesting
of such voting rights in the holders of such Voting
Parity Preferred Stock upon the further occurrence of a
Default in Preferred Dividends. If any Voting Period
shall have terminated before the holders of a class or
series of Voting Parity Preferred Stock shall have
exercised the voting rights provided in this
section 5.2, the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(b) If the holders of any class or series of Defaulted
Voting Parity Preferred Stock (the "first Defaulted
Voting Parity Preferred Stock") have elected one or
more directors prior to the happening of the default or
event permitting the holders of any other class or
series of Defaulted Voting Parity Preferred Stock to
elect directors, then the directors so previously
elected will be deemed to have been elected by and on
behalf of the holders of such other class or series of
Defaulted Voting Parity Preferred Stock as well as the
first Defaulted Voting Parity Preferred Stock, without
prejudice to the right of the holders of such other
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<PAGE>
class or series to vote for directors if such
previously elected directors shall resign, cease to
serve or stand for reelection while the holders of such
other class or series are entitled to vote. If the
holders of any first Defaulted Voting Parity Preferred
Stock are entitled to elect in excess of two directors,
the holders of such other class or series shall not
participate in the election of more than two such
directors.
(c) No shares of any Defaulted Voting Parity Preferred
Stock held by the Corporation or any of the
Corporation's Affiliates shall be voted, or counted in
determining a quorum, for the election, removal or
replacement of any director elected by any Defaulted
Voting Parity Preferred Stock.
5.3 Voting Procedures
(a) As soon as practicable after the commencement of a
Voting Period, the Corporation shall call or cause to
be called a special meeting of the holders of Defaulted
Voting Parity Preferred Stock by mailing or causing to
be mailed a notice of such special meeting to such
holders not less than 10 nor more than 45 days after
the date such notice is given. If the Corporation does
not call or cause to be called such a special meeting,
it may be called by any of such holders on like notice.
The record date for determining the holders of
Defaulted Voting Parity Preferred Stock entitled to
notice of and to vote at such meeting shall be the
close of business on the Business Day preceding the day
on which such notice is mailed. At any such special
meeting and at each meeting of stockholders held during
a Voting Period at which directors are to be elected,
removed or replaced, the holders of Defaulted Voting
Parity Preferred Stock, voting together as a single
class (to the exclusion of the holders of all other
securities, series and classes of capital stock of the
Corporation), voting by a majority of the votes of
shares present in person or by proxy, shall be entitled
to elect two directors. In regard to such elections,
each holder of shares of Defaulted Voting Parity
Preferred Stock shall be entitled to one or more votes
and/or a fractional vote on the basis of one vote for
each Sloo , ooo of liquidation preference (excluding
amounts in respect of accumulated and unpaid dividends)
attributable to such shares. Cumulative voting in such
elections shall not be permitted. Shares of Defaulted
Voting Parity Preferred Stock then outstanding, present
in person or represented by proxy, representing
one-third of the votes of the Defaulted Voting Parity
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<PAGE>
Preferred Stock, will constitute a quorum for the
election of directors. Notice of all meetings at which
holders of Defaulted Voting Parity Preferred Stock of
any series shall be entitled to vote will be given to
such holders at their addresses as they appear on the
Stock Books. At any such meeting or adjournment
thereof in the absence of a quorum, holders of shares
of Defaulted Voting Parity Preferred Stock representing
a majority of the votes present in person or
represented by proxy shall have the power to adjourn
the meeting for the election of directors without
notice, other than an announcement at the meeting,
until a quorum is present. If any Voting Period shall
terminate after the notice of special meeting provided
for in this section 5.3 has been given but before the
special meeting shall have been held, the Corporation
shall, as soon as practicable after such termination,
mail or cause to be mailed to the holders of Defaulted
Voting Parity Preferred Stock a notice of cancellation
of such special meeting.
(b) The term of office of all persons who are directors of
the Corporation at the time of a special meeting of the
holders of Defaulted Voting Parity Preferred Stock to
elect directors shall continue, notwithstanding the
election at such meeting by such holders of the two
additional directors.
(c) Simultaneously with the expiration of a Voting Period
for all classes and series of Defaulted Voting Parity
Preferred Stock, the term of office of the directors
elected by the holders of Defaulted Voting Parity
Preferred Stock shall terminate, the other persons who
shall have been elected by the holders of stock of the
Corporation (or by the Board of Directors prior to the
beginning of the Voting Period) and who are incumbent
shall constitute the directors of the Corporation, and
the voting rights of the holders of Voting Parity
Preferred Stock to elect directors shall cease.
(d) For so long as a Voting Period continues, the directors
elected at any time by the holders of Defaulted Voting
Parity Preferred Stock may be removed without cause by,
and shall not be removed without cause except by, the
vote of the holders of record of the outstanding shares
of Defaulted Voting Parity Preferred Stock at any
subsequent time, voting together as a single class
without regard to class or series, at a meeting of the
stockholders, or of the holders of shares of Defaulted
Voting Parity Preferred Stock, called for such purpose.
So long as a Voting Period continues, (A) any vacancy
in the office of a director elected by the holders of
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<PAGE>
Defaulted Voting Parity Preferred Stock may be filled
(except as provided in the following clause (B)) by the
person appointed by an instrument in writing signed by
the remaining director elected by the holders of
Defaulted Voting Parity Preferred Stock and filed with
the Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
5.4 Additional Vote
If any matter (excluding the election, removal or
replacement of directors) requires the consent or affirmative
vote of shares of Series E Preferred Stock or of all Preferred
Stock of the Corporation, whether pursuant to the provisions of
such Series or such Preferred Stock or pursuant to the provisions
of the Articles of Redomestication of the Corporation or pursuant
to applicable law, and if any shares of Series E Preferred Stock
entitled to vote are held by the Corporation or by any of its
Affiliates, then the following additional consent or vote will be
required: the same consent or affirmative vote of shares
otherwise required, except that shares of Series E Preferred
Stock held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such additional
consent or vote; provided, such additional consent or vote will
not be applicable if all outstanding shares of Series E Preferred
Stock are held by the Corporation and/or its Affiliate.
ARTICLE 6
ISSUE PRICE
The price or consideration for which each share of
Series E Preferred Stock shall be issued is $20.90 and, upon
payment of such price, each such share shall be issued as fully
paid and non-assessable.
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<PAGE>
ARTICLE 7
NOTICE AND INTERPRETATION
7.1 Notices
(a) Any notice, check, invitation for tenders or other
Communication from the Corporation herein provided for
shall be sufficiently given if delivered or if sent by
first class unregistered mail, postage prepaid, to the
holders of the Series E Preferred Stock at their
respective addresses appearing on the books of the
Corporation or, in the event of the address of any of
such holders not so appearing, then at the last address
of such holder known to the Corporation. Except for
notices required by law, accidental failure to give
such notice, invitation for tenders or other communica-
tion to one or more holders of the Series E Preferred
Stock shall-not affect the validity of the notices,
invitations for tenders or other communications
properly given or any action taken pursuant to such
notice, invitation for tenders or other communication
but, upon such failure being discovered, the notice,
invitation for tenders or other communication, as the
case may be, shall be sent forthwith to such holder or
holders.
(b) If any notice, check, invitation for tenders or other
communication from the Corporation given to a holder of
Series E Preferred Stock pursuant to paragraph (a) is
returned on three consecutive occasions because he
cannot be found, the Corporation shall not be required
to give or mail any further notices, checks, invita-
tions for tenders or other communications, to such
shareholder until another address for such shareholder
is made known to the Corporation.
<PAGE>
Interpretation
(a) In the event that any day on which any dividend on the
Series E Preferred Stock is payable or on or by which
any other action is required to be taken hereunder is
not a business day, then such dividend shall be payable
or such other action shall be required to be taken on
or before the next succeeding day that is a business
day. A "business day" means a day other than a
Saturday, a Sunday or any other day that is a legal
holiday on which banking institutions in the place
where the Corporation has its head office are closed.
-20-
<PAGE>
(b) All references herein to a holder of Series E Preferred
stock shall be interpreted as referring to a registered
holder of the Series E Preferred Stock.
ARTICLE 8
CERTAIN MODIFICATIONS
In addition to any other vote or consent of
shareholders of the Corporation then required by applicable law
or by the Articles of Redomestication of the Corporation, subject
to any regulatory consents referred to in section 1.2 hereof, so
long as any shares of Series E Preferred Stock remain
outstanding, the Corporation shall not, without the prior
approval of the holders of Series E Preferred Stock outstanding
at that time, given in accordance with Article 9 below in person
or by proxy, either in writing or at a meeting (i) authorize,
create or issue, or increase the authorized or issued amount, of
any class or series of stock ranking prior to Series E Preferred
Stock with respect to payment of dividends or the distribution of
assets on liquidation, dissolution or winding up of the
Corporation, or reclassify any authorized stock of the
Corporation into any such shares, or create, authorize or issue
any obligations or security convertible into or evidencing the
right to purchase any such shares, or (ii) amend, alter or repeal
any of the provisions of the Corporation's Articles of
Redomestication of the Corporation or this Statement of
Designation so as to adversely affect any right, preference,
privilege or voting power of Series E Preferred Stock: provided,
however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any series of
preferred stock or any increase in the amount of authorized
shares of such series or of any other series of preferred stock,
in each case ranking on a parity with or junior to Series E
Preferred Stock with regard to dividends, or upon liquidation,
dissolution or winding up of the Corporation (which includes
without limitation any shares of the same class of preferred
stock as the Series E Preferred Stock, whether or not providing
for cumulative dividends), shall not be deemed to adversely
affect such rights, preferences, privileges or voting powers.
ARTICLE 9
APPROVAL OF SERIES E PREFERRED STOCKHOLDERS
When holders of Series E Preferred Stock are voting
separately as a class, any approval of the holders of Series E
Preferred Stock with respect to any and all matters referred to
herein or of any other matters requiring the consent of the
-21-
<PAGE>
holders of the Series E Preferred Stock may be given in
such
manner as may then be required by law, subject to a minimum
requirement that such approval be given by resolution
signed by
the holders of a majority of the outstanding Series E
Preferred
Stock (or, if required at that time by applicable law,
signed by
all holders of the outstanding Series E Preferred Stock) or
passed by the affirmative vote of a majority of the votes
cast by
the holders of Series E Preferred Stock who voted in
respect of
the resolution at a general meeting of the holders of the
Series E Preferred Stock duly called for that purpose and
held
upon at least 10 days notice at which the holders of at
least
one-third of the outstanding Series E Preferred Stock
(which
shall constitute a quorum) are present in person or
represented
by proxy. The proxy rules applicable to the giving of
notice of
and the formalities to be observed in respect of the
conduct of,
any such meeting or any adjourned meeting shall be those
from
time to time prescribed by the Articles of Redomestication
and
by-laws of the Corporation with respect to meetings of the
holders of Preferred Stock, or if not so prescribed, as
required
by the Colorado Corporation Code or by such other federal
or
state legislation as may be applicable in the
circumstances.
Subject to Article 5 hereof, on every vote taken at every
meeting
of holders of Series E Preferred Stock, each holder of
Series E
Preferred Stock entitled to vote thereat shall be entitled
to one
vote for each share of Series E Preferred Stock held.
ARTICLE 10
RIGHTS ON LIQUIDATION
In the event of the liquidation, dissolution or
winding-up of the affairs of the Corporation, whether
voluntary
or involuntary, the holders of Series E Preferred Stock
shall be
entitled to receive, out of assets of the Corporation
available
for distribution to stockholders after satisfying claims
of
creditors but before any payment or distribution on the
Common
Stock or on any other class of stock ranking junior to the
shares
of Series E Preferred Stock upon liquidation, a
liquidation
distribution in the amount of $20.90 per share plus an
amount
equal to all dividends declared and unpaid on each share
to the
date of such distribution. Additional provisions regarding
the
preferences and rights of holders of Series E Preferred
Stock to
receive liquidating distributions are set forth in Article
IX of
the Articles of Redomestication of the Corporation.
Neither the
sale, lease or exchange (for cash, stock, securities or
other
consideration) of all or substantially all of the property
and
assets of the Corporation, nor the consolidation or merger
of the
Corporation with or into any other entity, nor the merger
or
consolidation of any other entity with or into the
Corporation,
shall be deemed to be a liquidation, dissolution, or
winding up
-22-
- f z
<PAGE>
of the affairs of the Corporation, either voluntary or
involuntary, for purposes of this Article 10.
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendments set forth on Exhibit 1 and
Exhibit 2 attached hereto were adopted by a vote of the sole
shareholder of the Corporation on September 15, 1992. The
number
of shares voted for the Amendments was sufficient for
approval.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The amendments do not effect a change in the
amount of stated capital of the Corporation.
Dated: September 15, 1992 THE GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By
William T. McCallum,
President
and Chief Executive
Officer
D. Craig Lennox, Senior
Vice
President, General
Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF )
Before me, , a notary public,
personally appeared William T. McCallum, who acknowledged
that he
is the President and Chief Executive Officer of Great-West
Life &
Annuity Insurance Company, a Colorado corporation, and that
he
signed the foregoing Statement of Resolution Establishing
Series
E Preferred Stock as his voluntary act and deed, and that
the
facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 5th day of September, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF )
Before me, , a notary
public,
personally appeared D. Craig Lennox, who acknowledged that
he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Statement of
Resolution Establishing Series E Preferred Stock as his
voluntary
act and deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires:
238830. -2-
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby
amends the following parts of the terms for four series of
Stated
Rate Option Preferred Stock as set forth in the Statement of
Resolution Establishing Four Series of Preferred Stock dated
as
of September 18, 1991 and filed with the Secretary of State
of
Colorado on September 30, 1991:
Paragraphs 6(c), 6(d) and 6(e) are hereby amended to
read in their entirety as follows:
(c) Default in Dividend.
(i) During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of any series of the
STRAPS, or any class or series of preferred stock
ranking on a parity with the shares of the STRAPS as to
dividends or upon liquidation, dissolution or winding
up of the Corporation and the terms of which expressly
provide that such shares are "Voting Parity Preferred
Stock" within the meaning of this paragraph and voting
rights thereunder are then exercisable (all such
shares, and all shares of each series of the STRAPS,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock.
"Default in Preferred Dividends" means any default
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to any series of
STRAPS shall be deemed to have occurred whenever the
amount of unpaid accumulated dividends upon such series
through the last preceding dividend period therefor
shall be equivalent to six quarterly dividends (which,
with respect to any series of the STRAPS, shall be
deemed to be dividends with respect to a number of
dividend periods containing not less than 540 days) or
more, and, having so occurred, such default shall be
<PAGE>
deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends (whether or not earned
or declared) on all shares of all STRAPS of each and
every series then outstanding shall have been paid to
the end of the last preceding dividend period.
"Defaulted Voting Parity Preferred Stock" at any time
shall mean those classes and series of Voting Parity
Preferred Stock in respect of which, at or prior to
such time, a Default in Preferred Dividends has
occurred and of which the holders are entitled at that
time by the terms of such Voting Parity Preferred Stock
to elect directors of the Corporation. Upon the
termination of a Voting Period with respect to any
class or series of Defaulted Voting Parity Preferred
Stock, the voting rights described in this paragraph
6(c) shall cease for such class or series of Defaulted
Voting Parity Preferred Stock, subject always, however,
to revesting of such voting rights in the holders of
such Voting Parity Preferred Stock upon the further
occurrence of a Default in Preferred Dividends. If any
Voting Period shall have terminated before the holders
of a class or series of Voting Parity Preferred Stock
shall have exercised the voting rights provided in this
paragraph 6(c), the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(ii) If the holders of any class or series of
Defaulted Voting Parity Preferred Stock (the "first
Defaulted Voting Parity Preferred Stock") have elected
one or more directors prior to the happening of the
default or event permitting the holders of any other
class or series of Defaulted Voting Parity Preferred
Stock to elect directors, then the directors so
previously elected will be deemed to have been elected
by and on behalf of the holders of such other class or
series of Defaulted Voting Parity Preferred Stock as
well as the first Defaulted Voting Parity Preferred
Stock, without prejudice to the right of the holders of
such other class or series to vote for directors if
such previously elected directors shall resign, cease
to serve or stand for reelection while the holders of
such other class or series are entitled to vote. If
the holders of any first Defaulted Voting Parity
Preferred Stock are entitled to elect in excess of two
directors, the holders of such other class or series
shall not participate in the election of more than two
such directors.
(iii) No shares of any Defaulted Voting
Parity Preferred Stock held by the Corporation or any
of the Corporation's Affiliates shall be voted, or
counted in determining a quorum, for the election,
-2-
<PAGE>
removal or replacement of any director elected by any
Defaulted Voting Parity Preferred Stock.
(d) Voting Procedures.
(i) As soon as practicable after the
commencement of a Voting Period, the Corporation shall
call or cause to be called a special meeting of the
holders of Defaulted Voting Parity Preferred Stock by
mailing or causing to be mailed a notice of such
special meeting to such holders not less than 10 nor
more than 45 days after the date such notice is given.
If the Corporation does not call or cause to be called
such a special meeting, it may be called by any of such
holders on like notice. The record date for
determining the holders of Defaulted Voting Parity
Preferred Stock entitled to notice of and to vote at
such meeting shall be the close of business on the
Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each
meeting of stockholders held during a Voting Period at
which directors are to be elected, removed or replaced,
the holders of Defaulted Voting Parity Preferred Stock,
voting together as a single ^lass (to the exclusion of
the holders of all other securities, series and classes
of capital stock of the Corporation), voting by a
majority of the votes of shares present in person or by
proxy, shall be entitled to elect two directors. In
regard to such elections, holders of shares of
Defaulted Voting Parity Preferred Stock shall be
entitled to one or more votes and/or a fractional vote
on the basis of one vote for each $100,000 of
liquidation preference (excluding amounts in respect of
accumulated and unpaid dividends) attributable to such
shares. Cumulative voting in such elections shall not
be permitted. Shares of Defaulted Voting Parity
Preferred Stock then outstanding, present in person or
represented by proxy, representing one-third of the
votes of the Defaulted Voting Parity Preferred Stock,
will constitute a quorum for the election of directors.
Notice of all meetings at which holders of Defaulted
Voting Parity Preferred Stock of any series shall be
entitled to vote will be given to such holders at their
addresses as they appear on the Stock Books. At any
such meeting or adjournment thereof in the absence of a
quorum, holders of shares of Defaulted Voting Parity
Preferred Stock representing a majority of the votes
present in person or represented by proxy shall have
the power to adjourn the meeting for the election of
directors without notice, other than an announcement at
the meeting, until a quorum is present. If any Voting
Period shall terminate after the notice of special
meeting provided for in this paragraph 6(d)(i) has been
given but before the special meeting shall have been
-3-
<PAGE>
held, the Corporation shall, as soon as practicable
after such termination, mail or cause to be mailed to
the holders of Defaulted Voting Parity Preferred Stock
a notice of cancellation of such special meeting.
(ii) The term of office of all persons who
are directors of the Corporation at the time of a
special meeting of the holders of Defaulted Voting
Parity Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting
by such holders of the two additional directors.
(iii) Simultaneously with the expiration of a
Voting Period for all classes and series of Defaulted
Voting Parity Preferred Stock, the term of office of
the directors elected by the holders of Defaulted
Voting Parity Preferred Stock shall terminate, the
other persons who shall have been elected by the
holders of stock of the Corporation (or by the Board of
Directors prior to the beginning of the Voting Period)
and who are incumbent shall constitute the directors of
the Corporation, and the voting rights of the holders
of Voting Parity Preferred Stock to elect directors
shall cease.
(iv) For so long as a Voting Period
continues, the directors elected at any time by the
holders of Defaulted Voting Parity Preferred Stock may
be removed without cause by, and shall not be removed
without cause except by, the vote of the holders of
record of the outstanding shares of Defaulted Voting
Parity Preferred Stock at any subsequent time, voting
together as a single class without regard to class or
series, at a meeting of the stockholders, or of the
holders of shares of Defaulted Voting Parity Preferred
Stock, called for such purpose. So long as a Voting
Period continues, (A) any vacancy in the office of a
director elected by the holders of Defaulted Voting
Parity Preferred Stock may be filled (except as
provided in the following clause (B)) by the person
appointed by an instrument in writing signed by the
remaining director elected by the holders of Defaulted
Voting Parity Preferred Stock and filed with the
Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
-4-
<PAGE>
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
(e) Additional Vote. If any matter (excluding
the election, removal or replacement of directors)
requires the consent or affirmative vote of shares of
any series of STRAPS, of all series of STRAPS, or of
all Preferred Stock of the Corporation, whether
pursuant to the provisions of such series, all such
series or such Preferred Stock or pursuant to the
provisions of the Articles of Redomestication of the
Corporation or pursuant to applicable law, and if any
shares of any series of STRAPS entitled to vote are
held by the Corporation or by any of its Affiliates,
then the following additional consent or vote will be
required: the same consent or affirmative vote of
shares otherwise required, except that shares of STRAPS
held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such
additional consent or vote; provided, such additional
consent or vote will not be applicable if all
outstanding shares of the STRAPS of such series (in the
case of a class vote of such series) or of all series
STRAPS (in the case of a vote of all series of STRAPS)
are held by the Corporation and/or its Affiliates.
Z38850 .3
<PAGE>
Fs
Exhibit 2
Great-West Life & Annuity Insurance Company hereby
amends parts of ARTICLE IX of its Articles of Redomestication
as
follows:
1. Article IX, Section A, paragraph 3 is hereby
amended to read in its entirety as follows:
3. Dividend and Liquidation Preference as
between the Common Stock and the Preferred Stock. For so
long as any shares of Preferred Stock are outstanding,
the
corporation shall not declare, pay or set apart for
payment
any dividend or other distribution (other than any
dividend
or distribution payable solely in shares of Common Stock
or
any other stock of the corporation ranking junior to the
shares of Preferred Stock as to dividends and
liquidation)
in respect of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred
Stock
as to dividends or upon liquidation, or call for
redemption,
redeem, purchase or otherwise acquire for consideration
any
shares of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred
Stock
as to dividends or upon liquidation, unless (i) full
cumulative dividends on all shares of Preferred Stock as
to
which dividends are cumulative for all past dividend
periods
have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the
payment
of such dividends, and (ii) the corporation has redeemed
the
full number of shares of Preferred Stock, if any, t is
then
obligated to redeem in accordance with the terms of any
series of Preferred Stock as fixed by the board of
directors
of the corporation in accordance with this Article IX.
2. Article IX, Section B, paragraph 2 is hereby
amended to read in its entirety as follows:
2. No Dividend Preference Between Series of
Preferred Stock. No dividends shall be declared on
shares
of any series of Preferred Stock for any dividend period
or
part thereof unless full cumulative dividends have been
or
contemporaneously are declared on the shares of each
other
series of Preferred Stock as to which dividends are
cumulative through the most recent dividend payment date
for
each such other series. If at any time any accrued
dividends on shares of any series of Preferred Stock as
to
which dividends are cumulative (a "cumulative series")
have
not been paid in full, then the corporation will, if
paying
any dividends on any shares of any cumulative series of
<PAGE>
Preferred Stock, pay dividends on shares of all cumulative
series of Preferred Stock pro rata in proportion to the sums
which would be payable on such cumulative series if all
accrued but unpaid dividends, if any, through the most
recent dividend payment date were declared and paid in full.
Dividends on any series of Preferred Stock shall be
cumulative only to the extent provided in the terms of that
series.
~b
0216633.01 2
<PAGE>
ARTICLES OF AMENDMENT
APPROVED AS
TO FORM
ASSISTANT
ATT0RNEY GENERAL
DATE
Pursuant to the provisions of the Colorado Business
Corporation Act, Great-West Life & Annuity Insurance Company
(the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West Life &
Annuity Insurance Company.
SECOND: The amendments to the Articles of Redomestication
set forth on Exhibit 1 attached hereto were adopted on
January
24, 1995 by the sole shareholder of the Corporation, as
prescribed by the Colorado Business Corporation Act. The
number
of shares voted for the amendments was sufficient for
approval.
The number of votes cast for the amendments by each voting
group
entitled to vote separately on the amendments was sufficient
for
approval by that voting group.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
Dated: January 24, 1995
GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY
By
W.T. McCallum, President
and
Chief Executive Officer
D.C. Lennox, Senior Vice
Vice
President, General Counsel
and
Secretary
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby amends,
as set forth below, parts of its Articles of Redomestication
consisting of the Statement of Resolution Establishing Four
Series of Preferred Stock dated as of September 18, 1991 and
filed with the Secretary of State of Colorado on September 30,
1991, as amended by Articles of Amendment to Articles of
Redomestication dated as of June 16, 1992 and filed with the
Secretary of State of Colorado on June 30, 1992, and by Articles
of Amendment to Articles of Redomestication, dated September 15,
1992 and filed with the Secretary of State of Colorado on
September 29, 1992 (as so amended, "the Statement").
1. The definition of "Initial Long-Term Dividend Period"
contained in paragraph 2 of the Statement is hereby amended to
read in its entirety as follows:
"'Initial Long-Term Dividend Period' means (i) with
respect to the Series A STRAPS, Series C STRAPS and
Series D STRAPS, the period from and including the
respective Dates of Original Issue for such series to
and excluding December 31, 2002 and (ii) with respect
to Series B STRAPS, the period from and including the
Date of Original Issue for such series to and excluding
December 31, 1995."
2. Clause (I) of paragraph 3(c)(i) of the Statement is
hereby amended to read in its entirety as follows:
"(I) during the Initial Long-Term Dividend Period for
each series of STRAPS, the respective dividend rates
per annum applicable to such series shall be as
follows: Series A, C and D: 8% to and excluding
December 31, 1993, 4.05% from December 31, 1993 to and
excluding February 18, 1994, 4.29% from February 18,
'994 to and excluding April 8, 1994, 4.7E% from April
8, 1994 to and excluding May 27, 1994, 5.46% from May
27, 1994 to and excluding July 15, 1994, 5.16% from
July 15, 1994 to and excluding September 2, 1994, 6.00%
from September 2, 1994 to and excluding October 21,
1994, 6.29% from October 21, 1994 to and excluding
December 9, 1994, 7.58% from December 9, 1994 to and
excluding January 27, 1995, and 7.30% for the balance
of such Period; and Series B: 7% throughout such
Period; and..."
<PAGE>
)
COUNTY OF ARAPAHOE ) ss.
STATE OF COLORADO )
Before me, Diane Herwitz, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the
facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 24th day of January, 1995.
Notary Public
My commission expires: 4-27-91
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Diane Herwitz, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice President, General Counsel and Secretary of Great-West Life
& Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the
facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 24th day of January, 1995.
Notary Public
My commission expires: 4-27-97
2
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Business
Corporation Act, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment to
its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West Life &
Annuity Insurance Company.
SECOND: The amendments to the Articles of Redomestication set
forth on Exhibit 1 attached hereto were adopted on April 22, 1996
by the sole shareholder of the Corporation, as prescribed by the
Colorado Business Corporation Act. The number of shares voted for
the amendments was sufficient for approval. The number of votes
cast for the amendments by each voting group entitled to vote
separately on the amendments was sufficient for approval by that
voting group.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
Dated: April 22, 1996 GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
W.T.McCallum, President and
Chief Executive Officer
D.C. Lennox, Senior Vice
President, General Counsel and
Secretary
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby amends, as
set forth below, parts of its Articles of Redomestication
consisting of the Statement of Resolution Establishing Four Series
of Preferred Stock dated as of September 18, 1991 and filed with
the Secretary of State of Colorado on September 30, 1991, as
amended by Articles of Amendment to Articles of Redomestication
dated as of June 16, 1992 and filed with the Secretary of State of
Colorado on June 30, 1992, by Articles of Amendment to Articles of
Redomestication dated September 15, 1992 and filed with the
Secretary of State of Colorado on September 29, 1992, and by
Articles of Amendment to Articles of Redomestication dated January
24, 1995 and filed with the Secretary of State of Colorado on
February 7, 1995 (as so amended, "the Statement").
1. The definition of "Initial Long-Term Dividend Period"
contained in paragraph 2 of the Statement is hereby amended to read
in its entirety as follows:
"'Initial Long-Term Dividend Period' means (i) with
respect to the Series A STRAPS, Series C STRAPS and
Series D STRAPS, the period from and including the
respective Dates of Original Issue for such series to and
excluding December 31, 2002 and (ii) with respect to
Series B STRAPS, the period from and including the Date
of Original Issue for such series to and excluding
December 31, 1997."
2. Clause (I) of paragraph 3(c)(i) of the Statement is
hereby amended to read in its entirety as follows:
"(I) during the Initial Long-Term Dividend Period for
each series of STRAPS, the respective dividend rates per
annum applicable to such series shall be as follows:
Series A, C and D: 8% to and excluding December 31,
1993, 4.05% from December 31, 1993 to and excluding
February 18, 1994, 4.29% from February 18, 1994 to and
excluding April 8, 1994, 4.75% from April 8, 1994 to and
excluding May 27, 1994, 5.46% from May 27, 1994 to and
excluding July 15, 1994, 5.16% from July 15, 1994 to and
excluding September 2, 1994, 6.00% from September 2, 1994
to and excluding October 21, 1994, 6.29% from October 21,
1994 to and excluding December 9, 1994, 7.58% from
December 9, 1994 to and excluding January 27, 1995, and
7.30% for the balance of such Period; and Series B: 7%
to and excluding December 31, 1995, 7.16% from December
31, 1995 to and excluding February 16, 1996, 6.59% from
February 16, 1996 to and excluding April 5, 1996, 6.79%
from April 5, 1996 to and excluding May 24, 1996, and
5.80% for the balance of such Period; and..."
BYLAWS OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLE I
SHAREHOLDERS' MEETING
SECTION 1. Annual Meeting. The Annual Meeting of the Shareholders
for the election of the Directors and for the transaction of any
other business pertaining to the corporation (whether or not stated
in the notice of the meeting) shall be held at such time, date and
place as the Board of Directors, by resolution, shall determine and
set forth in the notice of the meeting.
SECTION 2. Special Meetings. Special Meetings of the Shareholders
shall be called whenever ordered by the Chairman of the Board, the
President, a quorum of the Board of Directors, or the holders of at
least one-quarter (1/4) of the total amount of stock issued and
outstanding. Notice of the meeting may be waived and neither the
business to be transacted at, nor the purpose of the meeting, need
be specified in the waiver of notice. In the absence of waiver of
notice, the purposes for which the meeting is called shall be
stated in the notice and no other corporate action shall be taken
without the consent of all Shareholders entitled to vote.
SECTION 3. Place of Meetings. All meetings of the Shareholders
shall be held at the office of the corporation in Englewood,
Colorado, or at such other place or places, within or without the
State of Colorado, as shall from time to time be designated by the
Board of Directors.
SECTION 4. Notice of Meetings. Notice of all meetings, regular or
special, shall be given by mailing to each Shareholder entitled to
vote thereat, directed to his address as it appears on the records
of the corporation, at least ten days and not more than fifty days
before such meeting, a written or printed notice of the time,
place, and purpose or purposes thereof.
SECTION 5. Quorum. The holders of a majority of the outstanding
stock of the corporation entitled to vote, represented in person or
by proxy, shall constitute a quorum for all purposes. In the
absence of a quorum, the Shareholders entitled to vote thereat,
represented in person or by proxy, may adjourn the meeting to a day
certain.
SECTION 6. Voting. At all meetings of Shareholders each share of
stock held by a Shareholder, represented in person or by proxy,
shall be entitled to one vote. Proxies shall be in writing and
shall be signed by the Shareholder. Two judges of election shall
be appointed by the Chairman of the meeting at any Shareholders'
Meeting at which judges are required. The Directors shall be
elected by ballot, and each full-paid share of stock shall be
entitled to one vote. Shares may be voted by proxy, signed by the
person legally entitled to vote the same. Each Shareholder shall
have the right to cast as many votes in the aggregate as shall
equal the number of shares of stock held by him, multiplied by the
number of Directors to be elected.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number and Authority. The business and property of
this corporation shall be conducted and managed by a Board of
Directors consisting of not more than 25 Directors and not less
than 5 Directors, the exact number thereof to be fixed and
determined by action taken from time to time by the Board of
Directors.
SECTION 2. Election. At each annual meeting of Shareholders, the
Shareholders shall elect Directors to hold office until the next
succeeding annual meeting. Each Director shall hold office for the
term for which he is elected and until his successor has been
elected and qualified, subject to removal as hereinafter provided.
SECTION 3. Removal and Vacancies. Any or all Directors may be
removed at any time, with or without cause, by a majority vote of
the Shareholders who shall thereupon elect a successor Director or
Directors to fill the vacancy or vacancies -- and in which case the
election of such successor Directors may be at a Special Meeting of
Shareholders called for such purpose. A vacancy in the Board of
Directors, other than one occurring by reason of removal by
Shareholders, shall be filled by the Board of Directors to serve
until the next annual meeting of the Shareholders. Where the
number of Directors is increased additional Directors may be
elected by the Board of Directors to serve until the next annual
meeting of the Shareholders.
SECTION 4. Regular Meeting. The Regular Meeting of the Board of
Directors shall be held immediately following the Annual Meeting of
the Shareholders.
SECTION 5. Special Meetings. Special Meetings of the Board of
Directors may be called by order of the Chairman of the Board, the
President, or the Secretary.
SECTION 6. Place of Meetings. Meetings of the Board of Directors
shall be held at the office of the corporation in Englewood,
Colorado, or at such other place within or without the State of
Colorado as may be designated in the notice thereof.
SECTION 7. Notice of Meetings. Notice of meetings of the Board of
Directors, except the regular meeting of the Board, shall be given
by mailing to each member at least two days before such meeting, a
written or printed notice of the time, and place thereof. Such
notice may also be given by telegram sent at least one day before
such meeting.
SECTION 8. Business Transacted at Meetings. Any business may be
transacted and any corporate action taken at any meeting of the
Board of Directors whether stated in the notice of such meeting or
not, except as otherwise expressly required by law.
SECTION 9. Quorum. A majority of the number of Directors fixed by
Section 1 shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the Directors
present may adjourn the meeting from time to time without further
notice, for a period not to exceed 60 days at any one adjournment.
SECTION 10. Interest of Directors. Except as prohibited by
statute, any Director may vote or act on behalf of the corporation
in contracting with any other company although he may be a
Shareholder, Director, or Officer of such other company.
SECTION 11. Indemnification of Directors. The corporation may, by
resolution of the Board of Directors, indemnify and save harmless
out of the funds of the corporation to the extent permitted by
applicable law, any Director, Officer, or employee of the
corporation or any member or officer of any Committee, and his
heirs, executors, and administrators, from and against all claims,
liabilities, costs, charges, and expenses whatsoever that any such
Director, Officer, employee, or any such member or officer sustains
or incurs in or about any action, suit, or proceeding that is
brought, commenced, or prosecuted against him for or in respect of
any act, deed, matter, or thing whatsoever, made, done, or
permitted by him in or about the execution of the duties of his
office or employment with the corporation, in or about the
execution of his duties as a Director or Officer of another company
which he so serves at the request and on behalf of the corporation,
or in or about the execution of his duties as a member or officer
of any such Committee, and all other claims, liabilities, costs,
charges, and expenses that he sustains or incurs, in or about or in
relation to any such duties or the affairs of the corporation, the
affairs of such other company which he so serves or the affairs of
such Committee, except such claims, liabilities, costs, charges, or
expenses as are occasioned by his own willful neglect or default.
The corporation may, by resolution of the Board of Directors,
indemnify and save harmless out of the funds of the corporation to
the extent permitted by applicable law, any Director, Officer, or
employee of any subsidiary corporation of the corporation on the
same basis and within the same constraints as described in the
preceding sentence.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Membership. The Board of Directors shall elect from
its own number an Executive Committee, to serve at the pleasure of
the Board, consisting of not less than three members, the exact
number to be fixed and determined by action taken from time to time
by the Board of Directors. The Executive Committee shall elect
from among its members a Chairman, and shall appoint a Secretary.
SECTION 2. Powers of the Executive Committee. The Executive
Committee shall have and may exercise all the powers of the Board
with respect to the conduct and management of the business and
property of the Company, except that the Executive Committee shall
not have power to declare dividends on or distributions of the
capital stock of the corporation, amend the Bylaws, fill vacancies
in the Committee or the Board of Directors, or exercise any powers
prohibited by C.R.S. Section 7-5-107 or which the Board of Directors may
from time to time, by proper resolution, reserve to itself.
SECTION 3. Meetings. The Committee may determine the times and
places for the holding of meetings. The Committee shall prepare
regular minutes of the transactions at its meetings and shall cause
them to be recorded in books kept for that purpose. All actions of
the Committee shall be reported to the Board of Directors at its
next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Executive Committee
shall be held at the office of the corporation in Englewood,
Colorado, or at such other place, within or without the State of
Colorado, as may be designated in the notice or waiver of notice of
the meeting.
SECTION 5. Notice of Meetings. Notice of all meetings shall be
given by mailing to each member at least two days before such
meeting, a written or printed notice of the time and place thereof.
Such notice may also be given by telegram at least one day before
such meeting.
SECTION 6. Quorum. A quorum shall consist of two members of the
Committee.
<PAGE>
ARTICLE IV
INVESTMENT AND CREDIT COMMITTEE
SECTION 1. Membership. The Board of Directors shall elect from
its own number an Investment and Credit Committee, to serve at the
pleasure of the Board, consisting of not less than three members,
the exact number to be fixed and determined by action taken from
time to time by the Board of Directors. The Investment and Credit
Committee shall elect from among its members a Chairman, and shall
appoint a Secretary.
SECTION 2. Powers of the Investment and Credit Committee. The
Investment and Credit Committee shall have the authority to approve
the investments of the funds of the corporation, except for all or
any part of that authority which the Board of Directors may from
time to time, by proper resolution, reserve to itself.
SECTION 3. Meetings. The Committee may determine the times and
places for the holding of meetings. The Committee shall prepare
regular minutes of the transactions at its meetings and shall cause
them to be recorded in books kept for that purpose. All actions of
the Committee shall be reported to the Board of Directors at its
next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Investment and
Credit Committee shall be held at the office of the corporation in
Englewood, Colorado, or at such other place, within or without the
State of Colorado, as may be designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be
given by mailing to each member at least two days before such
meetings, a written or printed notice of the time and place
thereof. Such notice may also be given by telegram at least one
day before such meetings.
SECTION 6. Quorum. A quorum shall consist of three members of the
Committee.
ARTICLE V
OFFICERS
SECTION 1. Duties in General. All Officers of the corporation, in
addition to the duties prescribed by the Bylaws, shall perform such
duties in the conduct and management of the business and property
of the corporation as may be determined by the Board of Directors.
In the case of more than one person holding an office of the same
title, any one of them may perform the duties of the office except
insofar as the Board of Directors, or the President may otherwise
direct.
SECTION 2. Number and Designation. The Officers of the
corporation shall be a Chairman of the Board, a President, one or
more Vice Presidents, one or more Secretaries, one or more
Treasurers, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other Officers and Committees as the
Board of Directors may from time to time deem advisable. It shall
be permissible for the same person to hold more than one office,
except that the offices of President and Secretary shall not be
held by the same person.
SECTION 3. Election and Term of Office. The Board of Directors
shall elect from their number a President and Vice President, and
shall appoint a Secretary, Treasurer, and such other Officers as
shall be prescribed in the Bylaws, and shall fill any vacancy that
may occur.
SECTION 4. Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the Shareholders and at
all meetings of the Board and shall perform such other duties as
the Board of Directors may from time to time prescribe.
SECTION 5. President. The President, in the absence of the
Chairman of the Board, shall preside at all meetings of the
Shareholders and of the Board of Directors. He shall have the
powers and perform the duties usually pertaining to the Office of
President.
SECTION 6. Vice Presidents. The Vice Presidents shall have such
powers and perform such duties as may be assigned to them from time
to time by the Board of Directors or by the President. The Board
of Directors or the President may from time to time determine the
order of priority as between two or more Vice Presidents.
SECTION 7. Secretary. The Secretary shall keep the minutes of the
meetings of the Shareholders, of the Board of Directors, and of the
Executive and Investment Committees; shall issue notices of
meetings; shall have custody of the corporation's seal and
corporate books and records; shall have charge of the issuance,
transfer, and cancellation of stock certificates; shall have
authority to attest and affix the corporate seal of any instruments
executed on behalf of the corporation; and shall perform such other
duties as are incident to his office and as are required by the
Board of Directors or the President.
SECTION 8. Assistant Secretaries. The Assistant Secretaries in
order of their priority shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the
Secretary, and shall have such other powers and perform such other
duties as may be assigned to them from time to time by the Board of
Directors or the President.
SECTION 9. Treasurer. The Treasurer shall have custody of the
funds and securities of the corporation and shall deposit the same
in such banks or depositories as the Board of Directors or the
President may direct. The Treasurer may, under the direction of
the Board of Directors, disburse all monies and sign checks or
other instruments drawn on or payable out of the funds of the
corporation, which, however, shall be countersigned by the
President, a Vice President, the Secretary, or an Assistant
Secretary, or an Assistant Treasurer. He shall also make such
transfers of the securities of the corporation as may be ordered by
the Board of Directors or the President. In general, the Treasurer
shall perform all of the duties incident to his office and such
other duties as are required of him by the Board of Directors or
the President.
SECTION 10. Assistant Treasurers. The Assistant Treasurers in
order of their priority shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the
Treasurer, and shall have such other powers and perform such other
duties as may be assigned to them from time to time by the Board of
Directors or the President.
SECTION 11. Other Officers. Other Officers who may from time to
time be elected by the Board of Directors shall have such powers
and perform such duties as may be assigned to them by the Board of
Directors or the President.
SECTION 12. Compensation. The compensation of the Officers shall
be fixed by the Chairman of the Board and the President.
SECTION 13. Emergency Management Committee. Notwithstanding
anything to the contrary contained in these Bylaws, during any
period of emergency as contemplated by C.R.S. Section 7-5-118 or when the
Board of Directors shall be unable to function by reason of
vacancies therein and there shall be no Director remaining and able
to fill such vacancies, the first two of the following who are
readily available shall constitute an Emergency Management
Committee:
(a) Vice Presidents in order of priority based upon their
period of service in such offices;
(b) Other Officers in order of priority based upon their
period of service in such offices.
The Emergency Management Committee shall manage and control the
business and property of the corporation and shall have and
exercise all of the powers, rights, and prerogatives of the
corporation until a Board of Directors shall have been duly
constituted. The decisions of the Committee shall be final and
shall be superior to the decisions of any other Officer of the
corporation.
In addition to, and not in modification or limitation of, its
authority as stated above, the Emergency Management Committee shall
have the power and authority:
(a) To call meetings of Shareholders whether Annual or
Special;
(b) To elect and appoint Officers to fill vacancies;
(c) To make rules and regulations of procedure for its
operation.
Any vacancy which occurs on the Emergency Management Committee
shall be filled by the next Vice President or other Officers (as
the case may be) in order of priority as provided above.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates. Every Shareholder shall be entitled at
his request to a certificate signed by the President or a Vice
President, and also by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and under the seal of the
corporation, certifying the number of shares to which he is
entitled.
SECTION 2. Transfers. Transfers of stock may be made on the books
of the corporation only by the holder thereof in person or by his
attorney duly authorized thereto in writing and upon surrender and
cancellation of the certificate therefor duly assigned or
accompanied by a duly executed stock power.
SECTION 3. Lost or Destroyed Certificates. The Board of Directors
may order a new certificate to be issued in place of a certificate
lost or destroyed upon proof of such loss or destruction and upon
tender to the corporation by the Shareholder of a bond in such
amount and in such form and with or without surety as may be
ordered, indemnifying the corporation against any liability, claim,
loss, cost, or damage by reason of such loss or destruction and the
issuance of a new certificate.
SECTION 4. Dividends. Dividends may be declared from the legally
available surplus of the corporation at such times and in such
amounts as the Board of Directors may determine. Such dividends on
the capital stock of the corporation may not be declared by a
committee of the Board.
ARTICLE VII
CORPORATE FUNDS
SECTION 1. Deposits. Checks, drafts, bills, notes, negotiable
instruments or any other orders for the payment of money or
evidence of indebtedness payable to and received by the corporation
may be endorsed for deposit to the credit of the corporation by
such Officers or agents of the corporation as the Board of
Directors may determine and may be endorsed for deposit to the
credit of agents of the corporation in such manner as the Board of
Directors may direct.
SECTION 2. Withdrawals. All disbursements of the funds of the
corporation shall be made by check, draft, or other order signed by
such Officers or other persons as the Board of Directors may from
time to time authorize to sign the same.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. Voting Stock of Other Corporations. The President, any
Vice President, or any other Officer designated by the Board of
Directors may execute in the name of the corporation and attach the
corporate seal to any proxy or power of attorney authorizing the
proxy or proxies or attorney or attorneys named therein to vote the
stock of any corporation held in this corporation on any matter on
which such stock may be voted. If any stock owned by this
corporation is held in any name other than the name of this
corporation, instructions as to the manner in which such stock is
to be voted on behalf of this corporation may be given to the
holder of record by the President, any Vice President, or any other
Officer designated by the Board of Directors.
SECTION 2. Notices. Any notice under these Bylaws may be given by
mail by depositing the same in a post office or postal letter box
or postal mail chute in a sealed postpaid wrapper addressed to the
person entitled thereto at his address as the same appears upon the
books or records of the corporation or at such other address as may
be designated by such person except that notice which may be given
by telegram may be telegraphed to such person at such address; and
such notice shall be deemed to be given at the time such notice is
mailed or telegraphed.
SECTION 3. Waiver of Notice. Any Shareholder, Director, or member
of the Executive or Investment Committees may at any time waive any
notice required to be given under these Bylaws in accordance with
the provisions of C.R.S. Section 7-4-119 and Section 7-5-108, including
written
waiver executed before, at, or after the meeting or by presence at
the meeting.
ARTICLE IX
AMENDMENTS
The Bylaws may be amended in whole or in part by the Board of
Directors. No Bylaws shall be in conflict with the laws of the
State of Colorado or with the Regulations of the Colorado
Commissioner of Insurance.
ARTICLE X
EFFECTIVE DATE AND RESTATEMENT
These Bylaws become effective immediately upon the redomestication
of the corporation from the State of Kansas to the State of
Colorado. They thereafter constitute an amendment and restatement
of all prior Bylaws of the corporation under the laws of the State
of Kansas.
**************************
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .4
ARTICLE II. Representations and Warranties. . . . . . . . . . .8
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 24
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 35
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 40
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 45
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 46
SCHEDULE C Administrative Services . . . . . . . . . . . . . 47
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 48
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 51
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
THE ALGER AMERICAN FUND,
FRED ALGER MANAGEMENT, INC.,
FRED ALGER & COMPANY, INCORPORATED
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
THE ALGER AMERICAN FUND, a business trust organized under the laws
of the
Commonwealth of Massachusetts (hereinafter the "Fund"); FRED ALGER
MANAGEMENT, INC. (hereinafter the "Adviser"), a New York
corporation; FRED
ALGER & COMPANY, INCORPORATED (the "Distributor"), a Delaware
corporation;
and CHARLES SCHWAB & 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, including GWL&A,
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 February 17, 1989 (File
No. 812-7076), and
amended September 14, 1995, 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-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and
held by variable annuity and
variable life insurance separate accounts of life insurance
companies that may or may not
be affiliated with one another and, as contemplated by paragraph
(f)(3) of Treasury
Regulation 1.817-5, qualified and pension and retirement plans
("Qualified Plans") (herein-
after the "Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A on
behalf of the Account
on those days on which the Fund calculates its Designated
Portfolio(s)' net asset value
pursuant to rules of the SEC, and the Fund shall calculate such net
asset value on each day
which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing,
the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any
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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company or separate account unless an
agreement containing
provisions substantially the same as Sections 2.1, 3.5, 3.6, and
Article VII of this Agreement
is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption, except that the Fund reserves the right to
suspend the right of
redemption, consistent with Section 22(e) of the 1940 Act and any
applicable rules
thereunder. Requests for redemption identified by GWL&A, or its
agent, as being in
connection with surrenders, annuitizations, or death benefits under
the Contracts, upon prior
written notice, may be executed within seven (7) calendar days
after receipt by the Fund or
its designee of the requests for redemption. 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, GWL&A shall be the designee of
the Fund for receipt of
requests for redemption and receipt by such designee shall
constitute receipt by the Fund,
provided that the Fund receives notice of any such request for
redemption by 10:00 A.M.
Eastern time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 3:00 p.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof, except that payment may be
delayed if, for example,
the Fund's cash position so requires or if extraordinary market
conditions exist, but in no
event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
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 GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election in
writing and to receive all such income dividends and capital gain
distributions in cash. The
Fund shall notify GWL&A by the end of the next following Business
Day of the number of
shares so issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share ("NAV")
for each
Designated Portfolio available to GWL&A on each Business Day as
soon as reasonably
practical after the NAV per share is calculated and shall use its
best efforts to make such
net asset value per share available by 6:00 p.m. Eastern time. In
the event of a material
error in the computation of a Designated Portfolio's NAV or any
dividend or capital gain
distribution (each, a "pricing error"), which results in
adjustments to Contractowner's
accounts, the Adviser or the Fund shall immediately notify GWL&A as
soon as possible
after discovery of the error. Such notification may be verbal, but
shall be confirmed
promptly in writing in accordance with Article XI of this
Agreement. A pricing error shall
be corrected as follows: (a) if the pricing error results in a
difference between the erroneous
NAV and the correct NAV equal to or greater than $0.01 per share,
but less than 1/2 of 1%
of the Designated Portfolio's NAV at the time of the error, then
the Adviser shall either
reimburse the Designated Portfolio for any loss, after taking into
consideration any positive
effect of such error and no adjustments to Contractowner accounts
need be made, or, in the
Adviser's discretion, the procedures described in item (b) shall be
followed; and (b) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV equal
to or greater than 1/2 of 1% of the Designated Portfolio's NAV at
the time of the error,
then the Adviser shall reimburse the Designated Portfolio for any
unrecovered excess
redemption proceeds (as defined below) and shall reimburse GWL&A
for its reasonable
costs of adjustments made to correct Contractowner accounts in
accordance with the
provisions of Schedule E. If an adjustment is necessary to correct
an error of category (b)
above which has caused Contractowners to receive less than the
amount of shares or
redemption proceeds to which they are entitled, or is elected by
the Adviser in connection
with an error of category (a), the number of shares of the
applicable account of each such
Contractowner will be adjusted and the amount of any underpayments
on redemption
transactions not corrected by such adjustment shall be credited by
the Fund to GWL&A for
crediting of such amounts to the applicable Contractowners'
accounts. In the event an NAV
pricing error results in a Contractowner's receiving redemption
proceeds in an amount which
is $500 or more in excess of the amount that such Contractowner
would have received with
the correct NAV (such amount being the "excess redemption
proceeds"), then the effect of
such overpayment shall be corrected, to the extent possible, by an
adjustment to the number
of shares in the Contractowner's account and, GWL&A and Schwab
agree that they will
make a good faith attempt to collect such excess proceeds not
accounted for by such
adjustment. Any overpayments that have not yet been paid to
Contractowners will be
remitted to the Fund by GWL&A or Schwab upon notification by the
Adviser of such
overpayment. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts, other than amounts paid by the
Fund or Adviser for
crediting to Contractowner Accounts as set forth above. No
provision in this section 1.10
shall require the adjustment of a Contractowner's account if the
adjustment required for that
account is less than $25. A pricing error within categories (a) or
(b) above shall be deemed
to be "materially incorrect" or constitute a "material error" for
purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under the Contracts are or, prior to issuance, 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.
GWL&A further represents
and warrants that it is an insurance company duly organized and in
good standing under
applicable law and that it has legally and validly established the
Account prior to any
issuance or sale of units thereof as a segregated asset account
under Section 10-7-401, et. seq.
of the Colorado 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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. 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 shares of the Designated
Portfolios.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, and to the
extent consistent with Article VII, the Fund agrees that, except in
those circumstances where
the Fund has advised GWL&A that its Board of Directors has
determined that
implementation of a particular Law Change is not in the best
interest of all of the Fund's
shareholders, any action required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the Commonwealth of Massachusetts and
that it does and will
comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of New York
and any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with the laws of the State of
Delaware and any applicable state and federal securities laws.
2.8. The Fund, the Distributor and the Adviser represent and
warrant that all of
their respective officers, employees, investment advisers, and
other individuals or entities
dealing with the money and/or securities of the Fund are, and shall
continue to be at all
times, covered by a blanket fidelity bond or similar coverage for
the benefit of the Fund in
an amount not less than the minimal coverage required by Rule 17g-1
under the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued
by a reputable bonding
company.
2.9. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund, the Distributor and the Adviser immediately upon having
a reasonable basis for
believing that the Contracts have ceased to be so treated or that
they might not be so
treated in the future. In addition, GWL&A represents and warrants
that the Account is a
"segregated asset account" and that interests in the Account are
offered exclusively through
the purchase of or transfer into a "variable contract" within the
meaning of such terms under
Section 817 of the Code and the regulations thereunder. GWL&A will
use every effort to
continue to meet such definitional requirements, and it will notify
Schwab, the Fund, the
Distributor, and the Adviser immediately upon having a reasonable
basis for believing that
such requirements have ceased to be met or that they might not be
met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor or Fund shall provide
a camera-ready copy
and/or computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Distributor shall provide GWL&A with copies of the
Fund's SAI or docu-
mentation thereof for the Designated Portfolio(s) in such
quantities, with expenses to be
borne in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit
timely distribution thereof to Contractowners. The Distributor
and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests
such SAI from the
Fund (although it is anticipated that such requests will be made to
GWL&A or Schwab).
3.3. The Fund and/or the Distributor shall provide GWL&A and
Schwab with
copies of the Fund's proxy material, reports to stockholders and
other communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Distributor, Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the
Distributor or Adviser, neither the Fund, the Distributor nor
Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law and the
Mixed and Shared Funding Exemptive Order.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges, and the Fund shall
provide GWL&A with appropriate assistance in fulfilling such
responsibility. The Fund
agrees to promptly notify GWL&A of any changes of interpretations
or amendments of the
Mixed and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate in the
future with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor is named in con-
nection with the Contracts, at least ten (10) Business Days prior
to its use. No such material
shall be used if the Fund objects to such use within five (5)
Business Days after receipt of
such material. If sales literature or promotional material goes
beyond naming the Fund, a
Designated Portfolio, the Adviser, a sub-adviser, or the
Distributor, GWL&A or Schwab
shall obtain from the Fund or its designee affirmative written
approval to use such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of or concerning the Fund,
the Adviser or the
Distributor 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, the Adviser or the
Distributor, except with the
permission of the Fund or the Distributor.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which it
names GWL&A and/or its separate account(s), or Schwab in connection
with the
transactions contemplated by this Agreement at least ten (10)
Business Days prior to its use.
No such material shall be used if GWL&A or Schwab objects to such
use within five (5)
Business Days after receipt of such material.
4.4. The Fund, the Distributor, and the Adviser shall not give
any information or
make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or
the Contracts other than the information or representations
contained in a registration state-
ment 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. In connection with the Transactions contemplated by this
Agreement,
GWL&A, the Fund, the Distributor and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except with
the permission of Schwab, or except which merely names Schwab as
administrator or the
Fund's participation in a Schwab sponsored program.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials which refer to GWL&A or Schwab,
applications for exemptions,
requests for no-action letters, and all amendments to any of the
above, that relate to the
Designated Portfolio(s), contemporaneously with the filing of such
document(s) with the SEC
or NASD or other regulatory authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, 1933 Act or the
1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
or Schwab
under this Agreement, and GWL&A 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 E, Articles III, V, and other provisions
of this Agreement.
5.2. Except as otherwise specifically provided herein or in
Schedule E, each party
will bear all expenses incident its performance under this
Agreement. The Fund shall see
to it that all shares of the Designated Portfolio(s) are registered
and authorized for issuance
in accordance with applicable federal law and, if and to the extent
required, in accordance
with applicable state laws prior to their sale and pay all expenses
related thereto.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge
that a principal fea-
ture of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated
mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and
the Unaffiliated Funds, and to transfer the Contract's cash value
between funds and
portfolios. The Fund, the Distributor and the Adviser agree to not
interfere with GWL&A
and Schwab in facilitating the operation of the Account and the
Contracts as described in
the prospectus for the Contracts, including but not limited to
cooperation in not interfering
with transfers between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services rendered, as specified
in Schedule C hereto,
the Adviser agrees to pay Schwab a monthly Administrative Service
Fee based on the
percentage per annum on Schedule C hereto applied to the average
daily value of the shares
of the Designated Portfolio(s) 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, Distributor and Adviser represent and warrant
that they will make
every effort to enable each Designated Portfolio to at all times
comply with Section 817(h)
of the Code and Treasury Regulation Section 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 Distributor agree
that shares of the Designated Portfolio(s) will be sold only to
Participating Insurance
Companies and their separate accounts and certain Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that each
Designated
Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of
the Code, and that each Designated Portfolio will maintain such
qualification (under
Subchapter M or any successor or similar provisions) as long as
this Agreement is in effect.
6.4. The Fund, the Distributor or the Adviser will notify
GWL&A immediately
upon having a reasonable basis for believing that any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3,
8.4 and 8.5 hereof and
without in any way limiting or restricting any other remedies
available to GWL&A or
Schwab, the Adviser or the Distributor will pay all costs
associated with or arising out of any
failure of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3
hereof, including all costs associated with reasonable and
appropriate corrections or
responses to any such failure; such costs may include, but are not
limited to, the costs
involved in creating, organizing, and registering a new investment
company as a funding
medium for the Contracts and/or the costs of obtaining whatever
regulatory authorizations
are required to substitute shares of another investment company for
those of the failed
Portfolio (including but not limited to an order pursuant to
Section 26(b) of the 1940 Act);
such costs are to include, but are not limited to, fees and
expenses of legal counsel and other
advisors to GWL&A and any federal income taxes or tax penalties and
interest thereon (or
"toll charges" or exactments or amounts paid in settlement)
incurred by GWL&A with
respect to itself or owners of its Contracts in connection with any
such failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, of any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund, the Adviser
or the Distributor as a result of such a failure or alleged
failure:
(a) GWL&A shall promptly notify the Fund, the Adviser and the
Distributor of such
assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Adviser and the
Distributor as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund, the
Adviser and the Distributor resulting from such failure,
including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund, the Distributor and the
Adviser (together with
any supporting information or analysis) within at least two
(2) business days prior to
submission;
(e) GWL&A shall provide the Fund, the Distributor and the
Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall
reasonably request
(including, without limitation, by permitting the Fund, the
Distributor and the Adviser
to review the relevant books and records of GWL&A) in order to
facilitate review
by the Fund, the Distributor and the Adviser of any written
submissions provided to
it or its assessment of the validity or amount of any claim
against it arising from such
failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund, the Distributor
and the Adviser (i)
compromise or settle any claim, (ii) accept any adjustment on
audit, or (iii) forego
any allowable administrative or judicial appeals, without the
express written consent
of the Fund, the Distributor and the Adviser, which shall not
be unreasonably
withheld; provided that, GWL&A shall not be required to appeal
any adverse judicial
decision unless the Fund, the Distributor and the Adviser
shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking
such appeal; and further provided that the Fund, the
Distributor and the Adviser
shall bear the costs and expenses, including reasonable
attorney's fees, incurred by
GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund and determine what action, if any, should be
taken in response to such
conflicts. 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 by contract owners of different Participating
Insurance Companies; or
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of
contract owners. The Board shall promptly inform GWL&A if it
determines that an irre-
concilable material conflict exists and the implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to
any of the Designated Portfolios (the "Independent Directors"),
that a material irreconcilable
conflict exists, GWL&A 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, including: (1) withdrawing the assets allocable
to some or all of the sep-
arate accounts from the Fund or any Designated Portfolio and
reinvesting such assets in a
different investment medium, including (but not limited to) another
portfolio of the Fund,
or submitting the question whether such segregation should be
implemented to a vote of all
affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 Distributor and the Fund
shall continue to accept
and implement orders by GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and this Agreement
shall terminate within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and this Agreement shall terminate within six (6) months after
the Board informs
GWL&A in writing of the foregoing determination; provided, however,
that such withdrawal
and termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall be deemed modified to the
extent necessary also to
comply with the terms and conditions contained in such Rule(s) as
so amended or adopted.
7.8. GWL&A shall at least annually submit to the Board of
Trustees of the Fund
such reports, materials or data as the Trustees may reasonably
request so that the Trustees
may fully carry out the obligations imposed upon them by the Mixed
and Shared Funding
Exemptive Order, and said reports, materials and data shall be
submitted more frequently
if deemed appropriate by the Board of Trustees.
7.9. GWL&A agrees that any remedial action taken by it in
resolving any
irreconcilable conflict will be carried out at its expense and with
a view only to the interests
of its Contractowners.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in
settlement with the written consent of GWL&A) or litigation
(including reasonable legal and
other expenses) to which the Indemnified Parties may become subject
under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages,
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 pro-
spectus or SAI covering the Contracts or contained in the
Contracts or sales
literature and other promotional material for the
Contracts (or any
amendment or supplement to any of the foregoing), or
arise out of or are
based upon the omission or the alleged omission to state
therein a material
fact required to be stated therein or necessary to make
the statements therein
not misleading, provided that this Agreement to indemnify
shall not apply as
to any Indemnified Party if such statement or omission or
such alleged state-
ment or omission was made in reliance upon and in
conformity with
information furnished in writing to GWL&A or Schwab by or
on behalf of the
Adviser, Distributor or Fund for use in the registration
statement or
prospectus or SAI for the Contracts or in the Contracts
or sales literature and
other promotional material (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, pro-
spectus, SAI or sales literature and other promotional
material of the Fund
not supplied by GWL&A or persons under its control) or
wrongful conduct
of GWL&A or persons under its control, with respect to
the sale or
distribution of the Contracts or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
and other promotional material of the Fund, or any
amendment thereof or
supplement thereto, or the omission or alleged omission
to state therein a
material fact required to be stated therein or necessary
to make the statement
or 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.11 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A 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 to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.2)
against any and all losses, claims, expenses, damages and
liabilities (including amounts paid
in settlement with the written consent of Schwab) or litigation
(including reasonable legal
and other expenses), to which the Indemnified Parties may become
subject under any statute
or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are
related to the sale or acqu-
isition of the Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund, the
Adviser or the Distributor that is both (A) materially
incorrect and (B) that
was neither contained in the Fund's registration
statement or sales literature
and other promotional material of the Fund prepared by
the Fund or
provided in writing by the Fund to Schwab, or approved in
writing, by or on
behalf of the Fund, the Distributor or the Adviser; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in sales
literature or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by the
Adviser, the Distributor or Fund for use in the
registration statement or
prospectus for the Contracts or in the Contracts or sales
literature and other
promotional material (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
to any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or the Distributor (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 fur-
nished in writing to the Adviser, the Distributor or the
Fund by or on behalf
of GWL&A or Schwab for use in the registration statement
or prospectus or
SAI for the Fund or in sales literature and other
promotional material (or any
amendment or supplement) or otherwise for use in
connection with the sale
of the Contracts or the Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
and other promotional material covering the Contracts, or
any amendment
thereof or supplement thereto, or the omission or alleged
omission to state
therein a material fact required to be stated therein or
necessary to make the
statement or statements therein not misleading, if such
statement or omission
was made in reliance upon and in conformity with
information furnished in
writing to GWL&A or Schwab by or on behalf of the
Adviser, the Distributor
or the Fund; or
(iv) arise as a result of any failure by the Fund, the Adviser
or the Distributor 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 of Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, the Adviser or the Distributor
in this Agreement
or arise out of or result from any other material breach
of this Agreement by
the Adviser, the Fund or the Distributor; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or
reporting of the daily net asset value per share or
dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Indemnified Parties will promptly notify the
Adviser of the
commencement of any litigation or proceedings against them.
8.4. Indemnification By the Fund
8.4(a). The Fund agrees to indemnify and hold harmless GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may become subject under any statute or regulation, at
common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or
expenses (or actions in respect
thereof) or settlements, are related to the operations of the Fund
and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure to comply
with the diversification and other qualification
requirements of 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, 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 to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). The Indemnified Parties will promptly notify the
Fund of the
commencement of any litigation or proceeding against them.
8.4(e). It is understood and agreed that no liability of
the Fund Pursuant to
this section 8.4 shall extend to the assets of any portfolio of the
Fund other than the
Designated Portfolios, or where the failure or breach giving rise
to such liability relates to
a single Designated Portfolio, to the assets of any other
Designated Portfolio.
8.5. Indemnification by the Distributor
8.5(a).The Distributor agrees to indemnify and hold harmless
GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the
"Indemnified Parties" for purposes of this Section 8.5) against any
and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent
of the Distributor) or litigation (including reasonable legal and
other expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares
or the contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any
amendment or
supplement to any of the foregoing), or arise out of 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 fur-
nished in writing to the Adviser, the Distributor or Fund
by or on behalf of
GWL&A or Schwab for use in the registration statement or
SAI or prospectus
for the Fund or in sales literature or other promotional
material (or any
amendment or supplement) or otherwise for use in
connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI, sales literature or other promotional
material for the
Contracts not supplied by the Fund, Adviser or
Distributor or persons under
their control) or wrongful conduct of the Fund, the
Distributor or Adviser or
persons under their control, with respect to the sale or
distribution of the
Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, sales literature or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon and in conformity with information
furnished in writing to
GWL&A or Schwab by or on behalf of the Adviser, the
Distributor or Fund;
or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide
the services and furnish the materials under the terms of
this Agreement
(including a failure to comply with the diversification
and other qualification
requirements of Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, Adviser or Distributor in this
Agreement or arise
out of or result from any other material breach of this
Agreement by the
Fund, Adviser or Distributor;
as limited by and in accordance with the provisions of Sections
8.5(b) and 8.5(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Distributor specified in Article VI hereof.
8.5(b).The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement to any of the Indemnified Parties.
8.5(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.5(d)The Indemnified Parties will promptly notify the
Distributor of the
commencement of any litigation or proceedings against them.
ARTICLE IX. Applicable Law
9.1. Except as provided in Section 9.2, this Agreement shall
be construed and the
provisions hereof interpreted under and in accordance with the laws
of the State of
Colorado, without regard to the Colorado Conflict of Laws
provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's reasonable
determination in their respective sole judgment exercised
in good faith that
shares of such Portfolio are not reasonably available to
meet the requirements
of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund, the Adviser or
Distributor in the event that
formal administrative proceedings are instituted against
GWL&A or Schwab
by the NASD, the SEC, the Insurance Commissioner or like
official of any
state or any other regulatory body, if, in each case, the
terminating party
reasonably determines in its sole judgment exercised in
good faith, that any
such administrative proceedings will have a material
adverse effect upon the
ability of GWL&A or Schwab to perform its obligations
under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
Adviser by the NASD, the SEC, or any state securities or
insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or Adviser to perform their
obligations under this
Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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 the Fund, the Distributor or the
Adviser, if (i) the Fund,
the Distributor, or the Adviser, respectively, shall
determine, in its sole
judgment reasonably exercised in good faith, that either
GWL&A or Schwab
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
GWL&A's or Schwab's
ability to perform its obligations under this Agreement,
(ii) the Fund, the
Distributor or Adviser notifies GWL&A or Schwab, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by GWL&A or Schwab and any
other changes
in circumstances since the giving of such a notice, the
determination of the
Fund, the Distributor or Adviser shall continue to apply
on the sixtieth (60th)
day following the giving of that notice, which sixtieth
day shall be the effective
date of termination; or
(h) at the option of either GWL&A or Schwab, if (i)
GWL&A or Schwab,
respectively, shall determine, in its sole judgment
reasonably exercised in good
faith, that either the Fund, the Distributor 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, the
Distributor's or Adviser's
ability to perform its obligations under this Agreement,
(ii) GWL&A or
Schwab notifies in writing the Fund, the Distributor or
Adviser, as
appropriate, of that determination and its intent to
terminate this Agreement,
and (iii) after considering the actions taken by the
Fund, the Distributor or
Adviser and any other changes in circumstances since the
giving of such a
notice, the determination of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of the Fund, the Adviser or the
Distributor by written notice
to GWL&A, in the event that the terminating party
reasonably believes that
the Contracts will cease to qualify as annuity contracts
under the Code or that
a definitional requirement referred to in Section 2.11
will not be met, or if the
Contracts are not registered, issued or sold in
accordance with applicable state
and/or federal law; or
(l) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(k); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.2(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c), 10.1(f) or 10.1(k), the prior written notice shall be
given in advance of the
effective date of termination.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, the Adviser and
the Distributor shall,
at the option of GWL&A or Schwab, continue to make available
additional shares of the
Designated Portfolios pursuant to the terms and conditions of this
Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in
the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in
the Designated Portfolios
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, to the
extent necessary to give
effect to Section 10.3 hereof, 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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months specified in Section 10.1(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail
to a party at the address of such party set forth below or at such
other address as such party
may from time to time specify in writing to the other parties.
If to the Fund:
The Alger American Fund
75 Maiden Lane
New York, New York 10038
Attention:Gregory S. Duch
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
Attention:Gregory S. Duch
If to the Distributor:
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
Attention:Gregory S. Duch
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado Insurance
Commissioner with any
information or reports in connection with services provided under
this Agreement which such
Commissioner may reasonably request in order to ascertain whether
the variable annuity
operations of GWL&A are being conducted in a manner consistent with
the Colorado
Variable Annuity Regulations and any other applicable law or
regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.The Fund is a business trust organized under the laws of
the Commonwealth
of Massachusetts and under a Declaration of Trust, to which
reference is hereby made, a
copy of which is on file at the office of the Secretary of State of
the Commonwealth of
Massachusetts, and to any and all amendments thereto so filed or
hereafter filed. The
obligations of the Fund entered into hereunder in the name of the
Fund or on behalf
thereof by any of its trustees, officers, employees or agents are
undertaken not individually
but in such capacities, and are not binding upon any of the
trustees, officers, employees or
shareholders of the Fund personally, but bind only the assets of
the Fund or of the
Designated Portfolio.
12.10.Schwab and GWL&A agree that the obligations assumed by
the Distributor
and the Adviser pursuant to this Agreement shall be limited in any
case to the Distributor
and Adviser and their respective assets and neither Schwab nor
GWL&A shall seek
satisfaction of any such obligation from the shareholders of the
Distributor or the Adviser,
the Directors, officers, employees or agents of the Distributor or
Adviser, or any of them,
except to the extent permitted under this Agreement.
12.11.The Fund, Adviser and Distributor agree that the
obligations assumed by
GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A
and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of
the GWL&A or Schwab,
the directors, officers, employees or agents of the GWL&A or
Schwab, or any of them,
except to the extent permitted under this Agreement.
12.12.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Distributor and
the Fund, and as between the Adviser and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
THE ALGER AMERICAN FUND:
By its authorized officer,
By:/s/ Gregory S. Duck
Title: Executive Vice President
Date: October 23, 1996
FRED ALGER MANAGEMENT, INC.:
By its authorized officer,
By:/s/ Gregory S. Duck
Title: Executive Vice President
Date: October 23, 1996
FRED ALGER & COMPANY, INCORPORATED:
By its authorized officer,
By:/s/ Gregory S. Duck
Title: Executive Vice President
Date: October 23, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Alger American Growth Portfolio
Alger American Small Capitalization Portfolio
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby certify that Fund is in compliance
with all requirements of
Section 817(h) and Subchapter M of the Internal Revenue Code (the
"Code") and the
regulations thereunder as required in the Fund Participation
Agreement among Great-
West Life & Annuity Insurance Company, Charles Schwab & Co., Inc.
and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Distributor and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Distributor, as applicable
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Distributor, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Distributor
Fund or Distributor
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Distributor
GWL&A
Fund or Distributor
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Distributor
Fund or Distributor
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Distributor
Fund or Distributor
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Distributor
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Distributor
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Distributor
Schwab
Fund or Distributor
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Distributor
GWL&A
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Distributor
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 35
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 40
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 44
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 45
SCHEDULE C Administrative Services . . . . . . . . . . . . . 46
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 47
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 50
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
FEDERATED INSURANCE SERIES,
FEDERATED ADVISERS,
FEDERATED SECURITIES CORP.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
FEDERATED INSURANCE SERIES,a business trust organized under the
laws of
Massachusetts (hereinafter the "Fund"); FEDERATED ADVISERS
(hereinafter the
"Adviser"), a Delaware business trust; FEDERATED SECURITIES CORP.
(the
"Distributor"), a Pennsylvania corporation; and CHARLES SCHWAB &
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, including GWL&A,
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. 812-8620), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
agent of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
shall be the agent of the
Fund for receipt of such orders and receipt by such agent shall
constitute receipt by the
Fund, provided that the Fund receives notice of any such order by
9:00 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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, and Article
VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its agent of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its agent of the requests for redemption. 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, GWL&A shall be the agent
of the Fund for receipt
of requests for redemption and receipt by such agent shall
constitute receipt by the Fund,
provided that the Fund receives notice of any such request for
redemption by 10:00 A.M.
Eastern time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in federal
funds transmitted by wire
and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that it will implement the change, except in those
circumstances where the Fund has
advised GWL&A that its Board of Directors has determined that
implementation of a
particular Law Change is not in the best interest of all of the
Fund's shareholders.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the Commonwealth of Massachusetts and
that it does and will
comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the Commonwealth of
Pennsylvania and any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with the laws of the
Commonwealth of Pennsylvania and any applicable state and federal
securities laws.
2.8. The Fund, the Distributor and the Adviser represent and
warrant that all of
their respective officers, employees, investment advisers, and
other individuals or entities
dealing with the money and/or securities of the Fund are, and shall
continue to be at all
times, covered by a blanket fidelity bond or similar coverage for
the benefit of the Fund in
an amount not less than the minimal coverage required by Rule 17g-1
under the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued
by a reputable bonding
company.
2.9. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund, the Distributor and the Adviser immediately upon having
a reasonable basis for
believing that the Contracts have ceased to be so treated or that
they might not be so
treated in the future. In addition, GWL&A represents and warrants
that the Account is a
"segregated asset account" and that interests in the Account are
offered exclusively through
the purchase of or transfer into a "variable contract" within the
meaning of such terms under
Section 817 of the Code and the regulations thereunder. GWL&A will
use every effort to
continue to meet such definitional requirements, and it will notify
Schwab, the Fund, the
Distributor, and the Adviser immediately upon having a reasonable
basis for believing that
such requirements have ceased to be met or that they might not be
met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor shall provide GWL&A
and Schwab with as
many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A
and Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Distributor or Fund shall provide such documentation
(including a camera-ready
copy and computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Distributor shall provide GWL&A with copies of the
Fund's SAI or docu-
mentation thereof for the Designated Portfolio(s) in such
quantities, with expenses to be
borne in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit
timely distribution thereof to Contractowners. The Distributor
and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests
such SAI from the
Fund (although it is anticipated that such requests will be made to
GWL&A or Schwab).
3.3. The Fund and/or the Distributor shall provide GWL&A and
Schwab with
copies of the Fund's proxy material, reports to stockholders and
other communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Distributor, Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the
Distributor or Adviser, neither the Fund, the Distributor nor
Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
3.8. To the extent allowed under applicable federal and state
law, neither GWL&A
nor Schwab shall in any way recommend or oppose or interfere with
the solicitation of
proxies for Fund shares held by the Account on behalf of
Contractowners without the prior
written consent of the Fund, which consent may be withheld in the
Fund's sole discretion.
Neither GWL&A nor Schwab will initiate or solicit Contractowners to
initiate any proxy
solicitation except to the extent that the failure by GWL&A or
Schwab to so initiate or
solicit would, under the circumstances, be in contravention with
applicable federal or state
law.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor is named in con-
nection with the Contracts, at least ten (10) Business Days prior
to its use. No such material
shall be used if the Fund objects in writing to such use within
five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts 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 by the
Distributor, except with the permission of the Fund or the
Distributor.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects in writing to
such use within five (5) Business Days after receipt of such
material.
4.4. The Fund, the Distributor, and the Adviser shall not give
any information or
make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or
the Contracts other than the information or representations
contained in a registration state-
ment 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund, the Distributor and the Adviser shall
not give any
information or make any representations on behalf of or concerning
Schwab, or use
Schwab's name except with the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media) sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, the 1933 Act or
the 1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
under this
Agreement, and GWL&A 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 E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund, the
Adviser and the
Distributor under this Agreement shall be paid by the appropriate
party, as further provided
in Schedule E. The Fund shall see to it that all shares of the
Designated Portfolio(s) are
registered and authorized for issuance in accordance with
applicable federal law and, if and
to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge
that a principal fea-
ture of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated
mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund, the Distributor and the Adviser agree to cooperate with
GWL&A and Schwab
in facilitating the operation of the Account and the Contracts as
described in the prospectus
for the Contracts, including but not limited to cooperation in
facilitating transfers between
Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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, the Adviser and the Distributor represent and
warrant that the
Fund will at all times sell its shares and invest its assets in
such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code,
and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund,
Distributor and Adviser
represent and warrant that the Fund and each Designated Portfolio
thereof will at all times
comply with Section 817(h) of the Code and Treasury Regulation
Section 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 Distributor agree that shares of the Designated
Portfolio(s) will be sold
only to Participating Insurance Companies and their separate
accounts and certain Qualified
Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund, the Distributor and the Adviser represent and
warrant that the
Fund and each Designated Portfolio is currently qualified as a
Regulated Investment
Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain
such qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund, the Distributor or the Adviser will notify
GWL&A immediately
upon having a reasonable basis for believing that the Fund or any
Designated Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M
qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3,
8.4 and 8.5 hereof and
without in any way limiting or restricting any other remedies
available to GWL&A or
Schwab, the Adviser or the Distributor will pay all costs
associated with or arising out of any
failure, or any anticipated or reasonably foreseeable failure, of
the Fund or any Designated
Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof,
including all costs associated with
reasonable and appropriate corrections or responses to any such
failure; such costs may
include, but are not limited to, the costs involved in creating,
organizing, and registering a
new investment company as a funding medium for the Contracts and/or
the costs of
obtaining whatever regulatory authorizations are required to
substitute shares of another
investment company for those of the failed Portfolio (including but
not limited to an order
pursuant to Section 26(b) of the 1940 Act); such costs are to
include, but are not limited to,
fees and expenses of legal counsel and other advisors to GWL&A and
any federal income
taxes or tax penalties and interest thereon (or "toll charges" or
exactments or amounts paid
in settlement) incurred by GWL&A with respect to itself or owners
of its Contracts in
connection with any such failure or anticipated or reasonably
foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund, the Adviser
or the Distributor as a result of such a failure or alleged
failure:
(a) GWL&A shall promptly notify the Fund, the Adviser and the
Distributor of such
assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Adviser and the
Distributor as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund, the
Adviser and the Distributor resulting from such failure,
including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund, the Distributor and the
Adviser (together with
any supporting information or analysis) within at least two
(2) business days prior to
submission;
(e) GWL&A shall provide the Fund, the Distributor and the
Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall
reasonably request
(including, without limitation, by permitting the Fund, the
Distributor and the Adviser
to review the relevant books and records of GWL&A) in order to
facilitate review
by the Fund, the Distributor and the Adviser of any written
submissions provided to
it or its assessment of the validity or amount of any claim
against it arising from such
failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund, the Distributor
and the Adviser (i)
compromise or settle any claim, (ii) accept any adjustment on
audit, or (iii) forego
any allowable administrative or judicial appeals, without the
express written consent
of the Fund, the Distributor and the Adviser, which shall not
be unreasonably
withheld; provided that, GWL&A shall not be required to appeal
any adverse judicial
decision unless the Fund, the Distributor and the Adviser
shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking
such appeal; and further provided that the Fund, the
Distributor and the Adviser
shall bear the costs and expenses, including reasonable
attorney's fees, incurred by
GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to
any of the Designated Portfolios (the "Independent Directors"),
that a material irreconcilable
conflict exists, GWL&A and other Participating Insurance Companies
shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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, and subject to section 1.2,
the Distributor and the
Fund shall continue to accept and implement orders by GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A 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 Independent
Directors. Until the end of the foregoing six month period or the
completion of the
termination and withdrawal of the Account's investment in the Fund,
whichever first occurs,
and subject to section 1.2, the Fund shall continue to accept and
implement orders by
GWL&A 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 Trustees shall determine whether any proposed action
adequately remedies any
irreconcilable material conflict, but in no event will the Fund,
the Distributor or the Adviser
be required to establish a new funding medium for the Contracts.
GWL&A shall not be
required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to
do so has been declined by vote of a majority of Contractowners
affected by the
irreconcilable material conflict. In the event that the Board
determines that any proposed
action does not adequately remedy any irreconcilable material
conflict, then GWL&A will
withdraw the Account's investment in the Fund and terminate this
Agreement within six (6)
months after the Board informs GWL&A in writing of the foregoing
determination;
provided, however, that such withdrawal and termination shall be
limited to the extent
required by any such material irreconcilable conflict as determined
by a majority of the
Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in
settlement with the written consent of GWL&A) or litigation
(including reasonable legal and
other expenses) to which the Indemnified Parties may become subject
under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages,
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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A or Schwab by or on behalf of the Adviser,
Distributor or Fund for
use in the registration statement or prospectus for the
Contracts or in the
Contracts or sales literature (or 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.11 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.2)
against any and all losses, claims, expenses, damages and
liabilities (including amounts paid
in settlement with the written consent of Schwab) or litigation
(including reasonable legal
and other expenses), to which the Indemnified Parties may become
subject under any statute
or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are
related to the sale or acqu-
isition of the Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund or provided in writing to
Schwab, or approved
in writing, by or on behalf of the Fund, the Distributor
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 or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser, the Distributor or Fund or to
Schwab by GWL&A
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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or the Distributor (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 fur-
nished in writing to the Adviser, the Distributor or the
Fund by or on behalf
of GWL&A 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 the Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Adviser
or the Distributor to
provide the services and furnish the materials under the
terms of this
Agreement (including a failure, whether unintentional or
in good faith or
otherwise, to comply with the diversification and other
qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, the Adviser or the Distributor
in this Agreement
or arise out of or result from any other material breach
of this Agreement by
the Adviser, the Fund or the Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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.
8.5. Indemnification by the Distributor
8.5(a).The Distributor agrees to indemnify and hold harmless
GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the
"Indemnified Parties" for purposes of this Section 8.5) against any
and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent
of the Distributor) or litigation (including reasonable legal and
other expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares
or the contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any
amendment or
supplement to any of the foregoing), or arise out of 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 fur-
nished in writing to the Adviser, the Distributor or Fund
by or on behalf of
GWL&A or Schwab for use in the registration statement or
SAI or prospectus
for the Fund or in sales literature or other promotional
material (or any
amendment or supplement) or otherwise for use in
connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI, sales literature or other promotional
material for the
Contracts not supplied by the Distributor or persons
under its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, sales literature or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon information furnished in writing to
GWL&A or Schwab by
or on behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide
the services and furnish the materials under the terms of
this Agreement
(including a failure, whether unintentional or in good
faith or otherwise, to
comply with the diversification and other qualification
requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, Adviser or Distributor in this
Agreement or arise
out of or result from any other material breach of this
Agreement by the
Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.5(b) and 8.5(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Distributor specified in Article VI hereof.
8.5(b).The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.5(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.5(d)GWL&A and Schwab agree to promptly notify the
Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors
in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under
and in accordance with the laws of the State of Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
Adviser by the NASD, the SEC, or any state securities or
insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or Adviser to perform their
obligations under this
Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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, the Distributor or
the Adviser, if (i) the
Fund or Adviser, respectively, shall determine, in their
sole judgment
reasonably exercised in good faith, that either GWL&A or
Schwab has
suffered a material adverse change in their 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
GWL&A's or Schwab's
ability to perform its obligations under this Agreement,
(ii) the Fund, the
Distributor or Adviser notifies GWL&A or Schwab, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by GWL&A or Schwab and any
other changes
in circumstances since the giving of such a notice, the
determination of the
Fund, the Distributor or Adviser shall continue to apply
on the sixtieth (60th)
day following the giving of that notice, which sixtieth
day shall be the effective
date of termination; or
(h) at the option of either GWL&A or Schwab, if (i)
GWL&A or Schwab,
respectively, shall determine, in its sole judgment
reasonably exercised in good
faith, that either the Fund, the Distributor 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, the
Distributor's or Adviser's
ability to perform its obligations under this Agreement,
(ii) GWL&A or
Schwab notifies the Fund, the Distributor or Adviser, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by the Fund, the
Distributor or Adviser and any
other changes in circumstances since the giving of such
a notice, the determi-
nation of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, the Adviser and
the Distributor shall,
at the option of GWL&A or Schwab, continue to make available
additional shares of the
Designated Portfolios pursuant to the terms and conditions of this
Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in
the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in
the Designated Portfolios
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Federated Insurance Series
Federated Investors Towers
Pittsburgh, PA 15222-3779
Attention: John W. McGonigle, Esq.
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Federated Advisers
Federated Investors Towers
Pittsburgh, PA 15222-3779
Attention: John W. McGonigle, Esq.
If to the Distributor:
Federated Securities Corp.
Federated Investors Towers
Pittsburgh, PA 15222-3779
Attention: John W. McGonigle, Esq.
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, may be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Declarations of Trust of the Fund and
the Adviser and agree that
the obligations assumed by the Fund and the Adviser pursuant to
this Agreement shall be
limited in any case to the Fund and Adviser and their respective
assets and neither Schwab
nor GWL&A shall seek satisfaction of any such obligation from the
shareholders of the
Fund or the Adviser, the Trustees, officers, employees or agents of
the Fund or Adviser, or
any of them, except to the extent permitted under this Agreement.
12.10.The Fund, Adviser and Distributor agree that the
obligations assumed by
GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A
and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of
the GWL&A or Schwab,
the directors, officers, employees or agents of the GWL&A or
Schwab, or any of them,
except to the extent permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Distributor and
the Fund, and as between the Adviser and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
FEDERATED INSURANCE SERIES
By its authorized officer,
By:/s/ Richard B. Fisher
Title: Vice President
Date: October 15, 1996
FEDERATED ADVISERS
By its authorized officer,
By:/s/ Stephen A. Keen
Title: Vice President
Date: October 14, 1996
FEDERATED SECURITIES CORP.
By its authorized officer,
By:/s/ Byron F. Bowman
Title: Vice President
Date: October 14, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities II
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Distributor and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Distributor, as applicable
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Distributor, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Distributor
Fund or Distributor
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Distributor
GWL&A
Fund or Distributor
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Distributor
Fund or Distributor
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Distributor
Fund or Distributor
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Distributor
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Distributor
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Distributor
Schwab
Fund or Distributor
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Distributor
GWL&A
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Distributor
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 10
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 15
ARTICLE VI. Diversification and Qualification . . . . . . . . 16
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 19
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 22
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 31
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 36
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 41
SCHEDULE C Administrative Services . . . . . . . . . . . . . 42
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 43
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 46
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (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 CHARLES SCHWAB & 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, including GWL&A,
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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Directors of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company or separate account unless an
agreement containing
provisions substantially the same as Sections 2.1, 3.5, 3.6, 3.7,
and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its designee of the requests for redemption. 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, GWL&A
shall be the designee of
the Fund for receipt of requests for redemption and receipt by such
designee shall constitute
receipt by the Fund, provided that the Fund receives notice of any
such request for
redemption by 10:00 A.M. Eastern time on the next following
Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in federal
funds transmitted by wire
and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. To the extent that
the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes
to have its Board, a
majority of whom are not interested persons of the Fund, formulate
and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with all
state and federal securities
laws and all state insurance laws specifically designated by GWL&A,
in writing. The Fund
shall register and qualify the shares for sale in accordance with
the laws of the various states
if and to the extent required by applicable law. GWL&A and the
Fund will endeavor to
mutually cooperate with respect to the implementation of any
modifications necessitated by
any change in state insurance laws, regulations or interpretations
of the foregoing that affect
the Designated Portfolio(s) (a "Law Change"), and to keep each
other informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the State of Maryland and that it does
and will comply in all
material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with 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 respective
officers, employees, investment advisers, and other individuals or
entities dealing with the
money and/or securities of the Fund are, and shall continue to be
at all times, covered by
a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less
than the minimal coverage required by Rule 17g-1 under the 1940 Act
or related provisions
as may be promulgated from time to time. The aforesaid 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.9. The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.10.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund and the Adviser immediately upon having a reasonable basis
for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
In addition, GWL&A represents and warrants that the Account is a
"segregated asset
account" and that interests in the Account are offered exclusively
through the purchase of
or transfer into a "variable contract" within the meaning of such
terms under Section 817 of
the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet
such definitional requirements, and it will notify Schwab, the
Fund, and the Adviser
immediately upon having a reasonable basis for believing that such
requirements have
ceased to be met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Adviser shall provide GWL&A and
Schwab with as many
copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A and
Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Adviser or Fund shall provide such documentation
(including a camera-ready
copy and computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless, in the reasonable judgment of the Fund's
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
Contractowners, then the
Fund and/or the Adviser shall provide GWL&A with copies of the
Fund's SAI or documen-
tation thereof for the Designated Portfolio(s) in such quantities,
with expenses to be borne
in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit timely
distribution thereof to Contractowners. The SAIs may name or
describe portfolios or series
other than the Designated Portfolio(s) that may be in the Fund.
The Adviser and/or the
Fund shall also provide SAIs to any Contractowner or prospective
owner who requests such
SAI from the Fund (although it is anticipated that such requests
will be made to GWL&A
or Schwab).
3.3. The Fund and/or the Adviser shall provide GWL&A and
Schwab with copies
of the Fund's proxy material, reports to stockholders and other
communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Adviser or the Designated Portfolio(s) provided in writing by the
Fund or the Adviser,
neither the Fund nor Adviser are responsible for the content of the
prospectus or SAI for
the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers is
named in connection with the
Contracts, at least ten (10) Business Days prior to its use. No
such material shall be used
if the Fund objects to such use within five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts 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 by the
Adviser, except with the permission of the Fund or the Adviser.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects to such use
within five (5) 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 GWL&A or concerning GWL&A, 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except with
the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, 1933 Act or the
1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
under this
Agreement, and GWL&A 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 E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund and the
Adviser under this
Agreement shall be paid by the appropriate party, as further
provided in Schedule E. The
Fund shall see to it that all shares of the Designated Portfolio(s)
are registered and
authorized for issuance in accordance with applicable federal law
and, if and to the extent
required, in accordance with applicable state laws prior to their
sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund and the Adviser acknowledge that a principal
feature of the
Contracts is the Contractowner's ability to choose from a number of
unaffiliated mutual
funds (and portfolios or series thereof), including the Designated
Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund and the Adviser agree to cooperate with GWL&A and Schwab
in facilitating the
operation of the Account and the Contracts as described in the
prospectus for the Contracts,
including but not limited to cooperation in facilitating transfers
within a Contract(s).
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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 the Adviser represent and warrant that the
Fund will at all
times sell its shares and invest its assets in such a manner as to
ensure that the Contracts
will be treated as annuity contracts under the Code, and the
regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund 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 Section 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 Adviser agree
that shares of the Designated Portfolio(s) will be sold only to
Participating Insurance
Companies and their separate accounts.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund or the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser will pay all costs associated with or arising out of
any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated
with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to,
the costs involved in creating, organizing, and registering a new
investment company as a
funding medium for the Contracts and/or the costs of obtaining
whatever regulatory
authorizations are required to substitute shares of another
investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the
1940 Act); such costs are to include, but are not limited to, fees
and expenses of legal coun-
sel and other advisors to GWL&A and any federal income taxes or tax
penalties and interest
thereon (or "toll charges" or exactments or amounts paid in
settlement) incurred by
GWL&A with respect to itself or owners of its Contracts in
connection with any such failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund or the Adviser
as a result of such a failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or
potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the
Adviser resulting from such failure, including, without
limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the
IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund and the Adviser (together
with any supporting
information or analysis) within at least two (2) business days
prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the
Fund and the Adviser shall reasonably request (including,
without limitation, by
permitting the Fund and the Adviser to review the relevant
books and records of
GWL&A) in order to facilitate review by the Fund and the
Adviser of any written
submissions provided to it or its assessment of the validity
or amount of any claim
against it arising from such failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund and the Adviser
(i) compromise or settle
any claim, (ii) accept any adjustment on audit, or (iii)
forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund
and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A
shall not be required to appeal any adverse judicial decision
unless the Fund and the
Adviser shall have provided an opinion of independent counsel
to the effect that a
reasonable basis exists for taking such appeal; and further
provided that the Fund
and the Adviser shall bear the costs and expenses, including
reasonable attorney's
fees, incurred by GWL&A in pursuing such judicial appeals.
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the
Designated Portfolios (the "Independent Directors"), that a
material irreconcilable conflict
exists, GWL&A and other Participating Insurance Companies shall, at
their expense and to
the extent reasonably practicable (as determined by a majority of
the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund and
the Adviser and each of their officers and directors or trustees
and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15
of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts
paid in settlement with the
written consent of GWL&A) or litigation (including reasonable legal
and other expenses)
to which the Indemnified Parties may become subject under any
statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, 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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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 and the
Adviser and each of their officers and directors or trustees and
each person, if any, who
controls the Fund or Adviser within the meaning of Section 15 of
the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against
any and all losses, claims,
expenses, damages and liabilities (including amounts paid in
settlement with the written
consent of Schwab) or litigation (including reasonable legal and
other expenses), to which
the Indemnified Parties may become subject under any statute or
regulation, at common law
or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund 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 or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser or the Fund or to Schwab by
GWL&A 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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund or the Adviser (or any
amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the
alleged omission to state therein a material fact
required to be stated therein
or necessary to make the statements therein not
misleading, provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reli-
ance upon and in conformity with information furnished in
writing to the
Adviser or the Fund by or on behalf of GWL&A 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 the Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund or the Adviser or persons
under their control,
with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply 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 the Adviser in this
Agreement or arise out of
or result from any other material breach of this
Agreement by the Adviser or
the Fund; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or
reporting of the daily net asset value per share or
dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); 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;
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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 Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's reasonable
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this Agreement
or related to the
Contracts; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund or the Adviser by
the NASD, the SEC, or any state securities or insurance
department or any
other regulatory body, if Schwab or GWL&A reasonably
determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will
have a material adverse effect upon the ability of the
Fund or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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 GWL&A or Schwab has suffered a
material adverse
change in their 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 GWL&A's or Schwab's ability to
perform its
obligations under this Agreement, (ii) the Fund or the
Adviser notifies
GWL&A or Schwab, as appropriate, of that determination
and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by
GWL&A or Schwab and any other changes in circumstances
since the giving
of such a notice, the determination of the Fund or the
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 GWL&A or Schwab, if (i)
GWL&A 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 the Adviser's
ability to perform its
obligations under this Agreement, (ii) GWL&A or Schwab
notifies the Fund
or the Adviser, as appropriate, of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund or the Adviser and any other changes in
circumstances since the giving
of such a notice, the determination of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund and the Adviser
shall, at the option of
GWL&A or Schwab, continue to make available additional shares of
the Designated
Portfolios pursuant to the terms and conditions of this Agreement,
for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be
permitted to reallocate investments in the Designated Portfolios,
redeem investments in the
Designated Portfolios and/or invest in the Designated Portfolios
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
INVESCO Funds Group, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, may be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
or other arbitration rules as mutually agreed upon by the relevant
parties, and judgment
upon the award rendered by the arbitrators may be entered in any
court having jurisdiction
thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Articles of Incorporation of the Fund
and the Adviser and agree
that the obligations assumed by the Fund and the Adviser pursuant
to this Agreement shall
be limited in any case to the Fund and Adviser and their respective
assets and neither
Schwab nor GWL&A shall seek satisfaction of any such obligation
from the shareholders of
the Fund or the Adviser, the Trustees, officers, employees or
agents of the Fund or Adviser,
or any of them, except to the extent permitted under this
Agreement.
12.10.The Fund and the Adviser agree that the obligations
assumed by GWL&A and
Schwab pursuant to this Agreement shall be limited in any case to
GWL&A and Schwab and
their respective assets and neither the Fund nor the Adviser shall
seek satisfaction of any
such obligation from the shareholders of the GWL&A or Schwab, the
directors, officers,
employees or agents of the GWL&A or Schwab, or any of them, except
to the extent
permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Adviser and the
Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By:/s/ Ronald L. Grooms
Title: Treasurer
Date:October 22, 1996
INVESCO FUNDS GROUP, INC.:
By its authorized officer,
By:/s/ Ronald L. Grooms
Title: Treasurer
Date: October 22, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title:Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Adviser, as applicable
Fund or Adviser shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Adviser, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Adviser
Fund or Adviser
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Adviser
GWL&A
Fund or Adviser
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Adviser
Fund or Adviser
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Adviser
Fund or Adviser
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Adviser
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Adviser
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Adviser
Schwab
Fund or Adviser
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Adviser
GWL&A
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Adviser
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 10
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 32
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 32
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 37
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 41
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 42
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 43
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 45
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
JANUS ASPEN SERIES,
JANUS CAPITAL CORPORATION
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
JANUS ASPEN SERIES, a business trust organized under the laws of
Delaware (hereinafter
the "Fund"); JANUS CAPITAL CORPORATION (hereinafter the "Adviser"),
a Colorado
corporation; and CHARLES SCHWAB & 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, including GWL&A,
which have entered into participation agreements similar to this
Agreement (hereinafter
"Participating Insurance Companies") and certain qualified pension
and retirement plans;
and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares,
each designated a "Portfolio" and representing the interest in a
particular managed portfolio
of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities
and Exchange
Commission (hereinafter the "SEC"), dated March 12, 1994 (File No.
812-8408), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another and certain
qualified pension and retirement plans ("Qualified Plans")
(hereinafter the "Mixed and
Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts pursuant to a separate Service Agreement;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan 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 GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. To the extent permitted by the 1940 Act,
requests for redemption
identified by GWL&A, or its agent, as being in connection with
surrenders, annuitizations,
or death benefits under the Contracts, upon prior written notice,
may be executed within
seven (7) calendar days after receipt by the Fund or its designee
of the requests for
redemption. 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,
GWL&A shall be the designee of the Fund for receipt of requests for
redemption and
receipt by such designee shall constitute receipt by the Fund,
provided that the Fund
receives notice of any such request for redemption by 10:00 A.M.
Eastern time on the next
following Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies and Qualified Plans (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. GWL&A shall pay for Fund shares by 11:00 a.m. Eastern
time on the same
Business Day that the Fund receives notice of the order 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 2:00 a.m. Eastern Time on the same Business Day 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 GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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.
GWL&A shall amend the Contracts' registration statement under the
1933 Act and the
Account's registration statement under the 1940 Act from time to
time as required in order
to effect the continuous offering of the Contracts. GWL&A shall
register and qualify the
Contracts for sale in accordance with the securities laws of the
various states if and to the
extent required by applicable law.
2.2. The Fund represents and warrants that Designated
Portfolio(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the State of Delaware and that it does
and will comply in all
material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with 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 respective
officers, employees, investment advisers, and other individuals or
entities dealing with the
money and/or securities of the Fund are, and shall continue to be
at all times, covered by
a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less
than the minimal coverage required by Rule 17g-1 under the 1940 Act
or related provisions
as may be promulgated from time to time. The aforesaid 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.9. The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.10.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund and the Adviser immediately upon having a reasonable basis
for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
In addition, GWL&A represents and warrants that the Account is a
"segregated asset
account" and that interests in the Account are offered exclusively
through the purchase of
or transfer into a "variable contract" within the meaning of such
terms under Section 817 of
the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet
such definitional requirements, and it will notify Schwab, the
Fund, and the Adviser
immediately upon having a reasonable basis for believing that such
requirements have
ceased to be met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Adviser shall provide GWL&A and
Schwab with as many
copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A and
Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Adviser or Fund shall provide such documentation
(including a camera-ready
copy of the current prospectus for the Designated Portfolio(s)) and
other assistance as is
reasonably necessary in order for GWL&A once each year (or more
frequently if the
prospectuses for the Designated Portfolio(s) are amended) to have
the prospectus for the
Contracts and the Fund's prospectus for the Designated Portfolio(s)
printed together in one
document. The Fund and Adviser agree that the prospectuses (and
semi-annual and annual
reports) for the Designated Portfolio(s) will describe only the
Designated Portfolio(s) and
will not name or describe any other portfolios or series that may
be in the Fund unless
required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Adviser shall provide GWL&A with copies of the
Fund's SAI or documen-
tation thereof for the Designated Portfolio(s) in such quantities,
with expenses to be borne
in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit timely
distribution thereof to Contractowners.
3.3. The Fund and/or the Adviser shall provide GWL&A and
Schwab with copies
of the Fund's proxy material, reports to stockholders and other
communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. GWL&A and Schwab assume sole responsibility for ensuring
that the materials
provided by the Fund in accordance with Sections 3.1 through 3.3
are delivered to
Contractowners and prospective Contractowners in accordance with
applicable federal and
state securities laws and applicable insurance law.
3.5. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Adviser or the Designated Portfolio(s) provided in writing by the
Fund or the 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 GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A 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. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by the Fund and GWL&A. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
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 or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
3.9. GWL&A and Schwab shall in no way recommend or oppose or
interfere with
the solicitation of proxies for Fund shares held by Contractowners
without the prior written
consent of the Fund, which consent may be withheld in the Fund's
sole discretion. Neither
GWL&A nor Schwab will initiate or solicit Contractowners to
initiate any proxy solicitation
except to the extent that the failure by GWL&A or Schwab to so
initiate or solicit would
under the circumstances, be in contravention with applicable
federal or state law.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers is
named in connection with the
Contracts, at least ten (10) Business Days prior to its use. No
such material shall be used
if the Fund objects to such use within five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund or Adviser 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 by
the Adviser, except with the permission of the Fund or the Adviser.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects to such use
within five (5) 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 GWL&A or concerning GWL&A, 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except as
required by legal process or regulatory authorities or with the
permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials designed for use in connection with the
Contracts, and all
amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities. The Fund will provide to GWL&A and Schwab at least
one copy of any
exemptive application and requests for no-action letters at such
time as the SEC staff may
grant such application or request.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, the 1933 Act or
the 1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
4.10.GWL&A and Schwab acknowledge and agree that the Adviser
is the sole
owner of the name and mark "Janus" and that all use of any
designation comprised in whole
or in part of Janus (a "Janus Mark") under this Agreement shall
inure to the benefit of the
Adviser. Except as provided in Sections 4.1 and 4.2, GWL&A and
Schwab shall not use
any Janus Mark on its own behalf or on behalf of the Contracts or
the Account in any
registration statement, advertisement, sales literature or other
materials relating to the
Contracts or the Account without the prior written consent of the
Adviser. Upon
termination of this Agreement for any reason and except to the
extent necessary to
administer or service existing Contracts, GWL&A and Schwab shall
cease all use of any
Janus Marks as soon as reasonably practical.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
under this
Agreement, and GWL&A 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 E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund and the
Adviser under this
Agreement shall be paid by the appropriate party, as further
provided in Schedule E. The
Fund shall see to it that all shares of the Designated Portfolio(s)
are registered and
authorized for issuance in accordance with applicable federal law
and, if and to the extent
required, in accordance with applicable state laws prior to their
sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund and the Adviser acknowledge that a principal
feature of the
Contracts is the Contractowner's ability to choose from a number of
unaffiliated mutual
funds (and portfolios or series thereof), including the Designated
Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund and the Adviser agree to cooperate with GWL&A and Schwab
in facilitating the
operation of the Account and the Contracts as described in the
prospectus for the Contracts,
including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
ARTICLE VI. Diversification and Qualification
6.1. The Fund and the Adviser represent and warrant that the
Fund will at all
times sell its shares and invest its assets in such a manner as to
ensure that the Contracts
will be treated as annuity contracts under the Code, and the
regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund 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 Section 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 Adviser agree
that shares of the Designated Portfolio(s) will be sold only to
Participating Insurance
Companies and their separate accounts and certain Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund or the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser will pay all costs associated with or arising out of
any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated
with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to,
the costs involved in creating, organizing, and registering a new
investment company as a
funding medium for the Contracts and/or the costs of obtaining
whatever regulatory
authorizations are required to substitute shares of another
investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the
1940 Act); such costs are to include, but are not limited to, fees
and expenses of legal coun-
sel and other advisors to GWL&A and any federal income taxes or tax
penalties and interest
thereon (or "toll charges" or exactments or amounts paid in
settlement) incurred by
GWL&A with respect to itself or owners of its Contracts in
connection with any such failure
or anticipated or reasonably foreseeable failure. For purposes of
this section 6.5 and
Sections 8.3 and 8.4, a failure to comply with Section 817(h)
diversification or Subchapter
M qualification requirements shall not include any non-compliance
with such sections that
is corrected within any grace periods allowed under the Code.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund or the Adviser
as a result of such a failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or
potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the
Adviser resulting from such failure, including, without
limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the
IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund and the Adviser (together
with any supporting
information or analysis) within at least two (2) business days
prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the
Fund and the Adviser shall reasonably request (including,
without limitation, by
permitting the Fund and the Adviser to review the relevant
books and records of
GWL&A) in order to facilitate review by the Fund and the
Adviser of any written
submissions provided to it or its assessment of the validity
or amount of any claim
against it arising from such failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund and the Adviser
(i) compromise or settle
any claim, (ii) accept any adjustment on audit, or (iii)
forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund
and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A
shall not be required to appeal any adverse judicial decision
unless the Fund and the
Adviser shall have provided an opinion of independent counsel
to the effect that a
reasonable basis exists for taking such appeal; and further
provided that the Fund
and the Adviser shall bear the costs and expenses, including
reasonable attorney's
fees, incurred by GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the
Designated Portfolios (the "Independent Directors"), that a
material irreconcilable conflict
exists, GWL&A and other Participating Insurance Companies shall, at
their expense and to
the extent reasonably practicable (as determined by a majority of
the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.6, 3.7, 3.8, 7.1, 7.2, 7.3,
7.4, 7.5 and 7.6 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 GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund and
the Adviser and each of their officers and directors or trustees
and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15
of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts
paid in settlement with the
written consent of GWL&A) or litigation (including reasonable legal
and other expenses)
to which the Indemnified Parties may become subject under any
statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, 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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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 for which the
Indemnified Parties intend to seek indemnification from GWL&A.
8.2. Indemnification by Schwab
8.2(a). Schwab agrees to indemnify and hold harmless
the Fund and the
Adviser and each of their officers and directors or trustees and
each person, if any, who
controls the Fund or Adviser within the meaning of Section 15 of
the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against
any and all losses, claims,
expenses, damages and liabilities (including amounts paid in
settlement with the written
consent of Schwab) or litigation (including reasonable legal and
other expenses), to which
the Indemnified Parties may become subject under any statute or
regulation, at common law
or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund 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 the
registration statement,
prospectus or SAI for the Contracts or in sales
literature or other promotional
material prepared by Schwab 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 GWL&A or Schwab by or on behalf
of the Adviser or
the Fund or to Schwab by GWL&A 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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 for which the
Indemnified Parties intend to seek indemnification from Schwab.
8.3. Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold
harmless GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund or the Adviser (or any
amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the
alleged omission to state therein a material fact
required to be stated therein
or necessary to make the statements therein not
misleading, provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reli-
ance upon and in conformity with information furnished in
writing to the
Adviser or the Fund by or on behalf of GWL&A 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 the Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund or the Adviser or persons
under their control,
with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply 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 the Adviser in this
Agreement or arise out of
or result from any other material breach of this
Agreement by the Adviser or
the Fund; or
(vi) to the extent set forth in Section 1.10, arise out of or
result from the incorrect
or untimely calculation or reporting of the daily net
asset value per share or
dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 for
which GWL&A or Schwab intend to seek indemnification from the
Adviser.
8.4. Indemnification By the Fund
8.4(a). The Fund agrees to indemnify and hold harmless GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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 for which
GWL&A or Schwab intend to seek indemnification from 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 Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund or Adviser in the event
that formal
administrative proceedings are instituted against GWL&A
or Schwab by the
NASD, the SEC, the Insurance Commissioner or like
official of any state or
any other regulatory body regarding GWL&A's or Schwab's
duties under this
Agreement or related to the sale of the Contracts, the
operation of any
Account, or the purchase of the Fund shares, if, in each
case, the Fund
reasonably determines in its sole judgment exercised in
good faith, that any
such administrative proceedings will have a material
adverse effect upon the
ability of GWL&A or Schwab to perform its obligations
under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund or the Adviser by
the NASD, the SEC, or any state securities or insurance
department or any
other regulatory body, if Schwab or GWL&A reasonably
determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will
have a material adverse effect upon the ability of the
Fund or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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 GWL&A or Schwab has suffered a
material adverse
change in their 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 GWL&A's or Schwab's ability to
perform its
obligations under this Agreement, (ii) the Fund or the
Adviser notifies
GWL&A or Schwab, as appropriate, of that determination
and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by
GWL&A or Schwab and any other changes in circumstances
since the giving
of such a notice, the determination of the Fund or the
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 GWL&A or Schwab, if (i)
GWL&A 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 the Adviser's
ability to perform its
obligations under this Agreement, (ii) GWL&A or Schwab
notifies the Fund
or the Adviser, as appropriate, of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund or the Adviser and any other changes in
circumstances since the giving
of such a notice, the determination of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g), 10.1(h) or 10.1(k) of
this Agreement, the prior
written notice shall be given in advance of the effective date
of termination as
required by those provisions unless such notice period is
shortened by mutual written
agreement of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund and the Adviser
shall, at the option of
GWL&A or Schwab, continue to make available additional shares of
the Designated
Portfolios pursuant to the terms and conditions of this Agreement,
for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be
permitted to reallocate investments in the Designated Portfolios,
redeem investments in the
Designated Portfolios and/or invest in the Designated Portfolios
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Janus Aspen Series
100 Fillmore Street
Denver, CO 80206
Attention: General Counsel
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206
Attention: General Counsel
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, may, upon the agreement of all parties, be settled
by arbitration in a forum
jointly selected by the relevant parties (but if applicable law
requires some other forum, then
such other forum) in accordance with the Commercial Arbitration
Rules of the American
Arbitration Association, and judgment upon the award rendered by
the arbitrators may be
entered in any court having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Trust Instrument of the Fund and
agree that the obligations
assumed by the Fund pursuant to this Agreement shall be limited in
any case to the Fund
and its assets and neither Schwab nor GWL&A shall seek satisfaction
of any such obligation
from the shareholders of the Fund or the Adviser, the Trustees,
officers, employees or
agents of the Fund, or any of them, except to the extent permitted
under this Agreement.
12.10.Schwab and GWL&A agree that the obligations assumed by
the Adviser
pursuant to this Agreement shall be limited in any case to the
Adviser and its assets and
neither Schwab nor GWL&A shall seek satisfaction of any such
obligation from the
shareholders of the Adviser, the directors, officers, employees or
agents of the Adviser, or
any of them, except to the extent permitted under this Agreement.
12.11.The Fund and the Adviser agree that the obligations
assumed by GWL&A and
Schwab pursuant to this Agreement shall be limited in any case to
GWL&A and Schwab and
their respective assets and neither the Fund nor the Adviser shall
seek satisfaction of any
such obligation from the shareholders of the GWL&A or Schwab, the
directors, officers,
employees or agents of the GWL&A or Schwab, or any of them, except
to the extent
permitted under this Agreement.
12.12.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Adviser and the
Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Developement
Date:October 25, 1996
JANUS ASPEN SERIES
By its authorized officer,
By:/s/ Deborah E. Belilicke
Title:Assistant Vice Presidnet
Date:October 16, 1996
JANUS CAPITAL CORPORATION
By its authorized officer,
By:/s/ Stephen L. Stieneker
Title:Vice President of Compliance
Date:October 16, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title:Vice President, Annuities and Life Insurance
Date:October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 (45 days for the
last quarter) a report
to GWL&A in the Form D1 attached hereto and incorporated herein by
reference,
regarding the status under such sections of the Code of the
Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide a year-end report within 45 days after the end of
the calendar year.
However, if a problem with regard to RIC status, as defined below,
is identified in any of
the quarterly reports, on a weekly basis thereafter, additional
interim reports will be
provided specifically addressing the problems identified in such
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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) If, at the Fund's fiscal year end, less than ninety
percent of gross income is
derived from sources of income specified in Section 851(b)(2);
(b) If, at the end of the Fund's fiscal year end, thirty
percent or greater gross
income is derived from the sale or disposition of assets
specified in Section
851(b)(3);
(c) If, at the end of each fiscal quarter end, less than fifty
percent of the value of
the Fund's total assets consists of assets specified in
Section 851(b)(4)(A); and
(d) If, at the end of each fiscal quarter end, no more than
twenty-five percent of
the value of total assets of the Fund is invested in the
securities of one issuer, as
that requirement is set forth in Section 851(b)(4)(B).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby certify that Fund is in compliance
with all requirements of
Section 817(h) and Subchapter M of the Internal Revenue Code (the
"Code") and the
regulations thereunder as required in the Fund Participation
Agreement among Great-
West Life & Annuity Insurance Company, Charles Schwab & Co., Inc.
and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Adviser, as applicable
Fund or Adviser shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Adviser, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Adviser
Fund or Adviser
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Adviser
GWL&A
Fund or Adviser
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Adviser
Fund or Adviser
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Adviser
Fund or Adviser
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Adviser
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Adviser
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Adviser
Schwab
Fund or Adviser
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Adviser
GWL&A
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Adviser
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 10
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 15
ARTICLE VI. Diversification and Qualification . . . . . . . . 16
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 19
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 22
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 31
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 32
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 36
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 41
SCHEDULE C Administrative Services . . . . . . . . . . . . . 42
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 43
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 46
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
LEXINGTON EMERGING MARKETS FUND, INC.
LEXINGTON MANAGEMENT CORPORATION
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
LEXINGTON EMERGING MARKETS FUND, INC., a corporation organized
under the
laws of Maryland (hereinafter the "Fund"); LEXINGTON MANAGEMENT
CORPORATION (hereinafter the "Adviser"), a Delaware corporation;
and CHARLES
SCHWAB & 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, including GWL&A,
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 November 30, 1994 (File
No. 812-8910), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another and plans
established under Sections 401(a), 403(a) and (b), 408(a), (b) and
(k), 414(d) 457(b) or
501(c)(18) of the Internal Revenue Code ("Qualified Plans")
(hereinafter the "Mixed and
Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Directors of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its designee of the requests for redemption. 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, GWL&A
shall be the designee of
the Fund for receipt of requests for redemption and receipt by such
designee shall constitute
receipt by the Fund, provided that the Fund receives notice of any
such request for
redemption by 10:00 A.M. Eastern time on the next following
Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in federal
funds transmitted by wire
and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the State of Maryland and that it does
and will comply in all
material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of New Jersey
and any applicable state and federal securities laws.
2.7. The Fund and the Adviser represent and warrant that all
of their respective
officers, employees, investment advisers, and other individuals or
entities dealing with the
money and/or securities of the Fund are, and shall continue to be
at all times, covered by
a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less
than the minimal coverage required by Rule 17g-1 under the 1940 Act
or related provisions
as may be promulgated from time to time. The aforesaid 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.9. The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.10.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund and the Adviser immediately upon having a reasonable basis
for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
In addition, GWL&A represents and warrants that the Account is a
"segregated asset
account" and that interests in the Account are offered exclusively
through the purchase of
or transfer into a "variable contract" within the meaning of such
terms under Section 817 of
the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet
such definitional requirements, and it will notify Schwab, the
Fund, and the Adviser
immediately upon having a reasonable basis for believing that such
requirements have
ceased to be met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Adviser shall provide GWL&A and
Schwab with as many
copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A and
Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Adviser or Fund shall provide such documentation
(including a camera-ready
copy and computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Adviser shall provide GWL&A with copies of the
Fund's SAI or documen-
tation thereof for the Designated Portfolio(s) in such quantities,
with expenses to be borne
in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit timely
distribution thereof to Contractowners. The Adviser and/or the
Fund shall also provide SAIs
to any Contractowner or prospective owner who requests such SAI
from the Fund (although
it is anticipated that such requests will be made to GWL&A or
Schwab).
3.3. The Fund and/or the Adviser shall provide GWL&A and
Schwab with copies
of the Fund's proxy material, reports to stockholders and other
communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Adviser or the Designated Portfolio(s) provided in writing by the
Fund or the Adviser,
neither the Fund nor Adviser are responsible for the content of the
prospectus or SAI for
the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers is
named in connection with the
Contracts, at least ten (10) Business Days prior to its use. No
such material shall be used
if the Fund objects to such use within five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts 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 by the
Adviser, except with the permission of the Fund or the Adviser.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects to such use
within five (5) 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 GWL&A or concerning GWL&A, 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except with
the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet and other
electronic media), sales literature (i.e., any written
communication distributed or made
generally available to customers or the public, including
brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or
excerpts of any other
advertisement, sales literature, or published article), educational
or training materials or
other communications distributed or made generally available to
some or all agents or
employees, and registration statements, prospectuses, SAIs,
shareholder reports, and proxy
materials and any other material constituting sales literature or
advertising under the NASD
rules, the 1933 Act or the 1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
under this
Agreement, and GWL&A 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 E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund and the
Adviser under this
Agreement shall be paid by the appropriate party, as further
provided in Schedule E. The
Fund shall see to it that all shares of the Designated Portfolio(s)
are registered and
authorized for issuance in accordance with applicable federal law
and, if and to the extent
required, in accordance with applicable state laws prior to their
sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund and the Adviser acknowledge that a principal
feature of the
Contracts is the Contractowner's ability to choose from a number of
unaffiliated mutual
funds (and portfolios or series thereof), including the Designated
Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund and the Adviser agree to cooperate with GWL&A and Schwab
in facilitating the
operation of the Account and the Contracts as described in the
prospectus for the Contracts,
including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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 the Adviser represent and warrant that the
Fund will at all
times sell its shares and invest its assets in such a manner as to
ensure that the Contracts
will be treated as annuity contracts under the Code, and the
regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund 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 Section 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 Adviser agree
that shares of the Designated Portfolio(s) will be sold only to
Participating Insurance
Companies and their separate accounts and certain Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund or the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser will pay all costs associated with or arising out of
any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated
with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to,
the costs involved in creating, organizing, and registering a new
investment company as a
funding medium for the Contracts and/or the costs of obtaining
whatever regulatory
authorizations are required to substitute shares of another
investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the
1940 Act); such costs are to include, but are not limited to, fees
and expenses of legal coun-
sel and other advisors to GWL&A and any federal income taxes or tax
penalties and interest
thereon (or "toll charges" or exactments or amounts paid in
settlement) incurred by
GWL&A with respect to itself or owners of its Contracts in
connection with any such failure
or anticipated or reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund or the Adviser
as a result of such a failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or
potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the
Adviser resulting from such failure, including, without
limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the
IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund and the Adviser (together
with any supporting
information or analysis) within at least two (2) business days
prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the
Fund and the Adviser shall reasonably request (including,
without limitation, by
permitting the Fund and the Adviser to review the relevant
books and records of
GWL&A) in order to facilitate review by the Fund and the
Adviser of any written
submissions provided to it or its assessment of the validity
or amount of any claim
against it arising from such failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund and the Adviser
(i) compromise or settle
any claim, (ii) accept any adjustment on audit, or (iii)
forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund
and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A
shall not be required to appeal any adverse judicial decision
unless the Fund and the
Adviser shall have provided an opinion of independent counsel
to the effect that a
reasonable basis exists for taking such appeal; and further
provided that the Fund
and the Adviser shall bear the costs and expenses, including
reasonable attorney's
fees, incurred by GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the
Designated Portfolios (the "Independent Directors"), that a
material irreconcilable conflict
exists, GWL&A and other Participating Insurance Companies shall, at
their expense and to
the extent reasonably practicable (as determined by a majority of
the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund and
the Adviser and each of their officers and directors or trustees
and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15
of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts
paid in settlement with the
written consent of GWL&A) or litigation (including reasonable legal
and other expenses)
to which the Indemnified Parties may become subject under any
statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, 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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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 and the
Adviser and each of their officers and directors or trustees and
each person, if any, who
controls the Fund or Adviser within the meaning of Section 15 of
the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against
any and all losses, claims,
expenses, damages and liabilities (including amounts paid in
settlement with the written
consent of Schwab) or litigation (including reasonable legal and
other expenses), to which
the Indemnified Parties may become subject under any statute or
regulation, at common law
or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund 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 or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser or the Fund or to Schwab by
GWL&A 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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund or the Adviser (or any
amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the
alleged omission to state therein a material fact
required to be stated therein
or necessary to make the statements therein not
misleading, provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reli-
ance upon and in conformity with information furnished in
writing to the
Adviser or the Fund by or on behalf of GWL&A 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 the Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund or the Adviser or persons
under their control,
with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply 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 the Adviser in this
Agreement or arise out of
or result from any other material breach of this
Agreement by the Adviser or
the Fund; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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 Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund or the Adviser by
the NASD, the SEC, or any state securities or insurance
department or any
other regulatory body, if Schwab or GWL&A reasonably
determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will
have a material adverse effect upon the ability of the
Fund or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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 GWL&A or Schwab has suffered a
material adverse
change in their 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 GWL&A's or Schwab's ability to
perform its
obligations under this Agreement, (ii) the Fund or the
Adviser notifies
GWL&A or Schwab, as appropriate, of that determination
and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by
GWL&A or Schwab and any other changes in circumstances
since the giving
of such a notice, the determination of the Fund or the
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 GWL&A or Schwab, if (i)
GWL&A 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 the Adviser's
ability to perform its
obligations under this Agreement, (ii) GWL&A or Schwab
notifies the Fund
or the Adviser, as appropriate, of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund or the Adviser and any other changes in
circumstances since the giving
of such a notice, the determination of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund and the Adviser
shall, at the option of
GWL&A or Schwab, continue to make available additional shares of
the Designated
Portfolios pursuant to the terms and conditions of this Agreement,
for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be
permitted to reallocate investments in the Designated Portfolios,
redeem investments in the
Designated Portfolios and/or invest in the Designated Portfolios
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Lexington Emerging Markets Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, NJ 07663
Attention: Lisa Curcio
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Lexington Management Corporation
Park 80 West Plaza Two
Saddle Brook, NJ 07663
Attention: Lawrence Kantor
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A agree that the obligations assumed by
the Fund and the
Adviser pursuant to this Agreement shall be limited to the Fund and
Adviser and their
respective assets and neither Schwab nor GWL&A shall seek
satisfaction of any such
obligation from the shareholders of the Fund or the Adviser, the
directors, officers,
employees or agents of the Fund or Adviser, or any of them, except
to the extent permitted
under this Agreement.
12.10.The Fund and the Adviser agree that the obligations
assumed by GWL&A and
Schwab pursuant to this Agreement shall be limited in any case to
GWL&A and Schwab and
their respective assets and neither the Fund nor the Adviser shall
seek satisfaction of any
such obligation from the shareholders of the GWL&A or Schwab, the
directors, officers,
employees or agents of the GWL&A or Schwab, or any of them, except
to the extent
permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Adviser and the
Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
LEXINGTON EMERGING MARKETS FUND, INC.
By its authorized officer,
By:/s/ Lawrence Kantor
Title: Vice President
Date: October 9, 1996
LEXINGTON MANAGEMENT CORPORATION
By its authorized officer,
By:/s/ Lawrence Kantor
Title: Vice President
Date: October 9, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Lexington Emerging Markets Fund
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Adviser, as applicable
Fund or Adviser shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Adviser, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Adviser
Fund or Adviser
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Adviser
GWL&A
Fund or Adviser
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Adviser
Fund or Adviser
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Adviser
Fund or Adviser
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Adviser
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Adviser
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Adviser
Schwab
Fund or Adviser
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Adviser
GWL&A
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Adviser
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 15
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 32
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 32
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 37
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 41
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 42
SCHEDULE C Administrative Services . . . . . . . . . . . . . 43
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 44
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 47
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
MONTGOMERY FUNDS III,
MONTGOMERY ASSET MANAGEMENT, L.P.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
MONTGOMERY FUNDS III, a business trust organized under the laws of
Delaware
(hereinafter the "Fund"); MONTGOMERY ASSET MANAGEMENT, L.P.
(hereinafter the
"Adviser"), a limited partnership organized under the laws of
California; and CHARLES
SCHWAB & 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, including GWL&A,
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 May 11, 1995 (File No.
812-9272), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another and qualified
pension and retirement plans ("Qualified Plans") (hereinafter the
"Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
as such Schedule may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is a duly organized, validly existing
segregated asset
account, established by resolution of the Board of Directors of
GWL&A on July 24, 1995,
under the insurance laws of the State of Colorado, to set aside and
invest assets attributable
to the Contracts; and
WHEREAS, GWL&A has registered or will register the Account as
a unit investment
trust under the 1940 Act and has registered or will register the
securities deemed to be
issued by the Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as such Schedule may be
amended from time to time
by mutual written agreement (the "Designated Portfolio(s)"), on
behalf of the Account to
fund the Contracts, and the Fund is authorized to sell such shares
to unit investment trusts
such as the Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 its fiduciary
duties under federal and any
applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3. The Fund will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company separate account unless an
agreement containing
provisions substantially the same as Sections 2.1, 3.5, 3.6, 3.7,
and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its designee of the requests for redemption. 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, GWL&A
shall be the designee of
the Fund for receipt of requests for redemption and receipt by such
designee shall constitute
receipt by the Fund, provided that the Fund receives notice of any
such request for
redemption by 10:00 A.M. Eastern time on the next following
Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in federal
funds transmitted by wire
and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the Contracts and the
securities deemed
to be issued by the Account under the Contracts are or will be
registered under the 1933
Act; 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.
GWL&A further represents
and warrants that it is an insurance company duly organized and in
good standing under
applicable law and that it has legally and validly established the
Account prior to any
issuance or sale of units thereof as a segregated asset account
under Section 10-7-401, et. seq.
of the Colorado 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 and that it will maintain such
registration for so long as any
Contracts are outstanding as required by applicable law.
2.2. The Fund represents and warrants that Designated
Portfolio(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the State of Delaware and that it does
and will comply in all
material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of California
and any applicable state and federal securities laws.
2.7. The Fund and the Adviser represent and warrant that all
of their respective
officers, employees, investment advisers, and other individuals or
entities dealing with the
money and/or securities of the Fund are, and shall continue to be
at all times, covered by
one or more blanket fidelity bonds or similar coverage for the
benefit of the Fund in an
amount not less than the minimal coverage required by Rule 17g-1
under the 1940 Act or
related provisions as may be promulgated from time to time. The
aforesaid bonds shall
include coverage for larceny and embezzlement and shall be issued
by a reputable bonding
company.
2.8. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.9. The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.10.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently and at the time of issuance will be treated
as annuity contracts under
applicable provisions of the Code, and that it will make every
effort to maintain such
treatment and that it will notify Schwab, the Fund and the Adviser
immediately upon having
a reasonable basis for believing that the Contracts have ceased to
be so treated or that they
might not be so treated in the future. In addition, GWL&A
represents and warrants that
the Account is a "segregated asset account" and that interests in
the Account are offered
exclusively through the purchase of or transfer into a "variable
contract" within the meaning
of such terms under Section 817 of the Code and the regulations
thereunder. GWL&A will
use every effort to continue to meet such definitional
requirements, and it will notify Schwab,
the Fund, and the Adviser immediately upon having a reasonable
basis for believing that
such requirements have ceased to be met or that they might not be
met in the future.
GWL&A 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 GWL&A and
Schwab with as many
copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A and
Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract), with
expenses to be borne in
accordance with Schedule E hereof. If requested by GWL&A in lieu
thereof, the Adviser
or Fund shall provide such documentation (including a camera-ready
copy and computer
diskette of the current prospectus for the Designated Portfolio(s))
and other assistance as
is reasonably necessary in order for GWL&A once each year (or more
frequently if the
prospectuses for the Designated Portfolio(s) are amended) to have
the prospectus for the
Contracts and the Fund's prospectus for the Designated Portfolio(s)
printed together in one
document. The Fund and Adviser agree that the prospectus (and
semi-annual and annual
reports) for the Designated Portfolio(s) will describe only the
Designated Portfolio(s) and
will not name or describe any other portfolios or series that may
be in the Fund unless
required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Adviser shall provide GWL&A with copies of the
Fund's SAI or documen-
tation thereof for the Designated Portfolio(s) in such quantities,
with expenses to be borne
in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit timely
distribution thereof to Contractowners. The Adviser and/or the
Fund shall also provide SAIs
to any Contractowner or prospective owner who requests such SAI
from the Fund (although
it is anticipated that such requests will be made to GWL&A or
Schwab).
3.3. The Fund and/or the Adviser shall provide GWL&A and
Schwab with copies
of the Fund's proxy material, reports to stockholders and other
communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Adviser or the Designated Portfolio(s) provided in writing by the
Fund or the Adviser,
neither the Fund nor Adviser are responsible for the content of the
prospectus or SAI for
the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares held in the
Account in
accordance with instructions received from
Contractowners: and
(iii)vote Designated Portfolio shares held in the Account
for which no
instructions have been received in the same
proportion as Designated
Portfolio(s) shares for which instructions have been
received from
Contractowners, so long as and to the extent that
the SEC continues
to interpret the 1940 Act to require pass-through
voting privileges for
variable contract owners. GWL&A reserves the right
to vote Fund
shares held in any segregated asset account in its
own right, to the
extent permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers is
named in connection with the
Contracts, at least ten (10) Business Days prior to its use. No
such material shall be used
if the Fund objects to such use within five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts 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 by the
Adviser, except with the permission of the Fund or the Adviser.
4.3. The Fund or the Adviser shall furnish, or shall cause to
be furnished, to
GWL&A and Schwab, a copy of each piece of sales literature or other
promotional material
in which GWL&A and/or its separate account(s), or Schwab is named
at least ten (10) Busi-
ness Days prior to its use. No such material shall be used if
GWL&A or Schwab objects to
such use within five (5) 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 GWL&A or concerning GWL&A, 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except with
the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
messages), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, registration
statements, prospectuses, SAIs, shareholder reports, proxy
materials and any other material
constituting sales literature or advertising under the NASD rules,
the 1933 Act of the 1940
Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other
compensation to GWL&A
under this Agreement, and GWL&A 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 E, Articles III, V, and other provisions
of this Agreement.
5.2. All expenses incident to performance by the Fund and the
Adviser under this
Agreement shall be paid by the appropriate party, as further
provided in Schedule E. The
Fund shall see to it that all shares of the Designated Portfolio(s)
are registered and
authorized for issuance in accordance with applicable federal law
and, if and to the extent
required, in accordance with applicable state laws prior to their
sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund and the Adviser acknowledge that a principal
feature of the
Contracts is the Contractowner's ability to choose from a number of
unaffiliated mutual
funds (and portfolios or series thereof), including the Designated
Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund and the Adviser agree to cooperate with GWL&A and Schwab
in facilitating the
operation of the Account and the Contracts as described in the
prospectus for the Contracts,
including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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 the Adviser represent and warrant that the
Fund will at all
times sell its shares and invest its assets in such a manner as to
ensure that the Contracts
will be treated as annuity contracts under the Code, and the
regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund 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 Section 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 Adviser agree
that shares of the Designated Portfolio(s) will be sold only to
Participating Insurance
Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund or the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser will pay all costs associated with or arising out of
any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated
with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to,
the costs involved in creating, organizing, and registering a new
investment company as a
funding medium for the Contracts and/or the costs of obtaining
whatever regulatory
authorizations are required to substitute shares of another
investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the
1940 Act); such costs are to include, but are not limited to, fees
and expenses of legal coun-
sel and other advisors to GWL&A and any federal income taxes or tax
penalties and interest
thereon (or "toll charges" or exactments or amounts paid in
settlement) incurred by
GWL&A with respect to itself or owners of its Contracts in
connection with any such failure
or anticipated or reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, of any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund or the Adviser
as a result of such a failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or
potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the
Adviser resulting from such failure, including, without
limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the
IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund and the Adviser (together
with any supporting
information or analysis) within at least two (2) business days
prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the
Fund and the Adviser shall reasonably request (including,
without limitation, by
permitting the Fund and the Adviser to review the relevant
books and records of
GWL&A) in order to facilitate review by the Fund and the
Adviser of any written
submissions provided to it or its assessment of the validity
or amount of any claim
against it arising from such failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund and the Adviser
(i) compromise or settle
any claim, (ii) accept any adjustment on audit, or (iii)
forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund
and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A
shall not be required to appeal any adverse judicial decision
unless the Fund and the
Adviser shall have provided an opinion of independent counsel
to the effect that a
reasonable basis exists for taking such appeal; and further
provided that the Fund
and the Adviser shall bear the costs and expenses, including
reasonable attorney's
fees, incurred by GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the
Designated Portfolios (the "Independent Directors"), that a
material irreconcilable conflict
exists, GWL&A and other Participating Insurance Companies shall, at
their expense and to
the extent reasonably practicable (as determined by a majority of
the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund and
the Adviser and each of their officers and directors or trustees
and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15
of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts
paid in settlement with the
written consent of GWL&A) or litigation (including reasonable legal
and other expenses)
to which the Indemnified Parties may become subject under any
statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, 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 pro-
spectus or SAI covering the Contracts or contained in the
Contracts or sales
literature or other promotional material for the
Contracts (or any amendment
or supplement to any of the foregoing), or arise out of
or are based upon the
omission or the alleged omission to state therein a
material fact required to
be stated therein or necessary to make the statements
therein not misleading,
provided that this Agreement to indemnify shall not apply
as to any
Indemnified Party if such statement or omission or such
alleged statement or
omission was made in reliance upon and in conformity with
information
furnished in writing to GWL&A 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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 and the
Adviser and each of their officers and directors or trustees and
each person, if any, who
controls the Fund or Adviser within the meaning of Section 15 of
the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against
any and all losses, claims,
expenses, damages and liabilities (including amounts paid in
settlement with the written
consent of Schwab) or litigation (including reasonable legal and
other expenses), to which
the Indemnified Parties may become subject under any statute or
regulation, at common law
or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement nor in the Fund's sales literature
and other promotional
material 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 or other
promotional material prepared or approved by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser or the Fund or to Schwab by
GWL&A 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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund or the Adviser (or any
amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the
alleged omission to state therein a material fact
required to be stated therein
or necessary to make the statements therein not
misleading, provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reli-
ance upon and in conformity with information furnished in
writing to the
Adviser or the Fund by or on behalf of GWL&A 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 the Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund or the Adviser or persons
under their control,
with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply 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 the Adviser in this
Agreement or arise out of
or result from any other material breach of this
Agreement by the Adviser or
the Fund; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
by the Fund or the Adviser of the daily net asset value
per share or dividend
or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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 Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund or the Adviser by
the NASD, the SEC, or any state securities or insurance
department or any
other regulatory body, if Schwab or GWL&A reasonably
determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will
have a material adverse effect upon the ability of the
Fund or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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 GWL&A or Schwab has suffered a
material adverse
change in their 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 GWL&A's or Schwab's ability to
perform its
obligations under this Agreement, (ii) the Fund or the
Adviser notifies
GWL&A or Schwab, as appropriate, of that determination
and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by
GWL&A or Schwab and any other changes in circumstances
since the giving
of such a notice, the determination of the Fund or the
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 GWL&A or Schwab, if (i)
GWL&A 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 the Adviser's
ability to perform its
obligations under this Agreement, (ii) GWL&A or Schwab
notifies the Fund
or the Adviser, as appropriate, of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund or the Adviser and any other changes in
circumstances since the giving
of such a notice, the determination of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund and the Adviser
shall, at the option of
GWL&A or Schwab, continue to make available additional shares of
the Designated
Portfolio(s) pursuant to the terms and conditions of this
Agreement, for all Contracts in
effect on the effective date of termination of this Agreement
(hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts
shall be permitted to reallocate investments in the Designated
Portfolio(s), redeem
investments in the Designated Portfolio(s) and/or invest in the
Designated Portfolio(s) upon
the making of additional purchase payments under the Existing
Contracts. The parties agree
that this Section 10.3 shall not apply to any terminations under
Article VII and the effect
of such Article VII terminations shall be governed by Article VII
of this Agreement.
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Montgomery Funds III
101 California Street
San Francisco, CA 94111
Attention:John Story, Executive Vice President
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Montgomery Asset Management, L.P.
101 California Street
San Francisco, CA 94111
Attention:John Story, Executive Vice President
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Declarations of Trust of the Fund and
agree that the obligations
assumed by the Fund and the Adviser pursuant to this Agreement
shall be limited in any
case to the Fund and Adviser and their respective assets and
neither Schwab nor GWL&A
shall seek satisfaction of any such obligation from the
shareholders of the Fund or the
Adviser, the Trustees, officers, employees or agents of the Fund or
Adviser, or any of them.
12.10.The Fund and the Adviser agree that the obligations
assumed by GWL&A and
Schwab pursuant to this Agreement shall be limited in any case to
GWL&A and Schwab and
their respective assets and neither the Fund nor the Adviser shall
seek satisfaction of any
such obligation from the shareholders of the GWL&A or Schwab, the
directors, officers,
employees or agents of the GWL&A or Schwab, or any of them, except
to the extent
permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Adviser and the
Fund.
12.12.It is understood that the name Montgomery or any
derivative thereof or logo
associated with that name is the valuable property of the Adviser
and its affiliates, and that
GWL&A and Schwab have the right to use such name (or derivative or
logo) only so long
as this Agreement is in effect. Upon termination of this
Agreement, GWL&A and Schwab
agree that they will cease to use such name (or derivative or
logo), except as provided in
Section 10.3.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
MONTGOMERY FUNDS III
By its authorized officer,
By:/s/ John Story
Title: Executive Vice President
Date: October 14, 1996
MONTGOMERY ASSET MANAGEMENT, L.P.
By its authorized officer,
By:/s/ John Story
Title: Executive Vice President
Date:
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Montgomery Growth Fund
Montgomery International Small Cap Fund
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Adviser, as applicable
Fund or Adviser shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Adviser, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Adviser
Fund or Adviser
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Adviser
GWL&A
Fund or Adviser
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Adviser
Fund or Adviser
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Adviser
Fund or Adviser
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Adviser
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Adviser
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Adviser
Schwab
Fund or Adviser
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Adviser
GWL&A
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Adviser
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 15
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 35
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 36
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 40
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 45
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 46
SCHEDULE C Administrative Services . . . . . . . . . . . . . 47
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 48
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 51
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SCHWAB ANNUITY PORTFOLIOS,
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
SCHWAB ANNUITY PORTFOLIOS a business trust organized under the laws
of
Massachusetts (hereinafter the "Fund"); CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC. (hereinafter the "Adviser"), a Delaware
corporation; and
CHARLES SCHWAB & CO., INC., a California corporation (hereinafter
"Schwab" or the
"Distributor").
WHEREAS, the Fund engages in business as an open-end
management investment
company and is available to act as the investment vehicle for
separate accounts established
for variable life insurance policies and/or variable annuity
contracts (collectively, the
"Variable Insurance Products") to be offered by insurance
companies, including GWL&A,
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 September 25, 1996 (File
No. 812-10052),
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-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the
Fund to be sold to and held by variable annuity and variable life
insurance separate accounts
of life insurance companies that may or may not be affiliated with
one another and plans
established under Sections 401(a), 403(a) and (b), 408(a), (b) and
(k), 414(d) 457(b) or
501(c)(18) of the Internal Revenue Code ("Qualified Plans")
(hereinafter the "Mixed and
Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 its fiduciary
duties under federal and any
applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3. The Fund will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales;
provided, however, that this
condition shall apply to Qualified Plans only to the extent
required by the Mixed and Shared
Funding Exemptive Order.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its designee of the requests for redemption. 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, GWL&A
shall be the designee of
the Fund for receipt of requests for redemption and receipt by such
designee shall constitute
receipt by the Fund, provided that the Fund receives notice of any
such request for
redemption by 10:00 A.M. Eastern time on the next following
Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by
wire and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the State of Massachusetts and that it
does and will comply in all
material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of Delaware
and any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with the laws of the State of
California and any applicable state and federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all
of their respective
officers, employees, investment advisers, and other individuals or
entities dealing with the
money and/or securities of the Fund are, and shall continue to be
at all times, covered by
a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less
than the minimal coverage required by Rule 17g-1 under the 1940 Act
or related provisions
as may be promulgated from time to time. The aforesaid bond shall
include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.9. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund and the Adviser immediately upon having a reasonable basis
for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
In addition, GWL&A represents and warrants that the Account is a
"segregated asset
account" and that interests in the Account are offered exclusively
through the purchase of
or transfer into a "variable contract" within the meaning of such
terms under Section 817 of
the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet
such definitional requirements, and it will notify Schwab, the
Fund, and the Adviser
immediately upon having a reasonable basis for believing that such
requirements have
ceased to be met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor shall provide GWL&A
with as many copies
of the Fund's current prospectus for the Designated Portfolio(s) as
GWL&A and Schwab
may reasonably request for marketing purposes (including
distribution to Contractowners
with respect to new sales of a Contract). If requested by GWL&A in
lieu thereof, the
Distributor or Fund shall provide such documentation (including a
camera-ready copy and
computer diskette of the current prospectus for the Designated
Portfolio(s)) and other
assistance as is reasonably necessary in order for GWL&A once each
year (or more fre-
quently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Distributor shall provide GWL&A with copies of the
Fund's SAI or docu-
mentation thereof for the Designated Portfolio(s) in such
quantities, with expenses to be
borne in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit
timely distribution thereof to Contractowners. The Distributor
and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests
such SAI from the
Fund (although it is anticipated that such requests will be made to
GWL&A).
3.3. The Fund and/or the Distributor shall provide GWL&A with
copies of the
Fund's proxy material, reports to stockholders and other
communications to stockholders for
the Designated Portfolio(s) in such quantity, with expenses to be
borne in accordance with
Schedule E hereof, as GWL&A may reasonably require to permit timely
distribution thereof
to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party and except as
provided in the
Distribution Agreement dated March 29, 1994 between Schwab and the
Fund, neither
GWL&A nor Schwab are responsible for the content of the prospectus
or SAI for the
Designated Portfolio(s). It is also understood and agreed that,
except with respect to
information regarding the Fund, the Distributor, Adviser or the
Designated Portfolio(s)
provided in writing by the Fund, the Distributor or Adviser,
neither the Fund, the Distributor
nor Adviser are responsible for the content of the prospectus or
SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers is
named in connection with the
Contracts, at least ten (10) Business Days prior to its use. No
such material shall be used
if the Fund objects to such use within five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts 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 by the
Distributor, except with the permission of the Fund or the
Distributor.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects to such use
within five (5) Business Days after receipt of such material.
4.4. The Fund, the Distributor, and the Adviser shall not give
any information or
make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or
the Contracts other than the information or representations
contained in a registration state-
ment 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund, and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except with
the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
messages), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, proxy
materials, and any other material
constituting sales literature or advertising under the NASD rules,
the 1933 Act or the 1940
Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other
compensation to GWL&A
under this Agreement, and GWL&A 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 E, Articles III, V, and other provisions
of this Agreement.
5.2. All expenses incident to performance by the Fund, the
Adviser and the
Distributor under this Agreement shall be paid by the appropriate
party, as further provided
in Schedule E. The Fund shall see to it that all shares of the
Designated Portfolio(s) are
registered and authorized for issuance in accordance with
applicable federal law and, if and
to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge
that a principal fea-
ture of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated
mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund and the Adviser agree to cooperate with GWL&A and Schwab
in facilitating the
operation of the Account and the Contracts as described in the
prospectus for the Contracts,
including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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, 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.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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, the Adviser and the Distributor 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,
the Distributor and the
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 Section 1.817-5, as
amended from time to time, and any Treasury interpretations
thereof, relating to the diversi-
fication 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 Distributor agree that shares of the Designated
Portfolio(s) will be sold
only to Participating Insurance Companies and their separate
accounts and certain Qualified
Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund and the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser will pay all costs associated with or arising out of
any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated
with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to,
the costs involved in creating, organizing, and registering a new
investment company as a
funding medium for the Contracts and/or the costs of obtaining
whatever regulatory
authorizations are required to substitute shares of another
investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the
1940 Act); such costs are to include, but are not limited to, fees
and expenses of legal coun-
sel and other advisors to GWL&A and any federal income taxes or tax
penalties and interest
thereon (or "toll charges" or exactments or amounts paid in
settlement) incurred by
GWL&A with respect to itself or owners of its Contracts in
connection with any such failure
or anticipated or reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund, the Adviser
or the Distributor as a result of such a failure or alleged
failure:
(a) GWL&A shall promptly notify the Fund, the Adviser and the
Distributor of such
assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Adviser and the
Distributor as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund, the
Adviser and the Distributor resulting from such failure,
including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund, the Distributor and the
Adviser (together with
any supporting information or analysis) within at least two
(2) business days prior to
submission;
(e) GWL&A shall provide the Fund, the Distributor and the
Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall
reasonably request
(including, without limitation, permitting the Fund, the
Distributor and the Adviser
to review the relevant books and records of GWL&A) in order to
facilitate review
by the Fund, the Distributor and the Adviser of any written
submissions provided to
it or its assessment of the validity or amount of any claim
against it arising from such
failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund, the Distributor
and the Adviser (i)
compromise or settle any claim, (ii) accept any adjustment on
audit, or (iii) forego
any allowable administrative or judicial appeals, without the
express written consent
of the Fund, the Distributor and the Adviser, which shall not
be unreasonably
withheld; provided that, GWL&A shall not be required to appeal
any adverse judicial
decision unless the Fund, the Distributor and the Adviser
shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking
such appeal; and further provided that the Fund, the
Distributor and the Adviser
shall bear the costs and expenses, including reasonable
attorney's fees, incurred by
GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to
any of the Designated Portfolios (the "Independent Directors"),
that a material irreconcilable
conflict exists, GWL&A and other Participating Insurance Companies
shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 Distributor and the Fund
shall continue to accept
and implement orders by GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their officers, directors
and trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including
amounts paid in settlement
with the written consent of GWL&A) or litigation (including
reasonable legal and other
expenses) to which the Indemnified Parties may become subject under
any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages,
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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A or Schwab by or on behalf of the Adviser or the
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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.11 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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 and the
Adviser and each of their officers, directors and trustees and each
person, if any, who
controls the Fund or the Adviser within the meaning of Section 15
of the 1933 Act (collec-
tively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses,
claims, expenses, damages and liabilities (including amounts paid
in settlement with the
written consent of Schwab) or litigation (including reasonable
legal and other expenses), to
which the Indemnified Parties may become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund 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 or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser or the Fund or to Schwab by
GWL&A 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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or the Distributor (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 fur-
nished in writing to the Adviser, the Distributor or the
Fund by or on behalf
of GWL&A 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 the Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Adviser
or the Distributor to
provide the services and furnish the materials under the
terms of this
Agreement (including a failure, whether unintentional or
in good faith or
otherwise, to comply with the diversification and other
qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, the Adviser or the Distributor
in this Agreement
or arise out of or result from any other material breach
of this Agreement by
the Adviser, the Fund or the Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). Notwithstanding any other provision contained
herein, in no event
shall the Adviser be liable to any individual or entity, including
without limitation, GWL&A,
Schwab, or any Contractowner, with respect to any losses, claims,
damages, liabilities or
expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or
covenant made by GWL&A hereunder; (ii) the failure by GWL&A to
maintain its
segregated asset account (which invests in any Designated
Portfolio) as a legally and validly
established segregated asset account under applicable state law and
as a duly registered unit
investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the
failure by GWL&A or any Participating Insurance Company to maintain
its variable annuity
and/or variable life insurance contracts (with respect to which any
Designated Portfolio
serves as an underlying funding vehicle) as life insurance,
endowment or annuity contracts
under applicable provisions of the Code.
8.3(e). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i)arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). Notwithstanding any other provision contained
herein, in no event
shall the Fund be liable to any individual or entity, including
without limitation, GWL&A,
Schwab, or any Contractowner, with respect to any losses, claims,
damages, liabilities or
expenses that arise out of or result from (i) the failure of the
Fund or any Designated
Portfolio to qualify or maintain its qualification as a regulated
investment company
Subchapter M of the Code, or (ii) the failure by the Fund or any
Designated Portfolio to
comply with the diversification requirements 817(h) of the Code.
8.4(e). GWL&A 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.
8.5 Indemnification by the Distributor
8.5(a).The Distributor agrees to indemnify and hold harmless
GWL&A and each
of their directors and officers and each person, if any, who
controls GWL&A within the
meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes
of this Section 8.5) against any and all losses, claims, expenses,
damages, liabilities (including
amounts paid in settlement with the written consent of the
Distributor) or litigation
(including reasonable legal and other expenses) to which the
Indemnified Parties may
become subject under any statute or regulation, at common law or
otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the
contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any
amendment or
supplement to any of the foregoing), or arise out of 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 fur-
nished in writing to the Adviser, the Distributor or Fund
by or on behalf of
GWL&A for use in the registration statement or SAI or
prospectus for the
Fund or in sales literature or other promotional material
(or any amendment
or supplement) or otherwise for use in connection with
the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI, sales literature or other promotional
material for the
Contracts not supplied by the Distributor or persons
under its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, sales literature or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon information furnished in writing to
GWL&A by or on behalf
of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, Adviser or Distributor in this
Agreement or arise
out of or result from any other material breach of this
Agreement by the
Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.5(b) and 8.5(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Distributor specified in Article VI hereof.
8.5(b). The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.5(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.5(d). Notwithstanding any other provision contained herein,
in no event shall the
Distributor be liable to any individual or entity, including
without limitation, GWL&A,
Schwab, or any Contractowner, with respect to any losses, claims,
damages, liabilities or
expenses that arise out of or result from (i) the failure of the
Fund or any Designated
Portfolio to qualify or maintain its qualification as a regulated
investment company
Subchapter M of the Code, or (ii) the failure by the Fund or any
Designated Portfolio to
comply with the diversification requirements 817(h) of the Code.
8.5(e). GWL&A agrees to promptly notify the Distributor of
the commencement of
any litigation or proceedings against it or any of its officers or
directors in connection with
the issuance or sale of the Contracts or the operation of the
Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted
under and in accordance with the laws of the State of Colorado,
without regard to the
Colorado Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of
the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions
from those statutes, rules and regulations as the Securities and
Exchange Commission may
grant (including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
Adviser by the NASD, the SEC, or any state securities or
insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or Adviser to perform their
obligations under this
Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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 GWL&A or Schwab has suffered a
material adverse
change in their 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 GWL&A's or Schwab's ability to
perform its
obligations under this Agreement, (ii) the Fund or the
Adviser notifies
GWL&A or Schwab, as appropriate, of that determination
and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by
GWL&A or Schwab and any other changes in circumstances
since the giving
of such a notice, the determination of the Fund or the
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 GWL&A or Schwab, if (i)
GWL&A 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 the Adviser's
ability to perform its
obligations under this Agreement, (ii) GWL&A or Schwab
notifies the Fund,
or the Adviser, as appropriate, of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund, the Distributor or Adviser and any other changes in
circumstances since
the giving of such a notice, the determination of GWL&A
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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.(i) or 10.1(j) of this Agreement, the prior
written notice shall be given at
least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, the Adviser and
the Distributor shall,
at the option of GWL&A or Schwab, continue to make available
additional shares of the
Designated Portfolios pursuant to the terms and conditions of this
Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in
the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in
the Designated Portfolios
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Schwab Annuity Portfolios
101 Montgomery Street
San Francisco, CA 94104
Attention:Secretary
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President,
Savings Products
If to the Adviser:
Charles Schwab Investment Management, Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention:Secretary
If to Schwab or the Distributor:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Declaration of Trust of the Fund and
the Articles of Incorporation
of the Adviser and agree that the obligations assumed by the Fund
and the Adviser pursuant
to this Agreement shall be limited in any case to the Fund and
Adviser and their respective
assets and neither Schwab nor GWL&A shall seek satisfaction of any
such obligation from
the shareholders of the Fund or the Adviser, the Trustees,
officers, employees or agents of
the Fund or Adviser, or any of them, except to the extent permitted
under this Agreement.
12.10.The names "Schwab Annuity Portfolios" and "Trustees of
Schwab" refer
respectively to the Trust created and the Trustees, as trustees but
not individually or
personally, acting from time to time under the Declaration of
Trust, to which reference is
hereby made and a copy of which is on file at the office of the
Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and
to any and all
amendments thereto so filed or hereafter filed. The obligations of
"Schwab Annuity
Portfolios" entered into in the name or on behalf thereof by any of
the Trustees,
representatives or agents are made not individually, but in such
capacities, and are not
binding upon any of the Trustees, interest holders or
representatives of the Trust personally,
but bind only on the assets of the Trust, and all persons dealing
with any series of units of
interest of the Trust must look solely to the assets of the Trust
belonging to such series for
the enforcement of any claims against the Trust.
12.11.The Fund, Adviser and Distributor agree that the
obligations assumed by
GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A
and Schwab and their respective assets and neither the Fund nor
Adviser shall seek
satisfaction of any such obligation from the shareholders of the
GWL&A or Schwab, the
directors, officers, employees or agents of the GWL&A or Schwab, or
any of them, except
to the extent permitted under this Agreement.
12.12.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Distributor and
the Fund, and as between the Adviser and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
SCHWAB ANNUITY PORTFOLIOS
By its authorized officer,
By:/s/ Stephen B. Ward
Title: Senior Vice President and Chief Investment
Officer
Date: October 24, 1996
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
By its authorized officer,
By:/s/ William J. Klipp
Title: President and Chief Operating Officer
Date: October 24, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Schwab Money Market Portfolio
Schwab S&P 500 Portfolio
Schwab Asset Director-High Growth Portfolio
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.00% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby certify that Fund is in compliance
with all requirements of
Section 817(h) and Subchapter M of the Internal Revenue Code (the
"Code") and the
regulations thereunder as required in the Fund Participation
Agreement among Great-
West Life & Annuity Insurance Company, Charles Schwab & Co., Inc.
and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Distributor and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Distributor, as applicable
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Distributor, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Distributor
Fund or Distributor
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Distributor
GWL&A
Fund or Distributor
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Distributor
Fund or Distributor
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Distributor
Fund or Distributor
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Distributor
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Distributor
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Distributor
Schwab
Fund or Distributor
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Distributor
GWL&A
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Distributor
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 10
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 15
ARTICLE VI. Diversification and Qualification . . . . . . . . 16
ARTICLE VII. Potential Conflicts and Compliance With
Shared Funding Exemptive Order . . . . . . . . . 19
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 22
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 31
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 32
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 36
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 41
SCHEDULE C Administrative Services . . . . . . . . . . . . . 42
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 43
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 46
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STEINROE VARIABLE INVESTMENT TRUST,
STEIN ROE & FARNHAM INCORPORATED
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
STEINROE VARIABLE INVESTMENT TRUST, a business trust organized
under the laws
of Massachusetts (hereinafter the "Fund"); STEIN ROE & FARNHAM
INCORPORATED
(hereinafter the "Adviser"), a Delaware corporation; and CHARLES
SCHWAB & 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, including GWL&A,
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 July 1, 1988 (File No.
812-7044), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another (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 Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund and
Adviser in
connection with the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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 9:00 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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, 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 GWL&A beyond the foregoing deadlines;
provided, however, that
the Account receives similar relief to defer paying proceeds to
Contractowners, and further,
that the Account is treated no less favorably than the other
shareholders of the Designated
Portfolio(s). 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,
GWL&A 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 9:00 A.M.
Eastern time on the next
following Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A 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 GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund or its designee shall furnish same day notice
(by wire or telephone,
followed by written confirmation) to GWL&A of any income, dividends
or capital gain
distributions payable on the Designated Portfolio(s)' shares.
GWL&A 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. GWL&A
reserves the right to revoke
this election and to receive all such income dividends and capital
gain distributions in cash.
The Fund or its designee shall notify GWL&A by the end of the next
following Business Day
of the number of shares so issued as payment of such dividends and
distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error is less than $0.01 per share, then no corrective
action need be taken; (b) if the
pricing error is greater than $0.01 per share, but less than 1/2 of
1% of the Designated
Portfolio's NAV at the time of the error, then the Adviser shall
reimburse the Designated
Portfolio for any loss, after taking into consideration any
positive effect of such error;
however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing
error is equal to or greater than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without
taking into consideration any positive effect of such error) and
shall reimburse GWL&A for
the costs of adjustments made to correct Contractowner accounts in
accordance with the
provisions of Schedule E. If an adjustment is necessary to correct
a material error which has
caused Contractowners to receive less than the amount to which
they are entitled, the
number of shares of the applicable sub-account of such
Contractowners will be adjusted and
the amount of any underpayments shall be credited by the Adviser to
GWL&A for crediting
of such amounts to the applicable Contractowners accounts. Upon
notification by the
Adviser of any overpayment due to a material error, GWL&A or
Schwab, as the case may
be, shall promptly remit to Fund any overpayment that has not been
paid to
Contractowners; however, Adviser acknowledges that Schwab and GWL&A
do not intend
to seek additional payments from any Contractowner who, because of
a pricing error, may
have underpaid for units of interest credited to his/her account.
In no event shall Schwab
or GWL&A be liable to Contractowners for any such adjustments or
underpayment
amounts. A pricing error within categories (b) or (c) above shall
be deemed to be
"materially incorrect" or constitute a "material error" for
purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the Commonwealth of Massachusetts and
that it does and will
comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of Delaware
and any applicable state and federal securities laws.
2.7. The Fund and the Adviser represent and warrant that all
of their respective
officers, employees, investment advisers, and other individuals or
entities dealing with the
money and/or securities of the Fund are, and shall continue to be
at all times, covered by
a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less
than the minimal coverage required by Rule 17g-1 under the 1940 Act
or related provisions
as may be promulgated from time to time. The aforesaid 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.9. The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund or Adviser agree to share equitably in
expenses incurred by GWL&A
as a result of actions taken by the Fund, consistent with the
allocation of expenses contained
in Schedule E attached hereto and incorporated herein by reference.
2.10.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund and the Adviser immediately upon having a reasonable basis
for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
In addition, GWL&A represents and warrants that the Account is a
"segregated asset
account" and that interests in the Account are offered exclusively
through the purchase of
or transfer into a "variable contract" within the meaning of such
terms under Section 817 of
the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet
such definitional requirements, and it will notify Schwab, the
Fund, and the Adviser
immediately upon having a reasonable basis for believing that such
requirements have
ceased to be met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Fund or the Adviser shall provide
GWL&A and Schwab
with as many copies of the Fund's current prospectus for the
Designated Portfolio(s) as
GWL&A and Schwab may reasonably request for marketing purposes
(including distribution
to Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Adviser or Fund shall provide such documentation
(including a camera-ready
copy and/or computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Adviser shall provide GWL&A with copies of the
Fund's SAI or documen-
tation thereof for the Designated Portfolio(s) in such quantities,
with expenses to be borne
in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit timely
distribution thereof to Contractowners. The Adviser and/or the
Fund shall also provide SAIs
to any Contractowner or prospective owner who requests such SAI
from the Fund (although
it is anticipated that such requests will be made to GWL&A or
Schwab).
3.3. The Fund and/or the Adviser shall provide GWL&A and
Schwab with copies
of the Fund's proxy material, reports to stockholders and other
communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Adviser or the Designated Portfolio(s) provided in writing by the
Fund or the Adviser,
neither the Fund nor Adviser are responsible for the content of the
prospectus or SAI for
the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Shared Funding
Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto. The Fund reserves the right, upon 45 days prior
written notice to GWL&A
and Schwab, to take all actions including but not limited to the
dissolution, merger, and sale
of all assets of the Fund or any Designated Portfolio upon the sole
authorization of the
Board, acting in good faith and in light of their fiduciary duties
under the 1940 Act and to
the extent permitted by the laws of the Commonwealth of
Massachusetts and the 1940 Act.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers or the
underwriter for the Fund
shares is named in connection with the Contracts, at least ten (10)
Business Days prior to
its use. No such material shall be used if the Fund or its
designee objects to such use within
five (5) Business Days after receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of 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 its
designee or the Adviser.
4.3. The Fund or Adviser shall furnish, or shall cause to be
furnished, to GWL&A
and Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects to such use
within five (5) 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 GWL&A or concerning GWL&A, 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund and the Adviser shall not give any
information or make
any representations on behalf of or concerning Schwab, or use
Schwab's name except with
the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, the 1933 Act or
the 1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other
compensation to GWL&A
under this Agreement, and GWL&A 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 E, Articles III, V, and other provisions
of this Agreement.
5.2. All expenses incident to performance by the Fund and the
Adviser under this
Agreement shall be paid by the appropriate party, as further
provided in Schedule E. The
Fund shall see to it that all shares of the Designated Portfolio(s)
are registered and
authorized for issuance in accordance with applicable federal law
and, if and to the extent
required, in accordance with applicable state laws prior to their
sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund and the Adviser acknowledge that a principal
feature of the
Contracts is the Contractowner's ability to choose from a number of
unaffiliated mutual
funds (and portfolios or series thereof), including the Designated
Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund and the Adviser agree to cooperate with GWL&A and Schwab
in facilitating the
operation of the Account and the Contracts as described in the
prospectus for the Contracts,
including but not limited to cooperation in facilitating transfers
between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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 the Adviser represent and warrant that the
Fund will at all
times sell its shares and invest its assets in such a manner as to
ensure that the Contracts
will be treated as annuity contracts under the Code, and the
regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund 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 Section 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 Adviser agree
that shares of the Designated Portfolio(s) will be sold only to
Participating Insurance
Companies and their separate accounts.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund or the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser will pay all costs associated with or arising out of
any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated
with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to,
the costs involved in creating, organizing, and registering a new
investment company as a
funding medium for the Contracts and/or the costs of obtaining
whatever regulatory
authorizations are required to substitute shares of another
investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the
1940 Act); such costs are to include, but are not limited to, fees
and expenses of legal coun-
sel and other advisors to GWL&A and any federal income taxes or tax
penalties and interest
thereon (or "toll charges" or exactments or amounts paid in
settlement) incurred by
GWL&A with respect to itself or owners of its Contracts in
connection with any such failure
or anticipated or reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund or the Adviser
as a result of such a failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or
potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the
Adviser resulting from such failure, including, without
limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the
IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund and the Adviser (together
with any supporting
information or analysis) within at least two (2) business days
prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the
Fund and the Adviser shall reasonably request (including,
without limitation, by
permitting the Fund and the Adviser to review the relevant
books and records of
GWL&A) in order to facilitate review by the Fund and the
Adviser of any written
submissions provided to it or its assessment of the validity
or amount of any claim
against it arising from such failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund and the Adviser
(i) compromise or settle
any claim, (ii) accept any adjustment on audit, or (iii)
forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund
and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A
shall not be required to appeal any adverse judicial decision
unless the Fund and the
Adviser shall have provided an opinion of independent counsel
to the effect that a
reasonable basis exists for taking such appeal; and further
provided that the Fund
and the Adviser shall bear the costs and expenses, including
reasonable attorney's
fees, incurred by GWL&A in complying with this clause (f).
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
Designated Portfolio are being
managed; (e) a difference in voting instructions given by variable
annuity contract and
variable life insurance contract owners or by contract owners of
different Participating
Insurance Companies; or (f) a decision by a Participating Insurance
Company to disregard
the voting instructions of contract owners. The Board shall
promptly inform GWL&A if it
determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A 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 GWL&A to inform the Board whenever contract owner
voting instructions
are to be disregarded. Such responsibilities (other than the duty
to report, which is
unqualified) shall be carried out by GWL&A with a view only to the
interests of its
Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the
Designated Portfolios (the "Independent Directors"), that a
material irreconcilable conflict
exists, GWL&A and other Participating Insurance Companies shall, at
their expense and to
the extent reasonably practicable (as determined by a majority of
the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another Designated
Portfolio of the Fund, or submitting the question whether such
segregation should be imple-
mented 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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 Trustees 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. GWL&A shall not be required by
Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners 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 GWL&A
will withdraw the
Account's investment in the Fund and terminate this Agreement
within six (6) months after
the Board informs GWL&A 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 Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the 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 3.5, 3.6, 3.7,
7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that
terms and conditions
substantially identical to such Sections are contained in such
Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund and
the Adviser and each of their officers and directors or trustees
and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15
of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts
paid in settlement with the
written consent of GWL&A) or litigation (including reasonable legal
and other expenses)
to which the Indemnified Parties may become subject under any
statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, 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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A 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 are based upon of statements or
representations (other than
statements or representations contained in the
registration statement, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A or
persons under its
control, with respect to the sale or distribution of the
Contracts or Fund
Shares; or
(iii)arise out of or are based upon 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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 and the
Adviser and each of their officers and directors or trustees and
each person, if any, who
controls the Fund or Adviser within the meaning of Section 15 of
the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against
any and all losses, claims,
expenses, damages and liabilities (including amounts paid in
settlement with the written
consent of Schwab) or litigation (including reasonable legal and
other expenses), to which
the Indemnified Parties may become subject under any statute or
regulation, at common law
or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon Schwab's dissemination of
information
regarding the Fund that is both (A) materially incorrect
and (B) that was
neither contained in the Fund's registration statement or
sales literature nor
other promotional material of the Fund prepared by the
Fund 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 or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser or the Fund or to Schwab by
GWL&A 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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund or the Adviser (or any
amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the
alleged omission to state therein a material fact
required to be stated therein
or necessary to make the statements therein not
misleading, provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reli-
ance upon and in conformity with information furnished in
writing to the
Adviser or the Fund by or on behalf of GWL&A 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 the Fund shares; or
(ii) arise out of or are based upon of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund or the Adviser or persons
under their control,
with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue
statement of a material fact contained in a registration
statement, prospectus,
SAI, 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
GWL&A or Schwab by
or on behalf of the Adviser or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply 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 the Adviser in this
Agreement or arise out of
or result from any other material breach of this
Agreement by the Adviser or
the Fund; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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 Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the 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 six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's reasonable
and good faith determination that shares of such
Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, or shares or sponsor of any
Unaffiliated Fund,
if, in each case, the Fund reasonably determines in its
sole judgment exercised
in good faith, that any such administrative proceedings
will have a material
adverse effect upon the ability of GWL&A or Schwab to
perform its
obligations under this Agreement or would have a material
adverse impact
upon the Fund; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund or the Adviser by
the NASD, the SEC, or any state securities or insurance
department or any
other regulatory body, if Schwab or GWL&A reasonably
determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will
have a material adverse effect upon the ability of the
Fund or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund
and the Adviser
with respect to any Portfolio if GWL&A reasonably and in
good faith 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 GWL&A or Schwab has suffered a
material adverse
change in their 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 GWL&A's or Schwab's ability to
perform its
obligations under this Agreement, (ii) the Fund or the
Adviser notifies
GWL&A or Schwab, as appropriate, of that determination
and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by
GWL&A or Schwab and any other changes in circumstances
since the giving
of such a notice, the determination of the Fund or the
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 GWL&A or Schwab, if (i)
GWL&A 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 the Adviser's
ability to perform its
obligations under this Agreement, (ii) GWL&A or Schwab
notifies the Fund
or the Adviser, as appropriate, of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund or the Adviser and any other changes in
circumstances since the giving
of such a notice, the determination of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund and the Adviser
shall, at the option of
GWL&A or Schwab, continue to make available additional shares of
the Designated
Portfolio(s) pursuant to the terms and conditions of this
Agreement, for all Contracts in
effect on the effective date of termination of this Agreement
(hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts
shall be permitted to reallocate investments in the Designated
Portfolio(s), redeem
investments in the Designated Portfolio(s) and/or invest in the
Designated Portfolio(s) upon
the making of additional purchase payments under the Existing
Contracts. The parties agree
that this Section 10.3 shall not apply to any terminations under
Article VII and the effect
of such Article VII terminations shall be governed by Article VII
of this Agreement.
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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
SteinRoe Variable Investment Trust
c/o Liberty Investment Services, Inc.
600 Atlantic Avenue
Boston, MA 02210
Attention: Secretary
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Attention: Secretary
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, may be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
or other arbitration rules as mutually agreed upon by the relevant
parties, and judgment
upon the award rendered by the arbitrators may be entered in any
court having jurisdiction
thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Declarations of Trust of the Fund and
the Adviser and agree that
the obligations assumed by the Fund and the Adviser pursuant to
this Agreement shall be
limited in any case to the Fund and Adviser and their respective
assets and neither Schwab
nor GWL&A shall seek satisfaction of any such obligation from the
shareholders of the
Fund or the Adviser, the Trustees, officers, employees or agents of
the Fund or Adviser, or
any of them.
12.10.The Fund and the Adviser agree that the obligations
assumed by GWL&A and
Schwab pursuant to this Agreement shall be limited in any case to
GWL&A and Schwab and
their respective assets and neither the Fund nor the Adviser shall
seek satisfaction of any
such obligation from the shareholders of the GWL&A or Schwab, the
directors, officers,
employees or agents of the GWL&A or Schwab, or any of them.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Adviser and the
Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date:October 25, 1996
STEINROE VARIABLE INVESTMENT TRUST
By its authorized officer,
By:/s/ Jilaine Hummel Bauer
Title: Vice President
Date:October 21, 1996
STEIN ROE & FARNHAM INCORPORATED
By its authorized officer,
By:/s/ Jilaine Hummel Bauer
Title: Senior Vice President and Secretary
Date:October 21, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title:Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
SteinRoe Capital Appreciation Fund
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Adviser, as applicable
Fund or Adviser shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Adviser, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Adviser
Fund or Adviser
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Adviser
GWL&A
Fund or Adviser
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Adviser
Fund or Adviser
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Adviser
Fund or Adviser
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Adviser
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Adviser
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Adviser
Schwab
Fund or Adviser
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Adviser
GWL&A
Fund or Adviser
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Adviser
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .4
ARTICLE II. Representations and Warranties. . . . . . . . . . .8
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 14
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 21
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 24
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 35
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 40
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 44
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 45
SCHEDULE C Administrative Services . . . . . . . . . . . . . 46
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 47
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 50
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STRONG VARIABLE INSURANCE FUNDS, INC.,
STRONG CAPITAL MANAGEMENT, INC.,
STRONG FUNDS DISTRIBUTORS
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
STRONG VARIABLE INSURANCE FUNDS, INC., a corporation organized
under the
laws of Wisconsin (hereinafter the "Fund"); STRONG CAPITAL
MANAGEMENT, INC.
(hereinafter the "Adviser"), a Wisconsin corporation; STRONG FUNDS
DISTRIBUTORS,
INC. (the "Distributor"), a Wisconsin corporation; and CHARLES
SCHWAB & 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, including GWL&A,
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 July 1, 1992 (File No.
812-7863), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another and plans
established under Sections 401(a), 403(a) and (b), 408(a), (b) and
(k), 414(d) 457(b) or
501(c)(18) of the Internal Revenue Code ("Qualified Plans")
(hereinafter the "Mixed and
Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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 9:00 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 Distributor and the Fund agrees to make shares of the
Designated Port-
folio(s) available for purchase at the applicable net asset value
per share by GWL&A and
the Account on those days on which the Fund calculates its
Designated Portfolio(s)' net asset
value pursuant to rules of the SEC, and the Fund shall calculate
such net asset value on
each day which the New York Stock Exchange is open for trading.
Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the
"Board") may refuse to sell
shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its designee of the requests for redemption. 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, GWL&A
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 9:00 A.M. Eastern time on the next following Business
Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase. GWL&A agrees
that if it fails to wire the purchase price to Distributor before
such 3:00 p.m. deadline, or (ii)
provide the Distributor with a Federal Funds wire system reference
number evidencing the
wire transfer of the purchase price to the Distributor prior to
such deadline, then, at the
option of Distributor, (a) the transaction may be canceled, or (b)
the transaction may be
processed at the next-determined net asset value for the applicable
Designated Portfolio
after purchase order funds are received. In such event GWL&A shall
indemnify and hold
harmless Distributor, Adviser and/or Fund from any liabilities,
costs and damages either may
suffer as a result of such failure. If, however, a failure by
GWL&A to wire the purchase
price to Distributor before the 3:00 p.m. deadline is a result,
directly or indirectly, of
circumstances beyond the control and without the fault or
negligence of GWL&A,
Distributor and GWL&A will mutually agree upon the appropriate
procedure for processing
the transaction and GWL&A shall not be subject to the hold harmless
or indemnification
provisions of this Section 1.6.
1.7. The Fund shall use its best efforts to pay and transmit
the proceeds of
redemptions of Fund shares by 12:00 p.m. (noon) 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 GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account.
1.9. The Distributor and/or the Adviser shall furnish same day
notice (by wire,
direct or indirect system access or telephone, followed by written
confirmation) to GWL&A
of any income, dividends or capital gain distributions payable on
the Designated Portfolio(s)'
shares. GWL&A 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.
GWL&A reserves the right to revoke this election and to receive all
such income dividends
and capital gain distributions in cash. The Distributor and/or the
Adviser shall notify
GWL&A by the end of the next following Business Day by direct or
indirect system access
of the number of shares so issued as payment of such dividends and
distributions.
1.10.The Adviser shall make the net asset value ("NAV") per
share for each
Designated Portfolio available to GWL&A on each Business Day as
soon as reasonably
practical after the NAV per share is calculated and shall use its
best efforts to make such
net asset value per share available by 6:00 p.m. Eastern time. In
the event of an error in
the computation of a Designated Portfolio's NAV on any day on which
Designated Portfolio
shares are purchased or redeemed or any dividend or capital gain
distribution (each, a
"pricing error"), the Adviser or the Fund shall immediately notify
GWL&A as soon as
possible after discovery of the error. Such notification may be
verbal, but shall be confirmed
promptly in writing in accordance with Article XI of this
Agreement. A pricing error shall
be corrected as follows: the Designated Portfolio shall be
reimbursed by the Adviser (or,
without limiting the Adviser's responsibility hereunder, the entity
responsible for the error,
provided such entity is willing to provide timely reimbursement) if
the difference between
the NAV at which the shares were purchased or redeemed (the
"Incorrect Price") and the
correct NAV as subsequently determined (the "Correct Price") equals
or exceeds one-half
of one percent (0.5%) of the Correct Price (a "Reimbursable
Error"). In the event of a
Reimbursable Error, the Designated Portfolio shall be reimbursed
the total difference
between the Incorrect Price and the Correct Price (the
"Reimbursement Amount"). The
Reimbursement Amount shall be calculated separately for each
shareholder of record of the
Designated Portfolio who suffered a loss. If the Reimbursment
Amount is greater than
$10.00, said shareholder's account will be adjusted accordingly and
if $10.00 or less, it shall
be paid directly to the Designated Portfolio, all in accordance
with the Designated Portfolio's
policies on Reimbursable Errors. In no event shall Schwab or GWL&A
be liable to
Contractowners for any such adjustments or underpayment amounts.
The foregoing represents the policies and procedures of the
Fund with respect to
NAV pricing errors and are not the policies and procedures of GWL&A
or Schwab. The
Fund believes that these policies and procedures are fair and
reasonable and are consistent
with applicable guidelines of the Securities and Exchange
Commission ("SEC") and its staff
relative to NAV pricing errors. In the event new guidelines for
handling NAV pricing errors
are disseminated by the SEC or its Staff or pursuant to judicial or
other interpretation, the
parties shall amend the foregoing provisions of this Agreement to
comport with the
appropriate applicable guidelines, on terms mutually satisfactory
to all parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement
and to the extent notified by GWL&A in writing of such laws. The
Fund further represents
and warrants that it will make every effort to ensure that
Designated Portfolio(s) shares will
be sold in compliance with the insurance laws of the State of
Colorado and all applicable
state insurance and securities laws. With regard to state
insurance laws, the Fund and
Adviser shall be deemed to be on notice only of those laws and
regulations disclosed to the
Fund or the Adviser in writing by GWL&A. The Fund shall register
and qualify the shares
for sale in accordance with the laws of the various states if and
to the extent required by
applicable law. GWL&A and the Fund will endeavor to mutually
cooperate with respect
to the implementation of any modifications necessitated by any
change in state insurance
laws, regulations or interpretations of the foregoing that affect
the Designated Portfolio(s)
(a "Law Change"), and to keep each other informed of any Law Change
that becomes
known to either party. In the event of a Law Change, the Fund
agrees that, except in those
circumstances where the Fund has advised GWL&A that its Board of
Directors has
determined that implementation of a particular Law Change is not in
the best interest of all
of the Fund's shareholders with an explanation regarding why such
action is lawful, any
action required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the State of Wisconsin and that it does
and will comply in all
material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of Wisconsin
and any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with the laws of the State of
Wisconsin and any applicable state and federal securities laws.
2.8. The Fund, the Distributor and the Adviser represent and
warrant that all of
their respective officers, employees, investment advisers, and
other individuals or entities
dealing with the money and/or securities of the Fund are, and shall
continue to be at all
times, covered by a blanket fidelity bond or similar coverage for
the benefit of the Fund in
an amount not less than the minimal coverage required by Rule 17g-1
under the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued
by a reputable bonding
company.
2.9. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Designated Portfolio(s) will provide GWL&A with as
much advance
notice as is reasonably practicable of any material change
affecting the Designated
Portfolio(s) (including, but not limited to, any material change in
the registration statement
or prospectus affecting the Designated Portfolio(s)) and any proxy
solicitation affecting the
Designated Portfolio(s) and consult with GWL&A in order to
implement any such change
in an orderly manner, recognizing the expenses of changes and
attempting to minimize such
expenses by implementing them in conjunction with regular annual
updates of the prospectus
for the Contracts. The Fund agrees to share equitably in expenses
incurred by GWL&A as
a result of actions taken by the Fund, consistent with the
allocation of expenses contained
in Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund, the Distributor and the Adviser immediately upon having
a reasonable basis for
believing that the Contracts have ceased to be so treated or that
they might not be so
treated in the future. In addition, GWL&A represents and warrants
that the Account is a
"segregated asset account" and that interests in the Account are
offered exclusively through
the purchase of or transfer into a "variable contract" within the
meaning of such terms under
Section 817 of the Code and the regulations thereunder. GWL&A will
use every effort to
continue to meet such definitional requirements, and it will notify
Schwab, the Fund, the
Distributor, and the Adviser immediately upon having a reasonable
basis for believing that
such requirements have ceased to be met or that they might not be
met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor shall provide GWL&A
and Schwab with as
many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A
and Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Distributor or Fund shall provide such documentation
(including a camera-ready
copy and computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
existing and prospective
Contractowners, then the Fund and/or the Distributor shall provide
GWL&A with copies
of the Fund's SAI or documentation thereof for the Designated
Portfolio(s) in such quanti-
ties, with expenses to be borne in accordance with Schedule E
hereof, as GWL&A may
reasonably require to permit timely distribution thereof to said
Contractowners. The
Distributor and/or the Fund shall also provide SAIs to any
Contractowner or prospective
owner who requests such SAI from the Fund (although it is
anticipated that such requests
will be made to GWL&A or Schwab).
3.3. The Fund and/or the Distributor shall provide GWL&A and
Schwab with
copies of the Designated Portfolio's proxy material, reports to
stockholders and other
communications to stockholders for the Designated Portfolio(s) in
such quantity, with
expenses to be borne in accordance with Schedule E hereof, as GWL&A
may reasonably
require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Distributor, Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the
Distributor or Adviser, neither the Fund, the Distributor nor
Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and as agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A
of any changes of interpretations or amendments of the Mixed and
Shared Funding
Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A and Schwab shall furnish, or shall cause to be
furnished, to the
Distributor or its designee, a copy of each piece of sales
literature or other promotional
material that GWL&A or Schwab, respectively, develops or proposes
to use and in which
the Fund (or a Portfolio thereof), its Adviser or one of its
sub-advisers or the Distributor is
named in connection with the Contracts, at least ten (10) Business
Days prior to its use. No
such material shall be used if the Fund objects to such use within
five (5) Business Days
after receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of or concerning the Fund,
any Designated Portfolio,
the Distributor or the Adviser 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 sup-
plemented 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 by
the Distributor, except
with the permission of the Fund or the Distributor.
4.3. The Fund or the Distributor shall furnish, or shall cause
to be furnished, to
GWL&A and Schwab, a copy of each piece of sales literature or other
promotional material
in which GWL&A and/or its separate account(s), or Schwab is named
at least ten (10) Busi-
ness Days prior to its use. No such material shall be used if
GWL&A or Schwab objects to
such use within five (5) Business Days after receipt of such
material.
4.4. The Fund, the Distributor, and the Adviser shall not give
any information or
make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or
the Contracts other than the information or representations
contained in a registration state-
ment 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund, the Distributor and the Adviser shall
not give any
information or make any representations on behalf of or concerning
Schwab, or use
Schwab's name except with the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, applications for ex-
emptions, requests for no-action letters, and all amendments to any
of the above, that relate
to the Designated Portfolio(s), contemporaneously with the filing
of such document(s) with
the SEC or NASD or other regulatory authorities. The Fund will
also provide at least one
complete copy of all sales literature and other promotional
materials which includes
discussion of Schwab and/or the Contracts and/or GWL&A.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, 1933 Act or the
1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund, Distributor and Adviser shall pay no fee or
other compensation to
GWL&A under this Agreement, and GWL&A shall pay no fee or other
compensation to
the Fund, Distributor or Adviser under this Agreement, although the
parties hereto will bear
certain expenses in accordance with Schedule E, Articles III, V,
and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund, the
Adviser and the
Distributor under this Agreement shall be paid by the appropriate
party, as further provided
in Schedule E. The Fund or Distributor shall see to it that all
shares of the Designated
Portfolio(s) are registered and authorized for issuance in
accordance with applicable federal
law and, if and to the extent required, in accordance with
applicable state laws prior to their
sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge
that a principal fea-
ture of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated
mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund, the Distributor and the Adviser agree to cooperate with
GWL&A 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
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) 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, the Adviser and the Distributor represent and
warrant that the
Fund will at all times sell its shares and invest its assets in
such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code,
and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund,
Distributor and Adviser
represent and warrant that the Fund and each Designated Portfolio
thereof will at all times
comply with Section 817(h) of the Code and Treasury Regulation
Section 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 Distributor agree that shares of the Designated
Portfolio(s) will be sold
only to Participating Insurance Companies and their separate
accounts.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund, the Distributor and the Adviser represent and
warrant that the
Fund and each Designated Portfolio is currently qualified as a
Regulated Investment
Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain
such qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund, the Distributor or the Adviser will notify
GWL&A immediately
upon having a reasonable basis for believing that the Fund or any
Designated Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M
qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3,
8.4 and 8.5 hereof and
without in any way limiting or restricting any other remedies
available to GWL&A or
Schwab, the Adviser or the Distributor will pay all costs
associated with or arising out of any
failure, or any anticipated or reasonably foreseeable failure, of
the Fund or any Designated
Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof,
including all costs associated with
reasonable and appropriate corrections or responses to any such
failure; such costs may
include, but are not limited to, the costs involved in creating,
organizing, and registering a
new investment company as a funding medium for the Contracts and/or
the costs of
obtaining whatever regulatory authorizations are required to
substitute shares of another
investment company for those of the failed Portfolio (including but
not limited to an order
pursuant to Section 26(b) of the 1940 Act); such costs are to
include, but are not limited to,
fees and expenses of legal counsel and other advisors to GWL&A and
any federal income
taxes or tax penalties and interest thereon (or "toll charges" or
exactments or amounts paid
in settlement) incurred by GWL&A with respect to itself or owners
of its Contracts in
connection with any such failure or anticipated or reasonably
foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund, the Adviser
or the Distributor as a result of such a failure or alleged
failure:
(a) GWL&A shall promptly notify the Fund, the Adviser and the
Distributor of such
assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Adviser and the
Distributor as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund, the
Adviser and the Distributor resulting from such failure,
including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the IRS,
any Contractowner
or any other claimant in connection with any of the foregoing
proceedings or contests
(including, without limitation, any such materials to be
submitted to the IRS pursuant
to Treasury Regulations, Section 1.817-5(a)(2)) shall be
provided by GWL&A to the
Fund, the Distributor and the Adviser (together with any
supporting information or
analysis) within at least two (2) business days prior to
submission;
(e) GWL&A shall provide the Fund, the Distributor and the
Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall
reasonably request
(including, without limitation, by permitting the Fund, the
Distributor and the Adviser
to review the relevant books and records of GWL&A) in order to
facilitate review
by the Fund, the Distributor and the Adviser of any written
submissions provided to
it or its assessment of the validity or amount of any claim
against it arising from such
failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund, the Distributor
and the Adviser (i)
compromise or settle any claim, (ii) accept any adjustment on
audit, or (iii) forego
any allowable administrative or judicial appeals, without the
express written consent
of the Fund, the Distributor and the Adviser, which shall not
be unreasonably
withheld; provided that, GWL&A shall not be required to appeal
any adverse judicial
decision unless the Fund, the Distributor and the Adviser
shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking
such appeal; and further provided that the Fund, the
Distributor and the Adviser
shall bear the costs and expenses, including reasonable
attorney's fees, incurred by
GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to
any of the Designated Portfolios (the "Independent Directors"),
that a material irreconcilable
conflict exists, GWL&A and other Participating Insurance Companies
shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 Distributor and the Fund
shall continue to accept
and implement orders by GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund,
Distributor and Adviser shall continue to accept and implement
orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in
settlement with the written consent of GWL&A) or litigation
(including reasonable legal and
other expenses) to which the Indemnified Parties may become subject
under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages,
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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A or Schwab by or on behalf of the Adviser,
Distributor or Fund for
use in the registration statement or prospectus for the
Contracts or in the
Contracts or sales literature (or 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.11 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c) GWL&A 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 GWL&A in writing within a reasonable time after
the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify GWL&A of
any such claim shall not
relieve GWL&A from any liability which it may have to the
Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision, except
to the extent that GWL&A has been prejudiced by such failure to
give notice. In case any
such action is brought against the Indemnified Parties, GWL&A shall
be entitled to
participate, at its own expense, in the defense of such action.
GWL&A also shall be entitled
to assume the defense thereof, with counsel satisfactory to the
party named in the action.
After notice from GWL&A to such party of GWL&A's election to assume
the defense
thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel
retained by it, and GWL&A 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
GWL&A 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, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.2)
against any and all losses, claims, expenses, damages and
liabilities (including amounts paid
in settlement with the written consent of Schwab) or litigation
(including reasonable legal
and other expenses), to which the Indemnified Parties may become
subject under any statute
or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are
related to the sale or acqu-
isition of the Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund, the
Adviser or the Distributor that is both (A) materially
incorrect and (B) that
was neither contained in the Fund's registration
statement or sales literature
nor other promotional material of the Fund prepared by
the Fund or
provided in writing to Schwab, or approved in writing, by
or on behalf of the
Fund, the Distributor 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 or other
promotional material prepared by Schwab 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 GWL&A
or Schwab by or
on behalf of the Adviser, the Distributor or Fund for use
in the registration
statement or prospectus for the Contracts or in the
Contracts or sales litera-
ture (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 any of the Indemnified Parties.
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), but 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, except
to the extent that Schwab 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 Schwab's 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 GWL&A
and Schwab and each of their directors and officers and each
person, if any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or the Distributor (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 fur-
nished in writing to the Adviser, the Distributor or the
Fund by or on behalf
of GWL&A 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 the Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply with the diversification and other qualification
requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, the Adviser or the Distributor
in this Agreement
or arise out of or result from any other material breach
of this Agreement by
the Adviser, the Fund or the Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification
provision with respect to any losses, claims, expenses, damages,
liabilities or litigation to
which an Indemnified Party would otherwise be subject by reason of
such Indemnified
Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or
duties under this Agreement or to any of the Indemnified Parties.
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), but
failure to notify the Adviser
of any such claim shall not relieve the Adviser from any liability
which it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of this
indemnification provision, except to the extent that the Adviser
has been prejudiced by such
failure to give notice. In case any such action is brought against
the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in the
defense thereof. The
Adviser also shall be entitled to assume the defense thereof, with
counsel satisfactory to the
party named in the action. After notice from the Adviser to such
party of the Adviser's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and
expenses of any additional counsel retained by it, and the Adviser
will not be liable to such
party under this Agreement for any legal or other expenses
subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of
investigation.
8.3(d).GWL&A 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 Agreement, the issuance or sale of the
Contracts or the operation of
the Account or the sale or acquisition of shares of the Designated
Portfolios.
8.4. Indemnification By the Fund
8.4(a).The Fund agrees to indemnify and hold harmless GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); 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, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of
any such claim shall not
relieve it from any liability which it may have to the Indemnified
Party against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that the Fund has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, the Fund will be
entitled to participate,
at its own expense, in the defense thereof. The Fund shall also be
entitled to assume the
defense thereof, with counsel satisfactory to the party named in
the action. After notice
from the Fund to such party of the Fund's election to assume the
defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and the Fund will not be liable to such party under this Agreement
for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense
thereof other than reasonable costs of investigation.
8.4(d). GWL&A 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.
8.5. Indemnification by the Distributor
8.5(a).The Distributor agrees to indemnify and hold harmless
GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the
"Indemnified Parties" for purposes of this Section 8.5) against any
and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent
of the Distributor) or litigation (including reasonable legal and
other expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares
or the contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any
amendment or
supplement to any of the foregoing), or arise out of 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 fur-
nished in writing to the Adviser, the Distributor or Fund
by or on behalf of
GWL&A or Schwab for use in the registration statement or
SAI or prospectus
for the Fund or in sales literature or other promotional
material (or any
amendment or supplement) or otherwise for use in
connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI, sales literature or other promotional
material for the
Contracts not supplied by the Distributor or persons
under its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, sales literature or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon information furnished in writing to
GWL&A or Schwab by
or on behalf of the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund or
Distributor to provide the
services and furnish the materials under the terms of
this Agreement
(including a failure, whether unintentional or in good
faith or otherwise, to
comply with the diversification and other qualification
requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund or Distributor in this
Agreement or arise out of
or result from any other material breach of this
Agreement by the Fund or
Distributor;
as limited by and in accordance with the provisions of Sections
8.5(b) and 8.5(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Distributor specified in Article VI hereof.
8.5(b).The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.5(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.5(d)GWL&A and Schwab agree to promptly notify the
Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors
in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under
and in accordance with the laws of the State of Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund, Adviser or Distributor in
the event that formal
administrative proceedings are instituted against GWL&A
or Schwab by the
NASD, the SEC, the Insurance Commissioner or like
official of any state or
any other regulatory body regarding GWL&A's or Schwab's
duties under this
Agreement or related to the sale of the Contracts, the
operation of any
Account, or the purchase of the Fund shares, if, in each
case, the Fund
reasonably determines in its sole judgment exercised in
good faith, that any
such administrative proceedings will have a material
adverse effect upon the
ability of GWL&A or Schwab to perform its obligations
under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
Adviser by the NASD, the SEC, or any state securities or
insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or Adviser to perform their
obligations under this
Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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, the Distributor or
the Adviser, if (i) the
Fund or Adviser, respectively, shall determine, in their
sole judgment
reasonably exercised in good faith, that either GWL&A or
Schwab has
suffered a material adverse change in their 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
GWL&A's or Schwab's
ability to perform its obligations under this Agreement,
(ii) the Fund, the
Distributor or Adviser notifies GWL&A or Schwab, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by GWL&A or Schwab and any
other changes
in circumstances since the giving of such a notice, the
determination of the
Fund, the Distributor or Adviser shall continue to apply
on the sixtieth (60th)
day following the giving of that notice, which sixtieth
day shall be the effective
date of termination; or
(h) at the option of either GWL&A or Schwab, if (i)
GWL&A or Schwab,
respectively, shall determine, in its sole judgment
reasonably exercised in good
faith, that either the Fund, the Distributor 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, the
Distributor's or Adviser's
ability to perform its obligations under this Agreement,
(ii) GWL&A or
Schwab notifies the Fund, the Distributor or Adviser, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by the Fund, the
Distributor or Adviser and any
other changes in circumstances since the giving of such
a notice, the determi-
nation of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1 (i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, the Adviser and
the Distributor shall,
at the option of GWL&A or Schwab, continue to make available
additional shares of the
Designated Portfolio(s) pursuant to the terms and conditions of
this Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts") unless such further sale of
the Fund's shares is
proscribed by the SEC, the NASD or other regulatory body.
Specifically, without limitation,
the owners of the Existing Contracts shall be permitted to
reallocate investments in the
Designated Portfolio(s), redeem investments in the Designated
Portfolio(s) and/or invest in
the Designated Portfolio(s) upon the making of additional purchase
payments under the
Existing Contracts. The parties agree that this Section 10.3 shall
not apply to any
terminations under Article VII and the effect of such Article VII
terminations shall be
governed by Article VII of this Agreement.
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, with the exception of Section 3.1;
provided, however, that
the Distributor will continue to provide the requisite number of
prospectuses, SAIs, annual
and semi-annual reports for purposes of Existing Contracts.
10.5.Survival of Agreement. A termination by Schwab shall
terminate this
Agreement only as to Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53151
Attention: General Counsel
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Assistant Vice President, Savings Products
If to the Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53151
Attention: General Counsel
If to the Distributor:
Strong Funds Distributors, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53151
Attention: General Counsel
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that the parties mutually agree is proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A agree that the obligations assumed by
the Fund and the
Adviser pursuant to this Agreement shall be limited in any case to
the Fund and Adviser and
their respective assets and neither Schwab nor GWL&A shall seek
satisfaction of any such
obligation from the shareholders of the Fund or the Adviser, the
Directors, officers,
employees or agents of the Fund or Adviser, or any of them, except
to the extent permitted
under this Agreement.
12.10.The Fund, Adviser and Distributor agree that the
obligations assumed by
GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A
and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of
the GWL&A or Schwab,
the directors, officers, employees or agents of the GWL&A or
Schwab, or any of them,
except to the extent permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Distributor and
the Fund, and as between the Adviser and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date:October 25, 1996
STRONG VARIABLE INSURANCE FUNDS, INC.
By its authorized officer,
By:/s/ Thomas P. Lemke
Title: Vice President,
Date: October 22, 1996
STRONG CAPITAL MANAGEMENT, INC.
By its authorized officer,
By:/s/ Rochelle Lamm
Title: Senior Vice President
Date:October 22, 1996
STRONG FUNDS DISTRIBUTORS, INC.
By its authorized officer,
By:/s/ Thomas P. Lemke
Title: Vice President
Date:October 22, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title:Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Varible Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Strong Discovery Fund II
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to
the average daily value of the shares of the fund held by Schwab's
customers, payable by
the Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen)
days after the last day of the month to which such payment relates.
Adviser shall
calculate and pay said fee.
C. The Fund will calculate and Schwab will verify with GWL&A
the asset
balance for each day on which the fee is to be paid pursuant to
this Agreement with
respect to each Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and
exchange orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
E. Schwab agrees to provide Adviser, by the 15th day of each
month, with a
report which indicates the number of Contractowners that hold
through the Account
beneficial interest in each Designated Portfolio, as of the last
day of the prior month.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Distributor and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Distributor, as applicable
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Distributor, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Distributor
Fund or Distributor
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Distributor
GWL&A
Fund or Distributor
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Distributor
Fund or Distributor
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Distributor
Fund or Distributor
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Distributor
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Distributor
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Distributor
Schwab
Fund or Distributor
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Distributor
GWL&A
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Distributor
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .8
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 33
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 34
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 38
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 42
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 43
SCHEDULE C Administrative Services . . . . . . . . . . . . . 44
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 45
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 48
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
TCI PORTFOLIOS, INC,
INVESTORS RESEARCH CORPORATION,
TWENTIETH CENTURY SECURITIES, INC.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
TCI PORTFOLIOS, INC., a corporation organized under the laws of
Maryland (hereinafter
the "Fund"); INVESTORS RESEARCH CORPORATION (hereinafter the
"Adviser"), a
Delaware corporation; TWENTIETH CENTURY SECURITIES, INC.
(hereinafter the
"Distributor"), a Missouri corporation; and CHARLES SCHWAB & CO.,
INC., a California
corporation (hereinafter "Schwab").
WHEREAS, the Fund engages in business as an open-end
management investment
company and makes shares of its Portfolios (defined below)
available to act as the
investment vehicle for separate accounts established for variable
life insurance policies
and/or variable annuity contracts (collectively, the "Variable
Insurance Products") to be
offered by insurance companies, including GWL&A, which have entered
into participation
agreements similar to this Agreement (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares,
each designated a "Portfolio" and representing the interest in a
particular managed portfolio
of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities
and Exchange
Commission (hereinafter the "SEC"), dated March 22, 1988 (File No.
812-6937), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A 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 attached hereto and
incorporated herein by
reference, 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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund and Distributor agree to sell to GWL&A those
shares of the
Designated Portfolio(s) which the Account orders, executing such
orders on each Business
Day at the net asset value next computed after receipt by the
Distributor or its designee of
the order for the shares of the Portfolios. For purposes of this
Section 1.1, GWL&A 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 Distributor
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 and the Distributor agrees to make shares of the
Designated Port-
folio(s) available for purchase by GWL&A and the Account at the
applicable net asset value
per share on each Business Day. Notwithstanding the foregoing, the
Board of Directors of
the Fund (hereinafter the "Board") may refuse to sell shares of any
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 Distributor represents that Fund shares will only be
sold to insurance
company separate accounts funding variable annuities and variable
life insurance products
unless and until it obtains an order for an amendment to the Mixed
and Shared Funding
Exemptive Order granting exemptions from the provisions of sections
9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder to the extent
necessary to permit shares of the Designated Portfolio(s) to be
sold to and held by certain
plans established under Sections 401(a), 403(a) and (b), 408(a),
(b) and (k), 414(d), 457(b)
or 501(c)(18) of the Internal Revenue Code ("Qualified Plans") and
the Distributor will not
sell shares of the Designated Portfolio(s) to any other
Participating Insurance Company,
separate account or any Qualified Plan unless an agreement
containing provisions in all
material respects substantially the same as Sections 2.1, 3.5, 3.6,
3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. For purposes of this Section 1.4, GWL&A
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 Distributor
receives notice of any such
request for redemption by 10:00 A.M. Eastern time on the next
following Business Day. The
Adviser will cause the Designated Portfolio(s) to pay and transmit
the proceeds of
redemptions of Fund shares as follows: (i) on the next Business
Day after the redemption
order is received by GWL&A if the Distributor receives notice of
the redemption prior to
9:00 a.m. Eastern time on such Business Day; and (ii) on the second
Business Day after the
redemption order is received by GWL&A if the Distributor receives
notice of the
redemption after 9:00 a.m. Eastern time but before 10:00 a.m.
Eastern time; provided the
Fund provides the net asset value per share to GWL&A as required in
Section 1.9 of this
Agreement. Notwithstanding the foregoing, the Advisor may elect in
good faith to effect
redemptions over a longer period of time to the extent permitted
under the 1940 Act
without liability hereunder on the part of the Fund, the Adviser or
the Distributor. Payment
shall be in federal funds transmitted by wire and/or a credit for
any shares purchased the
same day as the redemption.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.8. The Distributor shall cause the Fund to furnish same day
notice (by wire or
telephone, followed by written confirmation) to GWL&A of any
income, dividends or capital
gain distributions payable on the Designated Portfolio(s)' shares
(rate and reinvest price).
GWL&A hereby elects to receive all such income dividends and
capital gain distributions
as are payable on the Designated Portfolio(s) shares in additional
shares of that Designated
Portfolio. GWL&A reserves the right to revoke this election and to
receive all such income
dividends and capital gain distributions in cash. The Distributor
shall cause the Fund to
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.9. The Adviser shall make the net asset value ("NAV") per
share for each
Designated Portfolio available to GWL&A on each Business Day as
soon as reasonably
practical after the NAV per share is calculated and shall use all
reasonable efforts to make
such NAV per share available by 7:00 p.m. Eastern time. In the
event of a material error
in the computation of a Designated Portfolio's NAV per share or any
dividend or capital
gain distribution (each a "pricing error"), the Adviser shall
immediately notify GWL&A as
soon as possible after discovery of the error. Such notification
may be verbal, but shall be
confirmed promptly in writing in accordance with Article XI of this
Agreement. For the
purposes of this section 1.9, a "material error" shall mean a
pricing error that gives rise to
the need to take retroactive corrective action under the Fund's
then current pricing error
correction policy (the "Policy"). Adviser represents that the
Board of Directors of the Fund
has adopted a Policy which governs the actions to be taken by the
Fund and the Adviser in
the event of a pricing error. The terms of that Policy provide
that a pricing error is to be
corrected as follows: (a) if the pricing error results in a
difference between the erroneous
NAV and the correct NAV of less than $0.01 per share (a "full
penny," not as a result of a
rounding error), then non-corrective action need be taken; (b) if
the pricing error results in
a difference between the erroneous NAV and the correct NAV equal to
or greater than
$0.01 per share (again, a "full penny"), but less than one half of
one percent of the
Designated Portfolio's NAV at the time of the error, then the
Adviser is required to make
the Fund "whole"; however, no adjustments need be made to
shareholder transactions
(including Contractowners); and (c) if the pricing error results in
a difference between the
erroneous NAV and the correct NAV equal to or greater than $0.01
per share and greater
than one half of one percent of the Designated Portfolio's NAV at
the time of the error,
then the Adviser is required to reimburse the Designated Portfolio
for any loss and
shareholder transactions may be reprocessed. If any such
reprocessing causes GWL&A to
correct Contractowner accounts, Adviser shall reimburse GWL&A for
its reasonable out-of-
pocket cost for adjustments made in connection with making
corrections to Contractowner
accounts in accordance with the provisions of Schedule E. If
Contractowners have received
amounts of $500 or more in excess of the amounts to which they
otherwise would have been
entitled prior to an adjustment for an error, GWL&A and Schwab,
when requested by the
Adviser of the Fund, will make a good faith attempt to collect such
excess amounts from the
Contractowners. Any overpayments that have not yet been paid to
Contractowners will be
remitted by GWL&A or Schwab upon notification by the Adviser of
such overpayment. In
no event shall Schwab or GWL&A be liable to Contractowners for any
such adjustments or
underpayment amounts.
The Parties acknowledge that the standards set forth in
Section 1.9 are consistent with
the Parties' understanding of the views expressed by the staff of
the Securities and Exchange
Commission ("SEC") as of the date of this Agreement. In the event
the views of the SEC
staff are later modified or superseded by the SEC or judicial
interpretation, or if the Board
of Directors determines in good faith that another practice is
permissible, the Board of Directors may amend
such Policy (or adopt
another policy) without prior approval of any party to this
Agreement. The Adviser agrees
to respond to any due diligence inquiry by Schwab or GWL&A
regarding whether or not
there have been any changes to the Fund's pricing error Policy.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
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 Distributor and Adviser each represent and warrant
that Designated
Portfolio(s) shares sold pursuant to this Agreement shall be
registered under the 1933 Act,
duly authorized for issuance and sold in compliance with all
applicable federal securities laws
including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund
is and shall remain registered under the 1940 Act. The Adviser
cause the Fund's registration
statement to be amended for its shares under the 1933 Act and the
1940 Act from time to
time as required in order to effect the continuous offering of its
shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the
Adviser agrees to cause the
Fund to comply with applicable provisions and SEC staff
interpretations of the 1940 Act to
assure that the investment advisory or management fees paid by the
Fund are in accordance
with the requirements of the 1940 Act. To the extent that the Fund
decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes
to have its Board, a
majority of whom are not interested persons of the Fund, formulate
and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Adviser represents and warrants that it will
cooperate with GWL&A to
make every reasonable effort to cause that the investment policies,
fees and expenses of the
Designated Portfolio(s) to be in compliance with the requirements
under insurance and
other applicable laws of the State of Colorado to the extent GWL&A
notifies the Adviser
of any such requirements. The Adviser shall register and qualify
the shares of the Fund for
sale in accordance with the laws of the various states if and to
the extent required by
applicable law.
2.5. The Adviser represents and warrants that the Fund is
lawfully organized and
validly existing under the laws of the State of Maryland and that
it does and will comply in
all material respects with the 1940 Act.
2.6. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with any applicable state and
federal securities laws.
2.7. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with any
applicable state and federal
securities laws.
2.8. The Adviser represents and warrants that all of its
officers, employees, and
other individuals or entities dealing with the money and/or
securities of the Designated
Portfolio(s) 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 cover-
age required by Rule 17g-1 under 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.
2.9. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Adviser will provide GWL&A with as much advance
notice as is
reasonably practicable of any material change affecting the
Designated Portfolio(s)
(including, but not limited to, any material change in the
registration statement or prospectus
affecting the Designated Portfolio(s)) and any proxy solicitation
affecting the Designated
Portfolio(s) and consult with GWL&A in order to implement any such
change in an orderly
manner, recognizing the expenses of changes and attempting to
minimize such expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Adviser agrees to share equitably in expenses
incurred by GWL&A as a
result of actions taken by the Fund, consistent with the allocation
of expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
and the Adviser immediately upon having a reasonable basis for
believing that the Contracts
have ceased to be so treated or that they might not be so treated
in the future. In addition,
GWL&A represents and warrants that the Account is a "segregated
asset account" and that
interests in the Account are offered exclusively through the
purchase of or transfer into a
"variable contract" within the meaning of such terms under Section
817 of the Code and the
regulations thereunder. GWL&A will use every effort to continue to
meet such definitional
requirements, and it will notify Schwab and the Adviser immediately
upon having a
reasonable basis for believing that such requirements have ceased
to be met or that they
might not be met in the future.
2.12.GWL&A covenants and agrees that all orders transmitted by
it hereunder on any Business Day will be based upon instructions
that it received fro Contractowners in proper form prior to the
close of trading on the New York Stock Exchange on the previous
Business Day. GWL&A shall time stamp all orders or otherwise
maintain records that will enable GWL&A to demonstrate compliance
with this section.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor shall provide GWL&A
and Schwab with as
many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A
and Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract) with
expenses to be borne in
accordance with Schedule E hereof. If requested by GWL&A in lieu
thereof, the
Distributor shall provide such documentation (including a
camera-ready copy and computer
diskette of the current prospectus for the Designated Portfolio(s))
and other assistance as
is reasonably necessary in order for GWL&A once each year (or more
frequently if the
prospectuses for the Designated Portfolio(s) are amended) to have
the prospectus for the
Contracts and the Fund's prospectus for the Designated Portfolio(s)
printed together in one
document. The Distributor agrees that the prospectuses (but not the
SAI) (and semi-annual
and annual reports) for the Designated Portfolio(s) will describe
only the Designated
Portfolio(s) and will not name or describe any other portfolios or
series that may be in the
Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Distributor shall provide GWL&A with copies of the Fund's SAI or
documentation thereof
for the Designated Portfolio(s) in such quantities, with expenses
to be borne in accordance
with Schedule E hereof, as GWL&A may reasonably require to permit
timely distribution
thereof to Contractowners. The Distributor shall also provide SAIs
to any Contractowner
or prospective owner who requests such SAI from the Fund (although
it is anticipated that
such requests will be made to GWL&A or Schwab).
3.3. The Distributor shall provide GWL&A and Schwab with
copies of the Fund's
proxy material, reports to stockholders and other communications to
stockholders for the
Designated Portfolio(s) in such quantity, with expenses to be borne
in accordance with
Schedule E hereof, as GWL&A may reasonably require to permit timely
distribution thereof
to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab is
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). (All
references hereinafter to "prospectus" whether in respect of
Contracts or Fund shares, shall
be deemed to include the related SAI, unless otherwise specifically
noted.) It is also
understood and agreed that, except with respect to information
regarding the Fund, the
Distributor, the Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the
Distributor or Adviser, neither the Fund, the Distributor nor
Adviser is responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges in a manner consistent
with all other separate accounts investing in the Designated
Portfolio(s). The Adviser agrees
to promptly notify GWL&A of any changes of interpretations or
amendments of the Mixed
and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders.
ARTICLE IV. Sales Material and Information
4.1. GWL&A and Schwab shall furnish, or shall cause to be
furnished, to the
Distributor or its designee, a copy of each piece of sales
literature or other promotional
material that GWL&A or Schwab, respectively, develops or proposes
to use and in which
the Fund (or a Portfolio thereof), its Adviser or one of its
sub-advisers, or the Distributor
is named in connection with the Contracts, at least ten (10)
Business Days prior to its use.
All such materials shall be directed to Dina Tantra, Distributor's
advertising compliance
manager (or such other person as Distributor may designate in
writing) by mail at 4500 Main
Street, Kansas City, Missouri 64111, or by fax at (816) 340-4074.
Such materials shall be
accompanied by a request for approval or comments within a
reasonable amount of time,
which shall not be less than 10 business days from the dated
delivered to the Distributor or
such shorter period as the parties may agree from time to time.
GWL&A or Schwab agrees
to use reasonable efforts to notify Distributor's advertising
compliance manager of the
delivery of such materials (which includes leaving a voice mail
message). If the Distributor
fails to respond within the time period set forth in the request
for review, GWL&A or
Schwab may use such material as submitted without further approval
by Distributor. If
subsequent to approval by Distributor (or the expiration of the
time period set forth in the
request for approval), Distributor reasonably determines any such
material is or has become
inaccurate, misleading or otherwise inappropriate, it may request
that the GWL&A or
Schwab modify such advertising and sales literature, which GWL&A or
Schwab will do at
the next reprinting of any such materials. If Distributor
determines that such material
should be modified immediately, Distributor shall notify GWL&A or
Schwab of such fact
and GWL&A or Schwab shall accommodate Distributor's reasonable
requests. In such
instances, Distributor shall pay GWL&A or Schwab's reasonable
out-of-pocket expenses in
reprinting any such advertising and sales materials.
Notwithstanding anything contained
herein, GWL&A or Schwab shall be responsible for the compliance of
all advertising and
sales literature prepared by GWL&A or Schwab with all applicable
federal, state and NASD
requirements.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of or concerning the Fund
or the Designated
Portfolio(s) 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 sales literature or other promotional material
approved by the Distributor,
except with the permission of the Distributor.
4.3. The Distributor shall furnish, or shall cause to be
furnished, to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects to such use
within five (5) Business Days after receipt of such material.
4.4. Neither the Distributor nor the Adviser shall give any
information or make any
representations on behalf of GWL&A or concerning GWL&A, 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 sales literature
or other promotional
material approved by GWL&A or its designee, except with the
permission of GWL&A.
4.5. GWL&A, the Distributor and the Adviser shall not give any
information or
make any representations on behalf of or concerning Schwab, or use
Schwab's name except
with the permission of Schwab.
4.6. The Distributor will provide to GWL&A and Schwab at least
one complete
copy of all registration statements, prospectuses, sales literature
and other promotional
materials, applications for exemptions, requests for no-action
letters, and all amendments
to any of the above, that relate to the Designated Portfolio(s) and
that are relevant to this
Agreement, contemporaneously with or as promptly as practical after
the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses and all amendments to any
of the above, that relate
to the Contracts or the Account and that are relevant to this
Agreement, contemporaneously
with or as promptly as practical after the filing of such
document(s) with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and/or other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and
prospectuses, SAIs, shareholder reports, and proxy materials and
any other material
constituting sales literature or advertising under the NASD rules,
the 1933 Act or the 1940
Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund, the Adviser and the Distributor shall pay no
fee or other compen-
sation to GWL&A under this Agreement, and GWL&A shall pay no fee or
other
compensation to the Fund, the Adviser, or the Distributor under
this Agreement, although
the parties hereto will bear certain expenses in accordance with
Schedule E, Articles III,
V, and other provisions of this Agreement.
5.2. All expenses incident to performance by the Fund, the
Distributor and the
Adviser under this Agreement shall be paid by the appropriate
party, as further provided
in Schedule E. The Adviser shall see to it that all shares of the
Designated Portfolio(s) are
registered and authorized for issuance in accordance with
applicable federal law and, if and
to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Distributor acknowledges that a principal feature of
the Contracts is the
Contractowner's ability to choose from a number of unaffiliated
mutual funds (and portfolios
or series thereof), including the Designated Portfolio(s) and the
Unaffiliated Funds, and to
transfer the Contract's cash value between funds and portfolios.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) held in the Account with respect to
Contracts sold by Schwab. This
monthly Administrative Service Fee is due and payable within thirty
(30) days following the
last day of the month to which it relates.
ARTICLE VI. Diversification and Qualification
6.1. The Distributor and the Adviser represent and
warrant that the
Fund will at all times sell its shares and invest its assets in
such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code,
and the regulations issued
thereunder. Without limiting the scope of the foregoing, the
Adviser represents and warrants that the Fund and each Designated
Portfolio thereof will at
all times comply with Section 817(h) of the Code and Treasury
Regulation Section 1.817-5, as
amended from time to time, and any Treasury interpretations
thereof, relating to the diversi-
fication requirements for variable annuity, endowment, or life
insurance contracts and any
amendments or other modifications or successor provisions to such
Section or Regulations.
The Distributor agrees that shares of the Designated Portfolio(s)
will be sold only to
Participating Insurance Companies and their separate accounts and
certain Qualified Plans
(to the extent permitted under the Mixed and Shared Funding
Exemptive Order).
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Adviser represents and warrants that the Fund and
each Designated
Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of
the Code, and that each Designated Portfolio will maintain such
qualification (under
Subchapter M or any successor or similar provisions) as long as
this Agreement is in effect.
6.4. The Distributor or the Adviser will notify GWL&A
immediately upon having
a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or anticipates that it will not so comply in the
future.
6.5. Without in any way limiting the effect of Sections 8.3
and 8.4 hereof and with-
out in any way limiting or restricting any other remedies available
to GWL&A or Schwab,
the Adviser or Distributor will pay all costs associated with or
arising out of any failure, or
any anticipated or reasonably foreseeable failure, of the Fund or
any Designated Portfolio
to comply with Sections 6.1, 6.2, or 6.3 hereof, including all
costs associated with reasonable
and appropriate corrections or responses to any such failure; such
costs may include, but are
not limited to, the costs involved in creating, organizing, and
registering a new investment
company as a funding medium for the Contracts pursuant to the
mutual agreement of the
Adviser, GWL&A and Schwab, 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 and other advisors to GWL&A and any federal income
taxes or tax
penalties and interest thereon (or "toll charges" or exactments or
amounts paid in
settlement) incurred by GWL&A with respect to itself or owners of
its Contracts in connec-
tion with any such failure or anticipated or reasonably foreseeable
failure.
6.6. The Adviser at its expense shall provide GWL&A or its
designee with reports
demonstrating the Designated Portfolios' compliance with the
aforesaid Section 817(h) diver-
sification and Subchapter M qualification requirements, at the
times provided for and
substantially in the form attached hereto as Schedule D and
incorporated herein by
reference; provided, however, that providing such reports does not
relieve the Fund of its
responsibility for such compliance or of its liability for any
non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or to any Contractowner that any Designated Portfolio
has failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund or the Adviser
as a result of such a failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or
potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the
Adviser resulting from such failure, including, without
limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the
IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund and the Adviser (together
with any supporting
information or analysis) within at least two (2) business days
prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the
Fund and the Adviser shall reasonably request (including,
without limitation, by
permitting the Fund and the Adviser to review the relevant
books and records of
GWL&A) in order to facilitate review by the Fund and the
Adviser of any written
submissions provided to it or its assessment of the validity
or amount of any claim
against it arising from such failure or alleged failure;
(f) GWL&A shall not, with respect to any claim of the IRS or
any Contractowner
that would give rise to a claim against the Fund or the
Adviser, (i) compromise or
settle any claim, (ii) accept any adjustment on audit, or
(iii) forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund or
the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A shall
not be required to appeal any adverse judicial decision unless
the Fund or the
Adviser shall have provided an opinion of independent counsel
to the effect that a
reasonable basis exists for taking such appeal; and further
provided that the Fund or
the Adviser shall bear the costs and expenses, including
reasonable attorney's fees,
incurred by GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Designated Portfolio are being
managed; (e) a difference in voting instructions given by variable
annuity contract and
variable life insurance contract owners or by contract owners of
different Participating
Insurance Companies; or (f) a decision by a Participating Insurance
Company to disregard
the voting instructions of contract owners. The Board shall
promptly inform GWL&A if it
determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
Contractowner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners. From time
to time, the Distributor
will identify in writing to GWL&A any information related to
GWL&A's Contractowners it
requires from GWL&A in order for the Board to fulfill its
responsibilities required by the
Mixed and Shared Funding Order. GWL&A agrees to provide such
information within a
reasonable time, as set forth in the information request.
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
Designated Portfolios (the "Independent Directors"), that a
material irreconcilable conflict
exists, GWL&A and other Participating Insurance Companies shall, at
their expense and to
the extent reasonably practicable (as determined by a majority of
the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 Distributor and the Fund
shall continue to accept
and implement orders by GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A 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 or the completion
of the termination and withdrawal of the Account's investment in
the Designated
Portfolio(s), whichever occurs first, the Distributor and the Fund
shall continue to accept and
implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their respective directors,
officers, employees and
affiliates and each person, if any, who controls the Fund, the
Distributor or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims,
expenses, damages, liabilities
(including amounts paid in settlement with the written consent of
GWL&A) or litigation
(including reasonable legal and other expenses) to which the
Indemnified Parties may
become subject under any statute or regulation, at common law or
otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue
statements of any material fact contained in the
registration statement or pro-
spectus covering the Contracts or contained in the
Contracts or sales literature
or other promotional material for the Contracts (or any
amendment or
supplement to any of the foregoing), or arise out of or
are based upon the
omission or the alleged omission to state therein a
material fact required to
be stated therein or necessary to make the statements
therein not misleading,
provided that this Agreement to indemnify shall not apply
as to any
Indemnified Party: (1) 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 GWL&A or Schwab by or on behalf
of the Adviser,
Distributor or Fund for use in the registration statement
or prospectus for the
Contracts or in the Contracts or sales literature or
other promotional material
(or any amendment or supplement thereto) or otherwise for
use in connection
with the sale of the Contracts or Fund shares; or (2) to
the extent that such
liability arises as a result of the conduct of any
indemnified party; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement, pro-
spectus or sales literature or other promotional material
of the Fund not sup-
plied by GWL&A or persons under its control) or wrongful
conduct of
GWL&A 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 or
other promotional material of the Fund, or any amendment
thereof or
supplement thereto, or the omission or alleged omission
to state therein a
material fact required to be stated therein or necessary
to make the
statements therein not misleading, if such a statement or
omission was made
in reliance upon and in conformity with information
furnished in writing to the
Fund by or on behalf of GWL&A for the purpose of
inclusion in such
registration statement, prospectus, or sales literature
or other promotional
material; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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, the
Distributor and the Adviser and each of their respective directors,
officers, employees and
affiliates and each person, if any, who controls the Fund, the
Distributor or Adviser within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for
purposes of this Section 8.2) against any and all losses, claims,
expenses, damages and liabili-
ties (including amounts paid in settlement with the written consent
of Schwab) or litigation
(including reasonable legal and other expenses), to which the
Indemnified Parties may
become subject under any statute or regulation, at common law or
otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement, prospectus or sales literature or
other promotional
material of the Fund prepared by the Distributor or
Adviser on behalf of the
Fund nor provided in writing to Schwab, or approved in
writing, by or on
behalf of the Fund, the Distributor 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 or other
promotional material prepared by Schwab 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: (1) 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 GWL&A
or Schwab by or
on behalf of the Adviser, the Distributor or the Fund or
to Schwab by
GWL&A for use in the registration statement or prospectus
for the Contracts
or in the Contracts or sales literature or other
promotional material (or any
amendment or supplement thereto) or otherwise for use in
connection with
the sale of the Contracts, or (2) to the extent such
liability arises as a result
of the conduct of any Indemnified Party; 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 or other promotional
material 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, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their respective directors, officers, employees
and affiliates and each
person, if any, who controls GWL&A 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
reasonable legal and other
expenses) to which the Indemnified Parties may become subject under
any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are
related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or sales literature or other promotional
material of the Fund
prepared by the Distributor or the Adviser on behalf 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: (1) if such statement or
omission or such alleged
statement or omission was made in reliance upon and in
conformity with
information furnished in writing to the Adviser, the
Distributor or the Fund
by or on behalf of GWL&A or Schwab for use in the
registration statement
or prospectus for the Fund or in sales literature or
other promotional material
(or any amendment or supplement thereto) or otherwise for
use in connection
with the sale of the Contracts or the Fund shares, or (2)
or to the extent such
liability arises as a result of the conduct of any
Indemnified Party; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, or sales literature or other promotional
material for the Contracts
not supplied by the Adviser or persons under its control)
or wrongful conduct
of the Fund or the Adviser or persons under their
control, with respect to the
sale or distribution of 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 or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon and in conformity with information
furnished in writing to
GWL&A or Schwab by or on behalf of the Adviser or the
Fund for the
purpose of inclusion in such registration statement,
prospectus, or sales
literature or other promotional material; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the
services and furnish the materials under the terms of
this Agreement (in-
cluding a failure, whether unintentional or in good faith
or otherwise, to com-
ply 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 Distributor or the Adviser in this
Agreement or arise
out of or result from any other material breach of this
Agreement by the
Adviser, the Distributor or the Fund; or
(vi) arise out of or result from the incorrect calculation or
reporting of the daily
net asset value per share or dividend or capital gain
distribution rate;
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, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 Distributor
8.4(a).The Distributor agrees to indemnify and hold harmless
GWL&A and
Schwab and each of their respective directors, officers, employees
and affiliates and each
person, if any, who controls GWL&A 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 Distributor) or litigation
(including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under
any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, 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 sales literature or other promotional
material of the Fund
prepared by the Adviser or Distributor on behalf of the
Fund (or any amend-
ment 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: (1) if such statement or omission
or such alleged
statement or omission was made in reliance upon and in
conformity with
information furnished in writing to the Adviser, the
Distributor or Fund by or
on behalf of GWL&A or Schwab for use in the registration
statement or
prospectus for the Fund or in sales literature or other
promotional material
(or any amendment or supplement thereto) or otherwise for
use in connection
with the sale of the Contracts or Fund shares, or (2) or
to the extent such
liability arises as a result of the conduct of any
Indemnified Party; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, sales literature or other promotional
material for the Contracts
not supplied by the Distributor or persons under its
control) or wrongful
conduct of the Fund, the Distributor or Adviser or
persons under their
control, with respect to the sale or distribution of Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
sales literature or other
promotional material covering the Contracts, or any
amendment thereof or
supplement thereto, or the omission or alleged omission
to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon and in conformity with information
furnished in writing to
GWL&A or Schwab by or on behalf of the Adviser, the
Distributor or Fund
for the purpose of inclusion in such registration
statement, prospectus, or sales
literature or other promotional material; or
(iv) arise as a result of any failure by the Fund or the
Distributor to provide the
services and furnish the materials under the terms of
this Agreement
(including a failure, whether unintentional or in good
faith or otherwise, to
comply with the diversification and other qualification
requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by Adviser or Distributor in this Agreement
or arise out of or
result from any other material breach of this Agreement
by the Fund, Adviser
or Distributor; or
(vi) arise out of or result from the incorrect calculation or
reporting of the daily
net asset value per share or dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b).The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.4(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.4(d)GWL&A and Schwab agree to promptly notify the
Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors
in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under
and in accordance with the laws of the State of Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund, Distributor or Adviser in
the event that formal
administrative proceedings are instituted against GWL&A
or Schwab by the
NASD, the SEC, the Insurance Commissioner or like
official of any state or
any other regulatory body regarding GWL&A's or Schwab's
duties under this
Agreement or related to the sale of the Contracts, the
operation of any
Account, or the purchase of the Fund shares, if, in each
case, the Fund,
Distributor or Adviser reasonably determines in its sole
judgment exercised in
good faith, that any such administrative proceedings will
have a material
adverse effect upon the ability of GWL&A or Schwab to
perform its
obligations under this Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
the Adviser by the NASD, the SEC, or any state securities
or insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or the Adviser to perform
their obligations under
this Agreement; or
(f) at the option of GWL&A by written notice to the
Fund, the Distributor
or the Adviser with respect to any Designated Portfolio
if GWL&A reasonably
believes that the Designated Portfolio will fail to meet
the Section 817(h)
diversification requirements or Subchapter M
qualifications specified in Article
VI hereof; or
(g) at the option of either the Fund, the Distributor or
the Adviser, if (i) the
Fund, Distributor or Adviser determines, in its sole
judgment reasonably
exercised in good faith, that either GWL&A or Schwab has
suffered a
material adverse change in their 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 GWL&A's
or Schwab's ability
to perform its obligations under this Agreement, (ii) the
Fund, the Distributor
or the Adviser notifies GWL&A or Schwab, as appropriate,
of that determina-
tion and its intent to terminate this Agreement, and
(iii) after considering the
actions taken by GWL&A or Schwab and any other changes in
circumstances
since the giving of such a notice, the determination of
the Fund, the
Distributor or the 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 GWL&A or Schwab, if (i)
GWL&A or Schwab,
respectively, shall determine, in its sole judgment
reasonably exercised in good
faith, that either the Fund, the Distributor 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, the
Distributor's or the
Adviser's ability to perform its obligations under this
Agreement, (ii) GWL&A
or Schwab notifies the Adviser of that determination and
its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the
Fund, the Distributor or the Adviser and any other
changes in circumstances
since the giving of such a notice, the determination of
GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, and the
Distributor shall, at the option
of GWL&A or Schwab, continue to cause the Fund to make available
additional shares of
the Designated Portfolio(s) pursuant to the terms and conditions of
this Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in
the Designated
Portfolio(s), redeem investments in the Designated Portfolio(s)
and/or invest in the
Designated Portfolio(s) upon the making of additional purchase
payments under the Existing
Contracts. The parties agree that this Section 10.3 shall not
apply to any terminations under
Article VII and the effect of such Article VII terminations shall
be governed by Article VII
of this Agreement.
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, provided, however, that Adviser's
obligation to make the administrative services fee payment under
Section 5.6 hereof shall
continue only if (i) Schwab continues to provide the
administrative services
contemplated by Section 5.5; and (ii) the Adviser or an affiliate
of Adviser continues to serve as the investment adviser to a
Designated Portfolio.
10.5.Survival of Agreement. A termination by Schwab shall
terminate this
Agreement only as to Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
TCI Portfolios, Inc.
P.O. Box 419385
Kansas City, MO 64141-6385
Attention: General Counsel
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Investors Research Corporation
4500 Main Street
Kansas City, MO 64111
Attention: General Counsel
If to the Distributor:
Twentieth Century Securities, Inc.
4500 Main Street
Kansas City, MO 64111
Attention: General Counsel
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado Insurance
Commissioner with any
information or reports in connection with services provided under
this Agreement which such
Commissioner may reasonably request in order to ascertain whether
the variable annuity
operations of GWL&A are being conducted in a manner consistent with
the Colorado
Variable Annuity Regulations and any other applicable law or
regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, may be settled by arbitration if mutually agreed to
by the relevant parties
in a forum jointly selected by the relevant parties (but if
applicable law requires some other
forum, then such other forum) in accordance with the Commercial
Arbitration Rules of the
American Arbitration Association, and judgment upon the award
rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.No provision of this Agreement may be deemed or construed
to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Adviser, the
Distributor and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
TCI PORTFOLIOS, INC.
By its authorized officer,
By:/s/ William M. Lyons
Title: Executive Vice President
Date: October 23, 1996
INVESTORS RESEARCH CORPORATION
By its authorized officer,
By:/s/ William M. Lyons
Title: Executive Vice President
Date: October 23, 1996
TWENTIETH CENTURY SECURITIES, INC.
By its authorized officer,
By:/s/ William M. Lyons
Title: Executive Vice President
Date: October 23, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
TCI Growth
TCI International
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.00% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 30 (thirty) days
after the last day of the month to which such payment relates.
C. The Distributor will calculate and Schwab will confirm on a
daily basis for each
Designated Portfolio 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.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
the Fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
requirements of Section 817(h) and Subchapter M under the Internal
Revenue Code (the
"Code") and the regulations thereunder, the Adviser shall provide
within twenty (20)
Business Days of the close of the calendar quarter a report to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
Investors Research Corporation, the investment adviser for TCI
Growth and TCI
International (the "Funds"), hereby notifies you that, based on
internal compliance testing
performed as of the end of the calendar quarter ended , 19
, the Funds were in
compliance with all requirements of Section 817(h) and Subchapter
M of the Internal
Revenue Code (the "Code") and the regulations thereunder as
required in the Fund
Participation Agreement among Great-West Life & Annuity Insurance
Company, Charles
Schwab & Co., Inc. and Investors Research Corporation,
other than the
exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
Investors Research Corporation
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Distributor and/or Adviser, GWL&A and Schwab will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. With respect to documents
that contain materials related to the Designated Portfolio(s) and
portfolios of other issuers and for which Adviser is indicated as
the party responsible for the expense, costs shall be allocated to
the Adviser according to the number of pages of the Fund's portion
of such documents as compared to the total number of pages of the
document.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Adviser
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Distributor
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Adviser
Distributor and GWL&A
Distributor and GWL&A
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Distributor
GWL&A
Distributor
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing (one copy to be provided)
Distributor
Distributor
Distribution and copying
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Adviser
Adviser
Distribution (including
labor) if proxy required
by Law
GWL&A
Adviser
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Distributor
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Adviser
Schwab
Distributor
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Distributor
GWL&A
Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Adviser
Cost of administrative work to correct error
GWL&A
Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Distributor
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 35
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 40
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 44
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 45
SCHEDULE C Administrative Services . . . . . . . . . . . . . 46
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 47
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 50
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
VAN ECK WORLDWIDE INSURANCE TRUST
VAN ECK SECURITIES CORPORATION,
VAN ECK ASSOCIATES CORPORATION
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
VAN ECK WORLDWIDE INSURANCE, a business trust organized under the
laws of
Massachusetts (hereinafter the "Fund"); VAN ECK ASSOCIATES
CORPORATION
(hereinafter the "Adviser"), a corporation organized under the laws
of Delaware; VAN ECK
SECURITIES CORPORATION (the "Distributor"), a corporation organized
under the laws
of Delaware; and CHARLES SCHWAB & 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, including GWL&A,
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 September 19, 1990 (File
No. 811-5083), 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-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A 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 attached hereto and incorporated
herein by reference,
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
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
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
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any 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 will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its designee of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its designee of the requests for redemption. 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, GWL&A
shall be the designee of
the Fund for receipt of requests for redemption and receipt by such
designee shall constitute
receipt by the Fund, provided that the Fund receives notice of any
such request for
redemption by 10:00 A.M. Eastern time on the next following
Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in federal
funds transmitted by wire
and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A 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. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall promptly
notify GWL&A as soon as possible after discovery of the error.
Such notification may be
verbal, but shall be confirmed promptly in writing in accordance
with Article XI of this
Agreement. A pricing error shall be corrected as follows: (a) if
the pricing error results in
a difference between the erroneous NAV and the correct NAV of less
than $0.01 per share,
then no corrective action need be taken; (b) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share,
but less than 1/2 of 1% of the Designated Portfolio's NAV at the
time of the error, then the
Adviser shall reimburse the Designated Portfolio for any loss,
after taking into consideration
any positive effect of such error; however, no adjustments to
Contractowner accounts need
be made; and (c) if the pricing error results in a difference
between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the
Designated Portfolio's NAV at
the time of the error, then the Adviser shall reimburse the
Designated Portfolio for any loss
(without taking into consideration any positive effect of such
error) and shall reimburse
GWL&A for the costs of adjustments made to correct Contractowner
accounts in
accordance with the provisions of Schedule E. If an adjustment is
necessary to correct a
material error which has caused Contractowners to receive less than
the amount to which
they are entitled, the number of shares of the applicable
sub-account of such Contractowners
will be adjusted and the amount of any underpayments shall be
credited by the Fund or the
Adviser to GWL&A for crediting of such amounts to the applicable
Contractowners
accounts. Upon notification by the Adviser of any overpayment due
to a material error,
GWL&A or Schwab, as the case may be, shall promptly remit to
Adviser any overpayment
that has not been paid by federal funds wire transfer to
Contractowners; however, Adviser
acknowledges that Schwab and GWL&A do not intend to seek additional
payments from
any Contractowner who, because of a pricing error, may have
underpaid for units of interest
credited to his/her account. In no event shall Schwab or GWL&A be
liable to
Contractowners for any such adjustments or underpayment amounts.
A pricing error within
categories (b) or (c) above shall be deemed to be "materially
incorrect" or constitute a
"material error" for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under 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 the terms of this
Agreement and all applicable federal and state laws and that the
sale of the Contracts shall
comply in all respects with state insurance suitability
requirements. GWL&A further repre-
sents and warrants that it is an insurance company duly organized
and in good standing
under applicable law and that it has legally and validly
established the Account prior to any
issuance or sale of units thereof as a segregated asset account
under Section 10-7-401, et. seq.
of the Colorado 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(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state, as disclosed in writing to
the Fund by GWL&A or
of which the Fund has actual knowledge, to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with all
state and federal securities
laws and all state insurance laws specifically designated by GWL&A
in writing. The Fund
shall register and qualify the shares for sale in accordance with
the laws of the various states
if and to the extent required by applicable law. GWL&A and the
Fund will endeavor to
mutually cooperate with respect to the implementation of any
modifications necessitated by
any change in state insurance laws, regulations or interpretations
of the foregoing that affect
the Designated Portfolio(s) (a "Law Change"), and to keep each
other informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that, except in those circumstances where the Fund has
advised GWL&A that its
Board of Directors has determined that implementation of a
particular Law Change is not
in the best interest of all of the Fund's shareholders with an
explanation regarding why such
action is lawful, any action required by a Law Change will be
taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the Commonwealth of Massachusetts and
that it does and will
comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of Delaware
and any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with the laws of the State of
Delaware and any applicable state and federal securities laws.
2.8. The Fund, the Distributor and the Adviser represent and
warrant that all of
their respective officers, employees, investment advisers, and
other individuals or entities
dealing with the money and/or securities of the Fund are, and shall
continue to be at all
times, covered by a blanket fidelity bond or similar coverage for
the benefit of the Fund in
an amount not less than the minimal coverage required by Rule 17g-1
under the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued
by a reputable bonding
company.
2.9. 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, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will maintain such treatment and that it will notify
Schwab, the Fund, the
Distributor and the Adviser immediately upon having a reasonable
basis for believing that
the Contracts have ceased to be so treated or that they might not
be so treated in the future.
In addition, GWL&A represents and warrants that the Account is a
"segregated asset
account" and that interests in the Account are offered exclusively
through the purchase of
or transfer into a "variable contract" within the meaning of such
terms under Section 817 of
the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet
such definitional requirements, and it will notify Schwab, the
Fund, the Distributor, and the
Adviser immediately upon having a reasonable basis for believing
that such requirements
have ceased to be met or that they might not be met in the future.
2.12 GWL&A represents and warrants that it will not purchase
Fund shares with
assets derived from plans established under Sections 401(a), 403(a)
and (b), 408(a), (b) and
(k), 414(d), 457(b) or 501(c)(18) of the Internal Revenue Code
("Qualified Plans") except
indirectly through Contracts purchased in connection with such
plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor shall provide GWL&A
and Schwab with as
many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A
and Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Distributor or Fund shall provide such documentation
(including a camera-ready
copy and computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Distributor shall provide GWL&A with copies of the
Fund's SAI or docu-
mentation thereof for the Designated Portfolio(s) in such
quantities, with expenses to be
borne in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit
timely distribution thereof to Contractowners. The Distributor
and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests
such SAI from the
Fund (although it is anticipated that such requests will be made to
GWL&A or Schwab).
3.3. The Fund and/or the Distributor shall provide GWL&A and
Schwab with
copies of the Fund's proxy material, reports to stockholders and
other communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Distributor, Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the
Distributor or Adviser, neither the Fund, the Distributor nor
Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
GWL&A reserves the right to vote Fund shares held in
any segregated
asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as agreed to by
GWL&A and the Fund. The Fund agrees to promptly notify GWL&A of any
changes of
interpretations or amendments of the Mixed and Shared Funding
Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
ARTICLE IV. Sales Material and Information
4.1. GWL&A 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
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor is named in con-
nection with the Contracts, at least ten (10) Business Days prior
to its use. No such material
shall be used if the Fund objects to such use within five (5)
Business Days after receipt of
such material. If sales literature or promotional material goes
beyond naming the Fund, a
Designated Portfolio, the Adviser, a sub-adviser, or the
Distributor, GWL&A shall obtain
from the Fund or its designee affirmative written approval to use
such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts or Fund shares 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 to
shareholders or proxy statements for the Fund, or in sales
literature or other promotional
material approved by the Fund or by the Distributor, except with
the permission of the Fund
or the Distributor.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used without the
written permission of GWL&A
or Schwab.
4.4. The Fund, the Distributor, and the Adviser shall not give
any information or
make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or
the Contracts other than the information or representations
contained in a registration state-
ment 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 material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund, the Distributor and the Adviser shall
not give any
information or make any representations on behalf of or concerning
Schwab, or use
Schwab's name except with the permission of Schwab, or except which
merely names Schwab
as administrator or the Fund's participation in a Schwab sponsored
program.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media), sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, the 1933 Act or
the 1940 Act.
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
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
under this
Agreement, and GWL&A 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 E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund, the
Adviser and the
Distributor under this Agreement shall be paid by the appropriate
party, as further provided
in Schedule E. The Fund shall see to it that all shares of the
Designated Portfolio(s) are
registered and authorized for issuance in accordance with
applicable federal law and, if and
to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge
that a principal fea-
ture of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated
mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund, the Distributor and the Adviser agree to cooperate with
GWL&A and Schwab
in facilitating the operation of the Account and the Contracts as
described in the prospectus
for the Contracts, including but not limited to cooperation in
facilitating transfers between
Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, 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
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. Unless prohibited by law, rule or regulation, as
compensation for the services
specified in Schedule C hereto, the Adviser agrees to pay Schwab a
monthly Administrative
Service Fee based on the percentage per annum on Schedule C hereto
applied to the
average daily value of the shares of the Designated Portfolio(s)
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, the Adviser and the Distributor represent and
warrant that the
Fund will at all times sell its shares to Participating Insurance
Companies and invest its
assets in such a manner as to ensure that the Contracts will be
treated as annuity contracts
under the Code, and the regulations issued thereunder. Without
limiting the scope of the
foregoing, the Fund, Distributor and Adviser represent and warrant
that none of them will
take any action or fail to take any action which may cause the Fund
and each Designated
Portfolio thereof not to, at all times, comply with Section 817(h)
of the Code and Treasury
Regulation Section 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 Distributor agree
that shares of the Desig-
nated Portfolio(s) will be sold only to Participating Insurance
Companies and their separate
accounts.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund and the Adviser represent and warrant that the
Fund and each
Designated Portfolio is currently qualified as a Regulated
Investment Company under
Subchapter M of the Code, and that each Designated Portfolio will
maintain such
qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund or the Adviser will notify GWL&A immediately
upon having a
reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3,
8.4 and 8.5 hereof and
without in any way limiting or restricting any other remedies
available to GWL&A or
Schwab, the Adviser or the Distributor will pay all costs
associated with or arising out of any
failure, or any anticipated or reasonably foreseeable failure, of
the Fund or any Designated
Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof,
including all costs associated with
reasonable and appropriate corrections or responses to any such
failure; such costs may
include, but are not limited to, the costs involved in creating,
organizing, and registering a
new investment company as a funding medium for the Contracts and/or
the costs of
obtaining whatever regulatory authorizations are required to
substitute shares of another
investment company for those of the failed Portfolio (including but
not limited to an order
pursuant to Section 26(b) of the 1940 Act); such costs are to
include, but are not limited to,
fees and expenses of legal counsel and other advisors to GWL&A and
any federal income
taxes or tax penalties and interest thereon (or "toll charges" or
exactments or amounts paid
in settlement) incurred by GWL&A with respect to itself or owners
of its Contracts in
connection with any such failure or anticipated or reasonably
foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying 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 D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund, the Adviser
or the Distributor as a result of such a failure or alleged
failure:
(a) GWL&A shall promptly notify the Fund, the Adviser and the
Distributor of such
assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Adviser and the
Distributor as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund, the
Adviser and the Distributor resulting from such failure,
including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund, the Distributor and the
Adviser (together with
any supporting information or analysis) within at least two
(2) business days prior to
submission;
(e) GWL&A shall provide the Fund, the Distributor and the
Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall
reasonably request
(including, without limitation, by permitting the Fund, the
Distributor and the Adviser
to review the relevant books and records of GWL&A) in order to
facilitate review
by the Fund, the Distributor and the Adviser of any written
submissions provided to
it or its assessment of the validity or amount of any claim
against it arising from such
failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund, the Distributor
and the Adviser (i)
compromise or settle any claim, (ii) accept any adjustment on
audit, or (iii) forego
any allowable administrative or judicial appeals, without the
express written consent
of the Fund, the Distributor and the Adviser, which shall not
be unreasonably
withheld; provided that, GWL&A shall not be required to appeal
any adverse judicial
decision unless the Fund, the Distributor and the Adviser
shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking
such appeal; and further provided that the Fund, the
Distributor and the Adviser
shall bear the costs and expenses, including reasonable
attorney's fees, incurred by
GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware or
reasonably should be aware to the Board. GWL&A will assist the
Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the
Board with all information reasonably necessary for the Board to
consider any issues raised.
This includes, but is not limited to, an obligation by GWL&A to
inform the Board whenever
any of the events listed in Section 7.1(a)-(f) occur as they
pertain to GWL&A (e.g., contract
owner voting instructions are to be disregarded). Such
responsibilities shall be carried out
by GWL&A with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to
any of the Designated Portfolios (the "Independent Directors"),
that a material irreconcilable
conflict exists, GWL&A and other Participating Insurance Companies
shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected 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 GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A 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 re-
quired 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 Distributor and the Fund
shall continue to accept
and implement orders by GWL&A 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 GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested
members of the Board. Until the end of the foregoing six month
period, the Fund shall
continue to accept and implement orders by GWL&A 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. GWL&A shall not be
required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do
so has been declined by
vote of a majority of Contractowners affected by the irreconcilable
material conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any
irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the
Fund and terminate this Agreement within six (6) months after the
Board informs GWL&A
in writing of the foregoing determination; provided, however, that
such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable
conflict as determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in
settlement with the written consent of GWL&A) or litigation
(including reasonable legal and
other expenses) to which the Indemnified Parties may become subject
under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages,
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 pro-
spectus or SAI covering 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 nec-
essary 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
GWL&A or Schwab by or on behalf of the Adviser,
Distributor or Fund for
use in the registration statement or prospectus for the
Contracts or in the
Contracts or sales literature (or 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, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A 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 GWL&A; or
(iv) arise as a result of any failure by GWL&A 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 GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.11 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A 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 GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A 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
GWL&A 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, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.2)
against any and all losses, claims, expenses, damages and
liabilities (including amounts paid
in settlement with the written consent of Schwab) or litigation
(including reasonable legal
and other expenses), to which the Indemnified Parties may become
subject under any statute
or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are
related to the sale or acqu-
isition of the Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund or provided in writing to
Schwab, or approved
in writing, by or on behalf of the Fund, the Distributor
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 or other
promotional material prepared by Schwab 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
Schwab by or on behalf of
the Adviser, the Distributor or Fund or to Schwab for use
in the registration
statement or prospectus for the Contracts or in the
Contracts or sales litera-
ture (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 any of the Indemnified Parties.
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), but 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, except to the
extent that Schwab 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 Schwab's 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 ex-
penses 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 GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A 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 reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or the Distributor (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 fur-
nished in writing to the Adviser, the Distributor or the
Fund by or on behalf
of GWL&A 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 the Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
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 GWL&A or Schwab by or
on behalf of the
Adviser; or
(iv) arise as a result of any failure by the Adviser to
provide the services and
furnish the materials under the terms of this Agreement
(including a failure,
whether unintentional or in good faith or otherwise, to
comply with the
diversification and other qualification requirements
specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, the Adviser or the Distributor
in this Agreement
or arise out of or result from any other material breach
of this Agreement by
the Adviser, the Fund or the Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A 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 GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A 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 reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
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), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A 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.
8.5. Indemnification by the Distributor
8.5(a).The Distributor agrees to indemnify and hold harmless
GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the
"Indemnified Parties" for purposes of this Section 8.5) against any
and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent
of the Distributor) or litigation (including reasonable legal and
other expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares
or the contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any
amendment or
supplement to any of the foregoing), or arise out of 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 fur-
nished in writing to the Adviser, the Distributor or Fund
by or on behalf of
GWL&A or Schwab for use in the registration statement or
SAI or prospectus
for the Fund or in sales literature or other promotional
material (or any
amendment or supplement) or otherwise for use in
connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI, sales literature or other promotional
material for the
Contracts not supplied by the Distributor or persons
under its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, sales literature or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon information furnished in writing to
GWL&A or Schwab by
or on behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, Adviser or Distributor in this
Agreement or arise
out of or result from any other material breach of this
Agreement by the
Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.5(b) and 8.5(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Distributor specified in Article VI hereof.
8.5(b).The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.5(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.5(d)GWL&A and Schwab agree to promptly notify the
Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors
in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under
and in accordance with the laws of the State of Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab 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 GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
Adviser by the NASD, the SEC, or any state securities or
insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or Adviser to perform their
obligations under this
Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A 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, the Distributor or
the Adviser, if (i) the
Fund or Adviser, respectively, shall determine, in their
sole judgment
reasonably exercised in good faith, that either GWL&A or
Schwab has
suffered a material adverse change in their 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
GWL&A's or Schwab's
ability to perform its obligations under this Agreement,
(ii) the Fund, the
Distributor or Adviser notifies GWL&A or Schwab, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by GWL&A or Schwab and any
other changes
in circumstances since the giving of such a notice, the
determination of the
Fund, the Distributor or Adviser shall continue to apply
on the sixtieth (60th)
day following the giving of that notice, which sixtieth
day shall be the effective
date of termination; or
(h) at the option of either GWL&A or Schwab, if (i)
GWL&A or Schwab,
respectively, shall determine, in its sole judgment
reasonably exercised in good
faith, that either the Fund, the Distributor 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, the
Distributor's or Adviser's
ability to perform its obligations under this Agreement,
(ii) GWL&A or
Schwab notifies the Fund, the Distributor or Adviser, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by the Fund, the
Distributor or Adviser and any
other changes in circumstances since the giving of such
a notice, the determi-
nation of GWL&A 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 GWL&A 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 Schwab's 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
GWL&A 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; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's 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 Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1 (i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, the Adviser and
the Distributor shall,
at the option of GWL&A or Schwab, continue to make available
additional shares of the
Designated Portfolio(s) pursuant to the terms and conditions of
this Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in
the Designated
Portfolio(s), redeem investments in the Designated Portfolio(s)
and/or invest in the
Designated Portfolio(s) upon the making of additional purchase
payments under the Existing
Contracts. The parties agree that this Section 10.3 shall not
apply to any terminations under
Article I, section 1.2, or 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 in effect on the effective date of termination of this
Agreement, 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 Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months 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:
Van Eck Worldwide Insurance Trust
99 Park Avenue
New York, New York 10016
Attention: President with a copy to the General Counsel
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
If to the Adviser:
Van Eck Associates Corporation
99 Park Avenue
New York, New York 10016
Attention: President
If to the Distributor:
Van Eck Securities Corporation
99 Park Avenue
New York, New York 10016
Attention: President
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
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. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) and shall permit such authorities reasonable
access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the
transactions contemplated hereby. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado 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
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Master Trust Agreement of the Fund
and the Articles of
Incorporation of the Adviser and the Distributor and agree that the
obligations assumed by
the Fund and the Adviser pursuant to this Agreement shall be
limited in any case to the
Fund and Adviser and their respective assets and neither Schwab nor
GWL&A shall seek
satisfaction of any such obligation from the shareholders of the
Fund or the Adviser and
Distributor, the Trustees, officers, directors, employees or agents
of the Fund or Adviser, or
any of them.
12.10.The Fund, Adviser and Distributor agree that the
obligations assumed by
GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A
and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of
the GWL&A or Schwab,
the directors, officers, employees or agents of the GWL&A or
Schwab, or any of them,
except to the extent permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Distributor and
the Fund, and as between the Adviser and the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:/s/ Robert K. Shaw
Title: Vice President, Marketing and Product
Development
Date: October 25, 1996
VAN ECK WORLDWIDE INSURANCE TRUST:
By its authorized officer,
By:/s/ Thaddeus Leszczynski
Title: Secretary
Date:October 17, 1996
VAN ECK SECURITIES CORPORATION:
By its authorized officer,
By:/s/ Thaddeus Leszczynski
Title: Secretary
Date:October 17, 1996
VAN ECK ASSOCIATES CORPORATION:
By its authorized officer,
By:/s/ Thaddeus Leszczynski
Title: Secretary
Date: October 17, 1996
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/ Jeff Benton
Title: Vice President, Annuities and Life Insurance
Date: October 24, 1996
Schwab Varible Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
SCHEDULE B
Designated Portfolios
Van Eck Gold and Natural Resources Fund
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab 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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
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 to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), 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
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
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 percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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).
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Distributor and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Prospectus
Printing of combined prospectuses
GWL&A
Fund or Distributor, as applicable
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
GWL&A
Fund or Distributor, as applicable
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Product Prospectus
Printing for Inforce Clients
GWL&A
GWL&A
Printing for Prospective Clients
GWL&A
Schwab
Distribution to New and Inforce Clients
GWL&A
GWL&A
Distribution to Prospective Clients
Schwab
Schwab
Mutual Fund Prospectus Update & Distribution
If Required by Fund or Distributor
Fund or Distributor
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Product Prospectus Update & Distribution
If Required by Fund or Distributor
GWL&A
Fund or Distributor
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
Schwab
Schwab
Mutual Fund SAI
Printing
Fund or Distributor
Fund or Distributor
Distribution
GWL&A
GWL&A
Product SAI
Printing
GWL&A
GWL&A
Distribution
GWL&A
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Proxy Material for Mutual Fund:
Printing if proxy required by Law
Fund or Distributor
Fund or Distributor
Distribution (including
labor) if proxy required
by Law
GWL&A
Fund or Distributor
Printing & distribution
if required by GWL&A
GWL&A
GWL&A
Printing & distribution
if required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Mutual Fund Annual & Semi-Annual Report
Printing of combined reports
GWL&A
Fund or Distributor
Distribution
GWL&A
GWL&A and Schwab
Other communication
to New and Prospective
clients
If Required by the Fund or Distributor
Schwab
Fund or Distributor
If Required by GWL&A
Schwab
GWL&A
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
If Required by Schwab
Schwab
Schwab
Other communication to inforce
Distribution (including
labor) if required by
the Fund or Distributor
GWL&A
Fund or Distributor
If Required by GWL&A
GWL&A
GWL&A
If Required by Schwab
GWL&A
Schwab
Item
Function
Party Responsible for Coordination
Party Responsible for Expense
Errors in Share Price
calculation pursuant to Section 1.10
Cost of error to participants
GWL&A
Fund or Adviser
Cost of administrative work to correct error
GWL&A
Fund or Adviser
Operations of the Fund
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
Fund or Distributor
Fund or Adviser
Operations of the Account
Federal registration of
units of separate
account (24f-2 fees)
GWL&A
GWL&A
Independent Auditors' Consent
We consent to the use in this Pre-Effective Amendment No. 2 to the
Registration Statement of Great-West Life & Annuity Insurance
Company on Form N-4 of our report dated January 19, 1996, appearing
in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the headings "Experts" in
such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
October 28, 1996
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 5,992,295
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<TOTAL-INVEST> 12,571,723
<CASH> 81,791
<RECOVER-REINSURE> 359,673
<DEFERRED-ACQUISITION> 286,502
<TOTAL-ASSETS> 18,907,377
<POLICY-LOSSES> 11,366,247
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0
121,800
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784,958
<INVESTMENT-INCOME> 622,703
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<INCOME-TAX> 39,607
<INCOME-CONTINUING> 98,670
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