333-69647
File Nos. 811-09167
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _1_ [X]
Post-Effective Amendment No. ___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. _1_ [X]
(Check appropriate box or boxes.)
FSL SEPARATE ACCOUNT M
_________________________________________
(Exact Name of Registrant)
Fidelity Security Life Insurance Company
_________________________________________
(Name of Depositor)
3130 Broadway, Kansas City, Missouri 64111-2406
____________________________________________________________ __________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (800) 648-8624
Name and Address of Agent for Service
Leland Eugene Schmitt
Senior Vice President and Secretary
Fidelity Security Life Insurance Company
3130 Broadway
Kansas City, Missouri 64111-2406
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
4401 West Tradewinds Avenue
Suite 207
Lauderdale by the Sea, FL 33308
(954) 771-7909
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
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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.
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(Required by Rule 495)
Item No. Location
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PART A
<S> <C>
Item 1. Cover Page Cover Page
Item 2. Definitions Index of Special of Terms
Item 3. Synopsis Highlights
Item 4. Condensed Financial Information Not Applicable
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies Investment Choices,
The Company,
Other Information
Item 6. Deductions and Expenses Expenses
Item 7. General Description of Variable Annuity
Contracts The Annuity Contract
Item 8. Annuity Period Annuity Payments
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase, Contract Value
Item 11. Redemptions Surrenders
Item 12. Taxes Taxes
Item 13. Legal Proceedings. Other Information
Item 14. Table of Contents of the Statement of
Additional Information Other Information
</TABLE>
CROSS REFERENCE SHEET (CONT'D)
(Required by Rule 495)
Item No. Location
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PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents. Table of Contents
Item 17. General Information and History Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distribution
Item 21. Calculation of Performance Data Performance
Information
Item 22. Annuity Payments. Annuity Provisions
Item 23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
PART A
FIDELITY SECURITY LIFE INSURANCE COMPANY
FSL SEPARATE ACCOUNT M
FSL FLEXIBLE PREMIUM VARIABLE ANNUITY
This prospectus describes the variable annuity contract offered by Fidelity
Security Life Insurance Company (we, us, our). This is an individual deferred
variable annuity. The contract is offered as a non-qualified annuity, an
individual retirement annuity (IRA), as a tax sheltered annuity (TSA), or
pursuant to other qualified plans. This contract provides for accumulation of
contract values and annuity payments on a fixed and variable basis.
The contract has a number of investment choices (1 fixed account and 5
investment options). The fixed account is part of our general assets and
provides an investment rate guaranteed by us. The 5 investment options available
are portfolios of Investors Mark Series Fund, Inc. and Berger Institutional
Products Trust which are listed below. You can put your money in any of these
options which are offered through our separate account, the FSL Separate Account
M.
INVESTORS MARK SERIES FUND, INC.
Money Market Portfolio
Growth & Income Portfolio
Large Cap Growth Portfolio
Small Cap Equity Portfolio
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger/BIAM IPT - International Fund
Please read this Prospectus before investing. You should keep it for future
reference. It contains important information about the contract.
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information (SAI) (dated ________, 1999). The SAI has been filed with
the Securities and Exchange Commission (SEC) and is legally a part of this
prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference and other information regarding
companies that file electronically with the SEC. The Table of Contents of the
SAI is on page _ of this prospectus. For a free copy of the SAI, call us at
(800) 648-8624 or write to: Fidelity Security Life Insurance Company, Annuity
Products, 3130 Broadway, Kansas City, MO 64111-2406.
The Contracts:
* are not bank deposits.
* are not federally insured.
* are not endorsed by any bank or governmental agency.
* are not guaranteed and may be subject to loss of principle.
The SEC has not approved these contracts or determined that this prospectus is
accurate or complete. Any representation that it has is a criminal offense.
May 1, 1999
TABLE OF CONTENTS
INDEX OF SPECIAL TERMS...................................................i
HIGHLIGHTS...............................................................1
FSL SEPARATE ACCOUNT M TABLE OF FEES AND EXPENSES........................2
THE COMPANY..............................................................6
THE ANNUITY CONTRACT.....................................................6
PURCHASE.................................................................6
INVESTMENT CHOICES.......................................................7
EXPENSES................................................................11
CONTRACT VALUE..........................................................15
SURRENDERS..............................................................16
DEATH BENEFIT...........................................................17
ANNUITY PAYMENTS........................................................18
TAXES ...............................................................20
PERFORMANCE.............................................................22
OTHER INFORMATION.......................................................23
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. The page indicated here is where we believe you will find the
best explanation for the word or term. These words and terms are in italics on
the indicated page.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Income Phase
Investment Options
Non-Qualified
Qualified
HIGHLIGHTS
The variable annuity contract that we are offering is a contract between you,
the owner, and us, the insurance company. The contract provides a means for
investing on a tax-deferred basis in our fixed account and 5 investment
options. The contract is intended for retirement savings or other long-term
investment purposes and provides for a death benefit and guaranteed income
options.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. If you make a withdrawal during the accumulation phase, we may also
assess a surrender charge of up to 7%. The income phase occurs when you begin
receiving regular payments from your contract.
You can choose to receive annuity payments on a variable basis, fixed basis or
combination of both. If you choose variable payments, the amount of the variable
annuity payments will depend upon the investment performance of the investment
options you select for the income phase. If you choose fixed payments, the
amount of the fixed annuity payments are level for the payout period.
Free Look. If you cancel the contract within 10 days after receiving it (or
whatever period is required in your state), we will send your money back without
assessing a sales charge. You will receive whatever your contract is worth on
the day we receive your request. This may be more or less than your original
payment. If we are required by law to return your original payment, we will put
your money in the Money Market Portfolio during the free-look period plus 5
days.
Tax Penalty. The earnings in your contract are not taxed until you take money
out of your contract. If you take money out during the accumulation phase,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal tax penalty on those
earnings. Payments during the income phase are considered partly a return of
your original investment.
Inquiries. If you need more information, please contact us at:
FSL Insurance Company
Annuity Products
3130 Broadway
Kansas City, Missouri 64111-2406
(800)648-8624
FSL SEPARATE ACCOUNT M TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES
Surrender Charge: (as a percentage of purchase payments surrendered) (See Note 2)
Number of Complete Years Surrender Charge (See Note 3)
From Receipt of Purchase Payments Easy Pay Lump Sum
--------------------------------- -------- --------
<S> <C> <C> <C>
0-1 6% 7%
1 6 6
2 6 5
3 5 4
4 5 3
5 4 2
6 3 1
7 2 0
8 2 0
9 1 0
10 and thereafter 0 0
Transfer Fee (See Notes 4 & 5) No charge for the first 12
transfers in a contract year
during the accumulation
phase; thereafter, the fee is
$50 per transfer. There is no
charge for the 4 allowable
transfers in a contract year
during the income phase.
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES: (as a percentage of the average account value)
Mortality and Expense Risk Fees (See Note 6)
<S> <C>
Lump Sum 0.90%
Easy Pay 1.50% (0.90% if contract value exceeds $100,000)*
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES
Lump Sum 0.90%
Easy Pay 1.50% (0.90% if contract value
exceeds $100,000)*
* Once your contract value reaches a $100,000, it will be assessed the lower charge even if the contract value
is later reduced by changes in market value or withdrawals.
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT OPTION EXPENSES: (as a percentage of the average daily net assets of an investment
option)
Other
Expenses
(after Total Operating
expense Expenses (after
Management reimburse- expense
Fees ment) reimbursement)
---- ----- --------------
INVESTORS MARK SERIES FUND, INC.
(See Note 7)
<S> <C> <C> <C>
Money Market Portfolio .40% .10% .50%
Growth & Income Portfolio .80% .10% .90%
Large Cap Growth Portfolio .80% .10% .90%
Small Cap Equity Portfolio .95% .10% 1.05%
BERGER INSTITUTIONAL PRODUCTS TRUST
(See Note 8)
Berger/BIAM IPT - International Fund .00% 1.20% 1.20%
</TABLE>
EXAMPLES
There are two sets of examples below. The first set assumes your purchase
payments are Lump Sum payments or that your contract value exceeds $100,000. The
second set assumes that you are only making Easy Pay purchase payments to your
contract and that your contract value does not exceed $100,000.
These examples are designed to help you to understand the expenses in a
contract. You should not consider these to represent the actual expenses you
would pay. The actual expenses may be greater or less than those shown.
- --------------------------------------------------------------------------------
This first set of examples assumes you invested $1,000 in a contract and
allocated all of it to an investment option which earned 5% each year. It also
assumes that your purchase payments are Lump Sum payments or that your
contract value exceeded $100,000. All the expenses of the options shown above
are assumed to apply. Under these assumptions you would pay the following:
a) upon surrender at the end of each time period;
b) if the contract is not surrendered or that you decided to begin the
income phase.
<TABLE>
<CAPTION>
Time Periods
1 Year 3 Year
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INVESTORS MARK SERIES FUND, INC.
<S> <C> <C>
Money Market Portfolio a) $84.00 $95.70
b) 14.00 45.70
Growth & Income Portfolio a) 88.00 108.53
b) 18.00 58.53
Large Cap Growth Portfolio a) 88.00 108.53
b) 18.00 58.53
Small Cap Equity Portfolio a) 89.50 113.31
b) 19.50 63.31
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger/BIAM IPT - International Fund a) 91.00 118.08
b) 21.00 68.08
____________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
This second set of examples assumes that you are only making Easy Pay purchase
payments to your contract and that your contract value does not exceed $100,000.
All the expenses of the investment options shown above are assumed to apply.
Under these assumptions you would pay the following:
a) upon surrender at the end of each time period;
b) if the contract is not surrendered or that you decided to begin the
income phase.
Time Periods
1 Year 3 Year
------ ------
INVESTORS MARK SERIES FUND, INC.
<S> <C> <C>
Money Market Portfolio a) $80.00 $124.90
b) 20.00 64.90
Growth & Income Portfolio a) 84.00 137.58
b) 24.00 77.58
Large Cap Growth Portfolio a) 84.00 137.58
b) 24.00 77.58
Small Cap Equity Portfolio a) 85.50 142.31
b) 25.50 82.31
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger/BIAM IPT - International Fund a) $87.00 147.03
b) 27.00 87.03
<FN>
Notes to Table Of Fees and Expenses and Examples
1. The purpose of the Table of Fees and Expenses is to assist you in
understanding the various costs and expenses that you will incur directly
or indirectly. The Table reflects expenses of the separate account as well
as the investment options.
2. The contract provides for several circumstances under which we will waive
or reduce the surrender charge.
3. You can purchase a contract and add to it by making payments in one of two
ways:
* Lump Sum payments - any payment of $5000 or more; or
* Easy Pay payments - any payment of $50 or more but less than $5000.
4. We charge $50 per transfer during the accumulation phase for any transfers
after 12 in any contract year.
5. When you transfer contract values from one of our annuity contracts to
another, we assess an internal transfer fee of 2% of the amount
transferred.
6. The contract refers to a Product Expense Charge. This charge is equivalent
to the aggregate charges that until recently were referred to as a
Mortality and Expense Risk Charge and an Administrative Charge by many
companies issuing variable annuity contracts. Throughout this prospectus we
will refer to this charge as a Product Expense Charge.
7. Investors Mark Advisors, Inc. has voluntarily agreed to reimburse expenses
for each portfolio of Investors Mark Series Fund, Inc. for the year ended
December 31, 1998 and will continue this arrangement until April 30, 2000
so that the annual expenses do not exceed the amounts set forth above under
"Total Operating Expenses" for each portfolio. Absent such expense
reimbursement, the Total Annual Expenses for the year ended December 31,
1998 were: 2.89% for the Money Market Portfolio; 2.29% for the Small Cap
Equity Portfolio; 1.66% for the Large Cap Growth Portfolio; and 1.75% for
the Growth & Income Portfolio.
8. BBOI Worldwide LLC has voluntarily agreed to waive its advisory fee and
expects to voluntarily reimburse the Berger/BIAM IPT - International Fund
for additional expenses to the extent that normal operating expenses in any
fiscal year, including the management fee but excluding brokerage
commissions, interest, taxes and extraordinary expenses, of the Fund exceed
1.20% of the Fund's average daily net assets. If such an expense
reimbursement plan and fee waiver were not in place, the management fee for
the Fund would be .90% and the total annual expenses are estimated to be
3.83%.
9. Premium taxes are not reflected in the examples and may apply in the state
where you live.
</FN>
</TABLE>
THE COMPANY
Fidelity Security Life Insurance Company, 3130 Broadway, Kansas City, Missouri
64111-2406, is a stock life insurance company. We were originally incorporated
on January 17, 1969, as a Missouri Corporation. We are principally engaged in
the sale of life insurance and annuities. We are licensed in the District of
Columbia and all states except New York, where we are only admitted as a
reinsurer. Fidelity Security Life Insurance Company is majority owned by Richard
F. Jones (an individual).
THE ANNUITY CONTRACT
This Prospectus describes the variable annuity contract that we are offering.
An annuity is a contract between you, the owner, and us, the insurance company,
where we promise to pay you an income, in the form of annuity payments,
beginning on a designated date in the future. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. Once you
begin receiving annuity payments, your contract enters the income phase.
The contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your contract until you take
money out of your contract.
The contract is called a variable annuity because you can choose among the
investment options, and depending upon market conditions, you can make or lose
money in any of these options. If you select the variable annuity portion of the
contract, the amount of money you are able to accumulate in your contract during
the accumulation phase depends upon the investment performance of the investment
option(s) you select as well as the interest we credit to the fixed account.
You can choose to receive annuity payments on a variable basis, fixed basis or a
combination of both. If you choose variable payments, the amount of the annuity
payments you receive will depend upon the investment performance of the
investment option(s) you select for the income phase. If you select to receive
payments on a fixed basis, the payments you receive will remain level.
PURCHASE
PURCHASE PAYMENTS
A purchase payment is the money you give us to buy the contract. You can make
payments in two ways:
* as Lump Sum payments; or
* as Easy Pay payments.
A Lump Sum payment is any payment of $5,000 or more. Easy Pay payments are
designed to give you the opportunity to make regular payments to your contract.
The minimum Easy Pay payment, whether for your initial payment or a subsequent
payment, we will accept is $50. The maximum total of all purchase payments we
will accept for the contract is $500,000, without our prior consent.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you choose how we will apply your purchase
payments among the investment options. If you make additional purchase payments,
we will allocate them in the same way as your first purchase payment, unless you
tell us otherwise.
Free Look. If you change your mind about owning this contract, you can cancel it
within 10 days after receiving it (or the period required in your state, which
is shown on page 1 of your contract). When you cancel the contract within this
time period, we will not assess a sales charge. You will receive back whatever
your contract is worth on the day we receive your request. In certain states, or
if you have purchased the contract as an IRA, we may be required to give you
back your purchase payment if you decide to cancel your contract within 10 days
after receiving it (or whatever period is required in your state). If that is
the case, we will put your purchase payment in the Money Market Portfolio for 15
days before we allocate your first purchase payment to the investment option(s)
you have selected. (In some states, the period may be longer.) If we do allocate
your purchase payment to the Money Market Portfolio and you exercise your free
look right, we will return the greater of your contract value or your purchase
payments.
Once we receive your purchase payment and the necessary information, we will
issue your contract and allocate your first purchase payment within 2 business
days. If you do not give us all of the information we need, we will contact you
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit those
amounts to your contract within one business day. Our business day closes when
the New York Stock Exchange closes, usually 4:00 p.m. Eastern time.
INVESTMENT CHOICES
The contract offers you the choice of allocating purchase payments to our fixed
account or to one or more of the investment options which are listed below.
Additional investment options may be available in the future.
You should read the prospectuses for these funds carefully before investing.
Copies of these prospectuses are attached to this prospectus. Certain investment
options contained in the fund prospectuses may not be available with your
contract.
INVESTORS MARK SERIES FUND, INC.
Investors Mark Series Fund, Inc. is managed by Investors Mark Advisors, LLC
(Adviser). Investors Mark Series Fund, Inc. is a mutual fund with multiple
portfolios, four of which are available under the contract. Each portfolio has a
different investment objective. The Adviser has engaged sub-advisers to provide
investment advice for the individual portfolios. The following portfolios are
available under the contract:
* Money Market Portfolio - Standish, Ayer & Wood, Inc. is the
sub-advisor.
* Growth & Income Portfolio - Lord, Abbett & Co. is the sub-adviser.
* Large Cap Growth Portfolio - Stein Roe & Farnham, Incorporated is the
sub- adviser.
* Small Cap Equity Portfolio - Stein Roe & Farnham, Incorporated is the
sub- adviser.
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is a mutual fund with multiple portfolios,
of which only one is available under the contract. That portfolio is managed by
BBOI Worldwide LLC, who has retained Bank of Ireland Asset Management (U.S.)
Limited (BIAM) as sub-adviser. The available portfolio under the contract is:
* Berger/BIAM IPT - International Fund
FIXED ACCOUNT
During the accumulation phase, you may allocate purchase payments and contract
values to our fixed account. The fixed account forms a portion of our general
account. At our discretion, we may, from time to time, declare an excess
interest rate for the fixed account.
GENERAL ACCOUNT
During the income phase, you can select to have your annuity payments paid out
of our general account. We guarantee a specified interest rate used in
determining the payments. If you select this option, the payments you receive
will remain level. This option is only available during the income phase.
TRANSFERS
You can make transfers as described below. We have the right to terminate or
modify these transfer provisions.
You can make transfers by telephone. If you own the contract with a joint owner,
unless we are instructed otherwise, we will accept instructions from either you
or the other owner. We will use reasonable procedures to confirm that
instructions given to us by telephone are genuine. If we fail to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. However, we will not be liable for following telephone
instructions that we reasonably believe to be genuine. We may tape record
telephone instructions.
Transfers are subject to the following:
1. Currently, during the accumulation phase, you can make 12 transfers
every contract year without charge. You can transfer into the fixed
account from the investment options.
2. Currently, during the accumulation phase you can only make one
transfer in a calendar quarter out of the fixed account into the
investment options. Any transfer made pursuant to this provision is
counted in determining any transfer fee.
3. We will assess a $50 transfer fee for each transfer during the
accumulation phase in excess of the free 12 transfers allowed per
contract year. Transfers made at the end of the Free Look Period by us
and any transfers made pursuant to the Dollar Cost Averaging program,
the Rebalancing program, or for loans will not be counted in
determining the application of any transfer fee.
4. The minimum amount which you can transfer is $500 or your entire value
in the investment option or fixed account if it is less. This
requirement is waived if the transfer is made in connection with the
Dollar Cost Averaging program, the Rebalancing program, or loans.
5. After a transfer is made you must keep a minimum of $100 in the
account, (either in the fixed account or an investment option) from
which the transfer was made.
6. You may not make a transfer until after the end of the free look
period.
7. A transfer will be effected as of the end of a business day when we
receive an acceptable transfer request containing all required
information. This would include the amount which is to be transferred,
and the investment option(s) and/or the fixed account affected.
8. We are not liable for a transfer made in accordance with your
instructions.
9. We reserve the right to restrict transfers between investment options
to a maximum of 12 per contract year and to restrict transfers from
being made on consecutive business days. We also reserve the right to
restrict transfers into and out of the fixed account.
10. Your right to make transfers is subject to modification if we
determine, in our sole opinion, that the exercise of the right by one
or more owners is, or would be, to the disadvantage of other owners.
Restrictions may be applied in any manner reasonably designed to
prevent any use of the transfer right which is considered by us to be
to the disadvantage of other owners. A modification could be applied
to transfers to, or from, one or more of the investment options and
could include, but is not limited to:
a. the requirement of a minimum time period between each transfer;
b. not accepting a transfer request from an agent acting under a
power of attorney on behalf of more than one owner; or
c. limiting the dollar amount that may be transferred between
investment options by an owner at any one time.
11. During times of drastic economic or market conditions, we may suspend
the transfer privilege temporarily without notice and treat transfer
requests based on their separate components (a redemption order with a
request for purchase of another investment option). In such a case,
the redemption order would be processed at the source investment
option's next determined accumulation unit value. However, the
purchase into the new investment option would be effective at the next
determined accumulation unit value for the new investment option only
after we receive the proceeds from the source investment option, or we
otherwise receive cash on behalf of the source investment option.
12. Transfers do not change your allocation instructions for future
purchase payments.
13. Transfers made during the income phase are subject to the following:
a. you may make 4 transfers each contract year between investment
options or between the investment options and the general
account;
b. you may not make a transfer within 3 business days of the annuity
calculation date; and
c. you may not make a transfer from the general account to an
investment option.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount each month from a selected investment option or the fixed account to any
of the other investment options. By allocating amounts on a regular schedule as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations. The Dollar Cost Averaging
Program is available only during the accumulation phase.
The minimum amount which can be transferred each month is $100. You must have at
least $1,200 in the selected investment option or fixed account (or the amount
required to complete your program, if less), in order to participate in the
Dollar Cost Averaging Program.
We have the right to modify, terminate or suspend the Dollar Cost Averaging
Program.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee. If
you are participating in the Dollar Cost Averaging Program, you cannot also
participate in the Rebalancing Program.
Dollar Cost Averaging does not assure a profit and does not protect against loss
in declining markets. Dollar Cost Averaging involves continuous investment in
the selected investment option(s) regardless of fluctuating price levels of the
investment option(s). You should consider your financial ability to continue the
Dollar Cost Averaging Program through periods of fluctuating price levels.
REBALANCING PROGRAM
Once your money has been allocated among the investment options, the performance
of the selected options may cause your allocation to shift. You can direct us to
automatically rebalance your contract to return to your original percentage
allocations by selecting our Rebalancing Program. You can tell us whether to
rebalance monthly, quarterly, semi-annually or annually.
The Rebalancing Program is available only during the accumulation phase.
If you participate in the Rebalancing Program, the transfers made under the
program are not taken into account in determining any transfer fee. Amounts
allocated to the fixed account are not taken into account as part of the
Rebalancing Program. You cannot participate in the Rebalancing Program if you
are participating in the Dollar Cost Averaging Program.
EXAMPLE:
Assume that you want your initial purchase payment split between 2 investment
options. You want 80% to be in the Growth & Income Portfolio and 20% to be in
the International Fund. Over the next 2 1/2 months the domestic market does very
well while the international market performs poorly. At the end of the quarter,
the Growth & Income Portfolio now represents 86% of your holdings because of its
increase in value. If you had chosen to have your holdings rebalanced quarterly,
on the first day of the next quarter, we would sell some of your units in the
Growth & Income Portfolio to bring its value back to 80% and use the money to
buy more units in the International Fund to increase those holdings to 20%.
SUBSTITUTION AND LIMITATION ON FURTHER INVESTMENT
We may be required to substitute one of the investment options you have selected
with another investment option. We would not do this without the prior approval
of the Securities and Exchange Commission. We may also limit further investment
in an investment option. We will give you notice of our intent to take either of
these actions.
EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
PRODUCT EXPENSE CHARGE
Each day we make a deduction for our Product Expense Charge. We do this as part
of our calculation of the value of the accumulation units and the annuity units.
This charge is for all the insurance benefits e.g., guarantee of annuity rates,
the death benefit, for certain expenses of the contract, and for assuming the
risk (expense risk) that the current charges will be insufficient in the future
to cover the cost of administering the contract. If the charges under the
contract are not sufficient, then we will bear the loss. We do, however, expect
to profit from this charge. This charge cannot be increased.
We assess the Product Expense Charge each business day and it is based on the
average value of your contract. We assess a Product Expense Charge as follows:
<TABLE>
<CAPTION>
<S> <C>
* Lump Sum Payments: 0.90%, on an annual basis.
* Easy Pay Payments: 0.90%, on an annual basis, for contracts that have
reached a contract value of $100,000 or more.*
1.50%, on an annual basis, for contracts that have
reached a contract value less than $100,000.*
* Once your contract value reaches a $100,000, it will be assessed the lower
charge even if the contract value is later reduced by changes in market
value or withdrawals.
</TABLE>
REDUCTION OF PRODUCT EXPENSE CHARGE
We may, at our sole discretion, reduce the Product Expense Charge. We would do
so when sales of the contract are made to individuals or to a group of
individuals in such a manner that results in a reduction of our administrative
costs or other savings. We would consider making such a reduction when:
* the size and type of group to whom the contract is offered can
reasonably be expected to produce such a cost savings; or
* the amount of purchase payments can produce some economies resulting
in a savings to us.
Any reduction of the Product Expense Charge will not be unfairly discriminatory
against any person. We will make such reductions in accordance with our own
administrative rules in effect at the time the contract(s) is issued. We have
the right to change these rules from time to time.
SURRENDER CHARGE
During the accumulation phase, you can make surrenders from your contract. We
keep track of each purchase payment. Subject to the free surrender amount and
other waivers discussed below, if you make a surrender and it has been less than
the stated number of years since you made your purchase payment, we will assess
a surrender charge.
Surrender Charge: (as a percentage of purchase payments surrendered)
<TABLE>
<CAPTION>
SURRENDER CHARGES
Number of Complete Years Surrender Charge
From Receipt of Purchase Payments Easy Pay Lump Sum
--------------------------------- -------- --------
<S> <C> <C> <C>
0-1 6% 7%
1 6 6
2 6 5
3 5 4
4 5 3
5 4 2
6 3 1
7 2 0
8 2 0
9 1 0
10 and thereafter 0 0
</TABLE>
Each purchase payment has its own surrender charge period. For purposes of the
surrender charge, we treat surrenders as coming from the most recent purchase
payments first. When the surrender is for only part of the value of your
contract, the surrender charge is deducted from the remaining value in your
contract.
NOTE: FOR TAX PURPOSES EARNINGS ARE USUALLY CONSIDERED TO COME OUT FIRST.
WAIVER OF THE SURRENDER CHARGE
Free Surrenders. You may make one surrender of up to 10% of your contract value
during a contract year free from any surrender charge. This right is
non-cumulative.
Internal Transfers. It is our current practice to reduce surrender charges for
an owner of one of our annuity contracts who wishes to transfer contract values
to another of our annuity contracts. The following will apply to such internal
transfers:
* there is an internal transfer fee of 2% of the amount transferred when
you make a transfer of contract value to another contract (which could
be the variable annuity contract we are offering by this prospectus)
issued by us;
* once transferred into the other contract, the amount transferred will
be subject to an Adjusted Surrender Charge in accordance with the
following:
<TABLE>
<CAPTION>
ADJUSTED SURRENDER CHARGES
Number of Complete Number of Complete Years you have been our Annuity Customer
Years from Transfer 5 Years or less 5-10 Years 10 Years +
- ------------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
0-1 6% 4% 3%
1 5 3 3
2 4 2 2
3 3 1 1
4 2 0 0
5 1 0 0
6 and longer 0 0 0
</TABLE>
* If your contract was issued prior to the effective date of this
registration, or is no longer subject to a surrender charge, we will not
assess the internal transfer fee for the first internal transfer you make.
Once contract values are in the new contract, they will be subject to the
Adjusted Surrender Charge shown above. Any subsequent internal transfer
will be subject to the above conditions.
Reduction of Surrender Charges. We may, at our sole discretion, reduce the
Surrender Charge or the Adjusted Surrender Charge. We would do so when sales of
the contract are made to individuals or to a group of individuals in such a
manner that results in a reduction of our distribution costs. Some examples are:
if there is a large group of individuals that will be purchasing the contract or
if a prospective purchaser already had a relationship with us. We may, at our
sole discretion, not deduct the surrender charge under a contract issued to an
officer, director or employee of ours or any of our affiliates.
Any reduction of surrender charges will not be unfairly discriminatory against
any person. We will make such reductions in accordance with our administrative
rules in effect at the time the contract is issued. We have the right to change
those rules from time to time.
Waiver of Surrender Charges under Certain Benefits. Under the conditions set out
in the contract endorsements providing the following benefits, we will not
assess the surrender charge when:
* Terminal Illness Endorsement. You become terminally ill (which
means you are not expected to live more than 12 months). Under
this benefit, you may make a one time surrender during the
accumulation phase up to the full value of your account.
* Nursing Home or Hospital Confinement Endorsement. You become
confined to a long term care facility, nursing facility or
hospital for at least 30 consecutive days. Under this benefit,
the maximum amount that you can surrender without the imposition
of the surrender charge is $2,000 each month for the period of
confinement. The maximum total surrenders under this provision is
equal to your contract value. This benefit is only available
during the accumulation phase.
These benefits may not be available in your state.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some of
these taxes are due when the contract is issued, and others are due when annuity
payments begin. It is our current practice to not charge anyone for these taxes
until annuity payments begin. We may some time in the future discontinue this
practice and assess the charge when the tax is due. Premium taxes generally
range from 0% to 4%, depending on the state.
TRANSFER FEE
We will charge $50 for each additional transfer in excess of the free transfers
permitted. Transfers made at the end of the free look period by us and any
transfers made pursuant to the Dollar Cost Averaging program, Rebalancing
program, or loans will not be counted in determining the application of any
transfer fee.
INCOME TAXES
We will deduct from the contract for any income taxes which we incur because of
the contract. At the present time, we are not making any such deductions.
INVESTMENT OPTION EXPENSES
There are deductions from and expenses paid out of the assets of the various
investment options, which are described in the attached fund prospectuses.
CONTRACT VALUE
Your contract value is the sum of your interest in the various investment
options and our fixed account.
Your interest in the investment option(s) will vary depending upon the
investment performance of the options you choose. In order to keep track of your
contract value, we use a unit of measure called an accumulation unit. During the
income phase of your contract we call the unit an annuity unit.
ACCUMULATION UNITS
Every business day we determine the value of an accumulation unit and an annuity
unit for each of the investment options. We do this by:
1. determining the change in investment experience (including any
charges) for the investment option from the previous business day to
the current business day;
2. subtracting our Product Expense Charge and any other charges such as
taxes we have deducted; and
3. multiplying the previous business day's accumulation unit (or annuity
unit) value by this result.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment option by the value of
the accumulation unit for that investment option. When you make a surrender, we
debit from your contract accumulation units representing the surrender.
We calculate the value of an accumulation unit for each investment option after
the New York Stock Exchange closes each day and then debit or credit your
account.
EXAMPLE:
On Monday we receive an additional purchase payment of $5,000 from you. You have
told us you want this to go to the Growth & Income Portfolio. When the New York
Stock Exchange closes on that Monday, we determine that the value of an
accumulation unit for the Growth & Income Portfolio is $13.90. We then divide
$5,000 by $13.90 and credit your contract on Monday night with 359.71
accumulation units for the Growth & Income Portfolio.
SURRENDERS
You can have access to the money in your contract:
* by making a surrender (either a partial or a complete surrender); or
* by electing to receive annuity payments; or
* if your contract was issued as a TSA, by taking a loan out of the
fixed account.
Surrenders can only be made during the accumulation phase.
When you make a complete surrender you will receive the value of your contract
on the day you made the surrender less any applicable surrender charge and less
any premium tax.
Unless you instruct us otherwise, any partial surrender will be made pro-rata
from all the investment options and the fixed account you selected. Under most
circumstances the amount of any partial surrender must be for at least $500, or
your entire interest in the fixed account or an investment option. We require
that after a partial surrender is made you keep at least $5,000 in your contract
for Lump Sum payments or $1,000 for Easy Pay payments.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY SURRENDER
YOU MAKE.
There are limits to the amount you can surrender from a qualified plan referred
to as a 403(b) plan (TSA). For a more complete explanation see the discussion in
the Taxes Section and the discussion in the Statement of Additional Information.
MINIMUM DISTRIBUTION PROGRAM
If your contract has been issued as an IRA, TSA or other qualified plan, you may
elect the Minimum Distribution Program. Under this program, we will make
payments to you that are designed to meet the applicable minimum distribution
requirements imposed by the Internal Revenue Code on such qualified plans. We
will make payments to you periodically at your election (currently: monthly,
quarterly, semi-annually or annually). Each payment must be at least $1000, or
the entire remaining amount in the contract. The payments will not be subject to
the surrender charges and will be in lieu of the 10% free surrender amount
allowed each year.
LOANS
If you purchased this contract as a TSA (also referred to as a 403(b) plan),
during the accumulation phase you can take a loan out of the fixed account using
the contract as collateral. The minimum loan we will make is $2000. No loans are
permitted out of the investment options and no loans are permitted during the
income phase. When you request a loan, we will transfer any amounts necessary to
implement the loan request from the investment options to the fixed account.
Repayment of the loan will be made into the fixed account. We will then allocate
that money in the same manner that your purchase payments are being allocated.
Your loan documents will explain the terms, conditions and limitations regarding
loans from your TSA contract.
DEATH BENEFIT
DEATH OF CONTRACT OWNER DURING THE ACCUMULATION PHASE
Upon your death or that of the joint owner during the accumulation phase, the
death benefit will be paid to your primary beneficiary. Upon the death of a
joint owner, the surviving joint owner, if any, will be treated as the primary
beneficiary. Any other beneficiary designation on record at the time of death
will be treated as a contingent beneficiary unless you have informed us
otherwise in writing.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PHASE
The death benefit during the accumulation phase will be the greater of:
1. the purchase payments, less any surrenders including any applicable
charges; or
2. your contract value.
The amount of the death benefit is determined as of the end of the business day
during which we receive both due proof of death and an election for the payment
method. The death benefit amount remains in an investment option and/or the
fixed account until distribution begins. From the time the death benefit is
determined until complete distribution is made, any amount in an investment
option will be subject to investment risk which is borne by the beneficiary.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PHASE
A beneficiary must elect the death benefit to be paid under one of the following
options in the event of your death during the accumulation phase. If the
beneficiary is the spouse of the owner, he or she may elect to continue the
contract in his or her own name and exercise all the owner's rights under the
contract. In this event, the contract value will be adjusted to equal the death
benefit.
Option 1 - lump sum payment of the death benefit; or
Option 2 - the payment of the entire death benefit within 5 years of the
date of death of the owner or any joint owner; or
Option 3 - payment of the death benefit under an annuity option over the
lifetime of the beneficiary or over a period not extending beyond the life
expectancy of the beneficiary with distribution beginning within 1 year of
the date of your death or of any joint owner.
Any portion of the death benefit not applied under Option 3 within 1 year of the
date of your death, or that of a joint owner, must be distributed within 5 years
of the date of death.
If a lump sum payment is requested, the amount will be paid within 7 days,
unless the suspension of payments provision is in effect.
Payment to the beneficiary, in any form other than a lump sum, may only be
elected during the sixty-day period beginning with the date of receipt by us of
proof of death.
DEATH OF CONTRACT OWNER DURING THE INCOME PHASE
If you or a joint owner, who is not the annuitant, dies during the income phase,
any remaining payments under the annuity option elected will continue to be made
at least as rapidly as under the method of distribution in effect at the time of
your death. Upon your death during the income phase, the beneficiary becomes the
owner. The annuitant is the person whose life we look to when we make annuity
payments.
DEATH OF ANNUITANT
Upon the death of the annuitant, who is not an owner, during the accumulation
phase, you automatically become the annuitant. You may designate a new annuitant
subject to our underwriting rules then in effect. If the owner is a non-natural
person, the death of the annuitant will be treated as the death of the owner and
a new annuitant may not be designated.
Upon the death of the annuitant during the income phase, the death benefit, if
any, will be as specified in the annuity option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
annuitant's death.
ANNUITY PAYMENTS (THE INCOME PHASE)
Under the contract you can receive regular income payments. You can choose the
month and year in which those payments begin. We call that date the annuity
date. Your annuity date must be the first or fifteenth day of a calendar month.
You can also choose among income plans. We call those annuity options.
Your annuity date must be at least 1 month after you buy the contract. Annuity
payments must begin by the annuitant's 85th birthday or the 85th birthday of the
oldest joint annuitant. The annuitant is the person whose life we look to when
we make annuity payments.
If you do not choose an annuity option at the time you purchase the contract, we
will assume that you selected Option 2 with 10 years of guaranteed payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. If you do not tell us otherwise, your
annuity payments will be based on the investment allocations that were in place
on the annuity date.
The dollar amount of your payment from the investment option(s) will depend upon
four things:
* the value of your contract in the investment option(s) on the annuity
date;
* the 3% assumed investment rate used in the annuity table for the
contract;
* the performance of the investment options you selected; and
* if permitted in your state and under the type of contract you have
purchased, the age and sex of the annuitant(s).
If the actual performance exceeds the 3% assumed rate plus the deductions for
expenses, your annuity payments will increase. Similarly, if the actual
performance is less than 3% plus the amount of the deductions, your annuity
payments will decrease.
We will determine the amount of your variable annuity payments, including the
first, no more than 10 business days prior to the payment date. The payment
dates must be the same day each month as the date you selected for the annuity
date, i.e. the first or the fifteenth. The day we determine the variable annuity
payment is called the annuity calculation date.
You can choose one of the following annuity options. After annuity payments
begin, you cannot change the annuity option. All annuity payments are made to
you unless you direct us otherwise.
Option 1 - Life Annuity.
Under this option we make monthly income payments during the lifetime of the
annuitant and terminating with the last payment preceding his/her death.
Option 2 - Life Income with a Guaranteed Period.
Under this option we make monthly income payments during the lifetime of the
annuitant. We guarantee that if, at the death of the annuitant, payments have
been made for less than a stated period, which may be five, ten, fifteen or
twenty years, as elected, the monthly income will continue during the remainder
of the stated period. However, the owner may elect to receive a single sum
payment. A single sum payment will be equal to the present value of remaining
payments as of the date of receipt of due proof of death commuted at the assumed
investment rate.
Option 3 - Survivorship Annuity.
Under this option we make monthly income payments during the joint lifetime of
the annuitant and another named individual and thereafter during the lifetime of
the survivor. Payments cease with the last income payment due prior to the death
of the survivor.
Option 4 - Other Options.
Under this option we provide you with any payout plan that is mutually agreed
upon between you and us.
OTHER BENEFITS
DISABILITY BENEFIT
This benefit is only available with respect to Easy Pay payments during the
accumulation phase. Under this benefit, so long as you are totally and
permanently disabled and can provide us with evidence of that fact, we will pay
you a life annuity with fixed payments at your normal retirement date (which is
defined in your endorsement) or make a death benefit payment to your beneficiary
if you die prior to that date. You should refer to the endorsement in your
contract for additional details.
ACCIDENTAL DEATH BENEFIT
During the accumulation phase, in the event that you die due to an accidental
injury prior to age 70, we will pay your beneficiary an accidental death benefit
equal to the contract value (less any outstanding loan balance if your contract
was issued as a 403(b)contract and you took out a loan)on the date of death.
This benefit is in addition to the death benefit contained in the contract. The
maximum amount of the accidental death benefit is $500,000.
TAXES
NOTE: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. We have
included in the Statement of Additional Information a more comprehensive
discussion regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you are taxed
depending on how you take the money out and the type of contract - qualified or
non-qualified (see following sections).
Under non-qualified contracts, you, as the owner, are not taxed on increases in
the value of your contract until a distribution occurs - either as a withdrawal
or as annuity payments. When you make a withdrawal, you are taxed on the amount
of the withdrawal that is earnings. For annuity payments, different rules apply.
A portion of each annuity payment is treated as a partial return of your
purchase payments and is not taxed. The remaining portion of the annuity payment
is treated as ordinary income. How the annuity payment is divided between
taxable and non-taxable portions depends upon the period over which the annuity
payments are expected to be made. Annuity payments received after you have
received all of your purchase payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract will generally not be treated as an
annuity for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 Plans.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
If you make a withdrawal from your qualified contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
the pre-tax purchase payments to the after-tax purchase payments in your
contract. If all of your purchase payments were made with pre-tax money then the
full amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the
Code);
(4) paid to you after leaving your employment in a series of substantially
equal payments made annually (or more frequently) under a lifetime
annuity;
(5) paid to you after you have attained age 55 and left your employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid from an IRA for medical insurance (as defined in the Code);
(9) paid from an IRA for qualified higher education expenses; or
(10) up to $10,000 for qualified first time homebuyer expenses (as defined
in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in (4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. We believe that the investment options are managed so as to
comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, are considered the
owner of the shares of the investment options. If you are considered owner of
the shares, it will result in the loss of the favorable tax treatment for the
contract. It is unknown to what extent owners are permitted to select investment
options, to make transfers among the investment options or the number and type
of investment options owners may select from without being considered owner of
the shares. If any guidance is provided which is considered a new position, then
the guidance is generally applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean that you, as the owner of the contract, could be treated as the owner of
the investment options.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
PERFORMANCE
We periodically advertise performance of the various investment options. We will
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the insurance charges. It does not reflect the
deduction of any surrender charge. The deduction of any surrender charges would
reduce the percentage increase or make greater any percentage decrease. Any
advertisement will also include total return figures which reflect the deduction
of the product expense charges and surrender charges.
The performance will be based on the historical performance of the corresponding
investment options for the periods commencing from the date on which the
particular investment option was made available through the contracts. In
addition, for certain investment options performance may be shown for the period
commencing from the inception date of the investment option. These figures
should not be interpreted to reflect actual historical performance of the
Separate Account.
We may, from time to time, include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
OTHER INFORMATION
THE SEPARATE ACCOUNT
We established a separate account, FSL Separate Account M (Separate Account), to
hold the assets that underlie the contracts. Our Board of Directors adopted a
resolution to establish the Separate Account under Missouri insurance law on
August 25, 1998. We have registered the Separate Account with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940.
The assets of the Separate Account are held in our name on behalf of the
Separate Account and legally belong to us. However, those assets that underlie
the contracts, are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts we may issue.
YEAR 2000
We have developed and initiated plans to assure that our computer systems will
function properly in the year 2000 and later years. These efforts have included
receiving assurances from outside service providers that their computer systems
will also function properly in this context. Included within these plans are the
computer systems of the advisers and sub-advisers of the various investment
options.
Although an assessment of the total cost of implementing these plans has not
been completed, the total amounts to be expended are not expected to have a
material effect on our financial position or results of operations. We believe
that we have taken all reasonable steps to address these potential problems.
There can be no assurance, however, that the steps taken will be adequate to
avoid any adverse impact.
VOTING RIGHTS
We are the legal owner of the investment option shares. However, we believe that
when an investment option solicits proxies in conjunction with a vote of
shareholders, it is required to obtain from you and other owners instructions as
to how to vote those shares. When we receive those instructions, we will vote
all of the shares we own in proportion to those instructions. This will also
include any shares that we own on our own behalf. Should we determine that we
are no longer required to comply with the above, we will vote the shares in our
own right.
DISTRIBUTOR
National Pension & Group Consultants, Inc. (NPGC) serves as the distributor for
the contracts. NPGC is located at 3130 Broadway, Kansas City MO 64111-2406.
Commissions will be paid to agents and broker-dealers who sell the contracts.
Such agents and broker-dealers will be paid commissions up to 3% of purchase
payments but, under certain circumstances, may be paid an additional .25%
of assets as a trail commission.
OWNERSHIP
Owner. You, as the owner of the contract, have all the rights under the
contract. Prior to the annuity date, the owner is as designated at the time the
contract is issued, unless changed. On and after the annuity date, you continue
as the owner.
Joint Owner. The contract can be owned by joint owners. Any joint owner must be
the spouse of the other owner (except in Pennsylvania). Upon the death of either
joint owner, the surviving joint owner will be the designated beneficiary. Any
other beneficiary designation at the time the contract was issued or as may have
been later changed will be treated as a contingent beneficiary unless otherwise
indicated.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die.
ASSIGNMENT
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the contract before we receive notice of the assignment. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments for surrenders or transfers
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
investment options is not reasonably practicable or we cannot
reasonably value the shares of the investment options;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
We have reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
FINANCIAL STATEMENTS
Our statutory basis financial statements have been included in the Statement of
Additional Information.
ADDITIONAL INFORMATION
For further information about the contract you may obtain a Statement of
Additional Information. You can call the telephone number indicated on the cover
page or you can write to us. For your convenience we have included a post card
for that purpose.
The Table of Contents of this statement is as follows:
Company
Independent Auditors
Legal Opinion
Distribution
Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY, MO 64111-2406
ATTN:
____________________________________________________________________________
Please send me, at no charge, the Statement of Additional Information
dated___________, 1999 for the Annuity Contract issued by Fidelity Security Life
Insurance Company.
(Please print or type and fill in all information)
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE AND FIXED
ANNUITY CONTRACT
issued by
FSL SEPARATE ACCOUNT M
AND
FIDELITY SECURITY LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED , 1999, FOR THE INDIVIDUAL
FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT WHICH IS
DESCRIBED HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: 3130 Broadway, Kansas City, MO 64111-2406, (800) 648-8624.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1999.
TABLE OF CONTENTS
Page
COMPANY ................................................................3
INDEPENDENT AUDITORS ....................................................3
LEGAL OPINIONS...........................................................3
DISTRIBUTION.............................................................3
Reduction of the Surrender Charge...............................3
PERFORMANCE INFORMATION..................................................4
Total Return....................................................4
Historical Unit Values..........................................5
Reporting Agencies..............................................6
Performance Information.........................................6
FEDERAL TAX STATUS.......................................................7
General .......................................................7
Diversification.................................................8
Multiple Contracts..............................................9
Contracts Owned by Other than Natural Persons...................9
Tax Treatment of Assignments...................................10
Income Tax Withholding.........................................10
Tax Treatment of Withdrawals - Non-Qualified Contracts.........10
Qualified Plans................................................11
Tax Treatment of Withdrawals - Qualified Contracts.............13
Tax-Sheltered Annuities - Withdrawal Limitations...............15
ANNUITY PROVISIONS......................................................15
Variable Annuity...............................................15
Fixed Annuity..................................................16
Annuity Unit...................................................16
Net Investment Factor..........................................16
Expense Guarantee..............................................16
FINANCIAL STATEMENTS....................................................17
COMPANY
Fidelity Security Life Insurance Company (the "Company") was originally
incorporated on January 17, 1969, as a Missouri corporation. The Company
presently is licensed to do business in the District of Columbia and all states
except New York, where it is only admitted as a reinsurer.
The Company is a Kansas City-based stock company with more than $8 billion of
life insurance in force and in excess of $400 million in assets. It provides
life and health insurance, retirement plans, and related financial services to
individuals and groups.
INDEPENDENT AUDITORS
The statutory basis financial statements of the Company as of and for the years
ended December 31, 1998 and 1997 included in this Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
National Pension and Group Consultants, Inc. ("NPGC") acts as the distributor.
NPGC is an affiliate of the Company. The offering is on a continuous basis.
REDUCTION OF THE SURRENDER CHARGE
The amount of the Surrender Charge on the Contracts may be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in a manner that results in savings of sales expenses. The entitlement to
reduction of the Surrender Charge will be determined by the Company after
examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made. Generally,
the sales expenses for a larger group are less than for a smaller
group because of the ability to implement large numbers of Contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received. Per Contract
sales expenses are likely to be less on larger purchase payments than
on smaller ones.
3. Any prior or existing relationship with the Company. Per Contract
sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract
with fewer sales contacts.
4. Other circumstances, of which the Company is not presently aware,
which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction of the Surrender Charge.
The Surrender Charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates.
In no event will any reduction or elimination of the Surrender Charge be
permitted where the reduction or elimination will be unfairly discriminatory to
any person.
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment option over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that unit by
the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of a .9% or 1.50% (depending on the Contract Value or the type of
purchase payment) Product Expense Charge, the expenses for the underlying
investment option being advertised and any applicable Surrender Charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Surrender Charge to arrive at the ending hypothetical value. The average annual
total return is then determined by computing the fixed interest rate that a
$1,000 purchase payment would have to earn annually, compounded annually, to
grow to the hypothetical value at the end of the time periods described. The
formula used in these calculations is:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or fractional
portion thereof) of a hypothetical $1,000 payment made at the beginning of the
time periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
Surrender Charge. The deduction of any Surrender Charge would reduce any
percentage increase or make greater any percentage decrease.
Owners should note that the investment results of each investment option will
fluctuate over time, and any presentation of the investment option's total
return for any period should not be considered as a representation of what an
investment may earn or what an owner's total return may be in any future period.
HISTORICAL UNIT VALUES
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment options
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the investment
option being compared. The Standard & Poor's 500 Composite Stock Price Index is
an unmanaged, unweighted average of 500 stocks, the majority of which are listed
on the New York Stock Exchange. The Dow Jones Industrial Average is an
unmanaged, weighted average of thirty blue chip industrial corporations listed
on the New York Stock Exchange. Both the Standard & Poor's 500 Composite Stock
Price Index and the Dow Jones Industrial Average assume quarterly reinvestment
of dividends.
REPORTING AGENCIES
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts with the unit values of
variable annuities issued by other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
PERFORMANCE INFORMATION
The Accumulation Units invest in the portfolios managed by Investors Mark Series
Fund, Inc. and Berger Institutional Products Trust. While the Separate Account
has recently commenced operations, these portfolios have been in existence for
some time and consequently have an investment performance history. In order to
demonstrate how the investment experience of the these portfolios affect
Accumulation Unit values, performance information was developed. The information
is based upon the historical experience of the portfolios and is for the periods
shown.
Future performance of the portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance of the portfolios is calculated for a specified period of time by
assuming an initial purchase payment of $1,000 allocated to the portfolio.
Performance figures for the Accumulation Units will reflect the Product Expense
Charges as well as the portfolio expenses. There are also performance figures
for the Accumulation Units which reflect the Product Expense Charges, the
portfolio expenses, and assume that you make a surrender at the end of the
period and therefore the Surrender Charge is reflected. The percentage increases
(decreases) are determined by subtracting the initial purchase payment from the
ending value and dividing the remainder by the beginning value. The performance
may also show figures when no surrender is assumed.
FEDERAL TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment or as annuity payments under the Annuity
Option selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
options underlying variable contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment option will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
option is represented by any one investment; (2) no more than 70% of the value
of the total assets of the option is represented by any two investments; (3) no
more than 80% of the value of the total assets of the option is represented by
any three investments; and (4) no more than 90% of the value of the total assets
of the option is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment options underlying the Contracts will be
managed in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment, pledge, or other transfer of a Contract may be a taxable event.
Owners should therefore consult competent tax advisers should they wish to
assign, pledge, or transfer their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions); or d) hardship distributions. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, Annuitants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
certain Qualified Plans will utilize annuity tables which do not differentiate
on the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with Pension or Profit Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
d. Government and Tax-Exempt Organization's Deferred Compensation Plan
Under Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in Deferred Compensation Plans. While participants in such Plans may
be permitted to specify the form of investment in which their Plan accounts will
participate, all such investments are owned by the sponsoring employer and are
subject to the claims of its creditors until December 31, 1998, or such earlier
date as may be established by Plan amendment. However, amounts deferred under a
Plan created on or after August 20, 1996 and amounts deferred under any 457 Plan
after December 31, 1998 must be held in trust, custodial account or annuity
contract for the exclusive benefit of Plan participants and their beneficiaries.
The amounts deferred under a Plan which meets the requirements of Section 457 of
the Code are not taxable as income to the participant until paid or otherwise
made available to the participant or beneficiary. As a general rule, the maximum
amount which can be deferred in any one year is the lesser of $8,000 or 33 1/3
percent of the participant's includable compensation. However, in limited
circumstances, up to $15,000 may be deferred in each of the last three years
before normal retirement age. Furthermore, the Code provides additional
requirements and restrictions regarding eligibility and distributions.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b)(Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been rolled over to an IRA or to another eligible Qualified Plan, no
tax penalty will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Owner or Annuitant (as applicable) reaches age 59 1/2; (b) distributions
following the death or disability of the Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m) (7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Owner or Annuitant (as applicable) or the joint lives
(or joint life expectancies) of such Owner or Annuitant (as applicable) and his
or her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (g) distributions from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (h) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner or Annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8)of
the Code.) The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years on which the exception was used.
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. There are no required distributions from a Roth IRA prior to the
death of the owner.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect transfers between Tax-Sheltered Annuity Plans. Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable investment option(s) of the separate account. At the annuity
calculation date, the contract value in each investment option will be applied
to the applicable annuity tables. The annuity table used will depend upon the
annuity option chosen. The dollar amount of Annuity Payments after the first is
determined as follows:
(1) the dollar amount of the first annuity payment is divided by the value of
an annuity unit as of the annuity calculation date. This establishes the
number of annuity units for each monthly payment. The number of annuity
units remains fixed during the annuity payment period.
(2) the fixed number of annuity units per payment in each Subaccount is
multiplied by the annuity unit value as of the annuity calculation date.
This result is the dollar amount of the payment.
The total dollar amount of each variable annuity payment is the sum of all
investment option variable annuity payments.
The Company determines the amount of variable annuity payments, including the
first, no more than ten (10) business days prior to the payment date. The
payment date must be the same day each month as the date selected for the
annuity date, i.e. the first or the fifteenth.
FIXED ANNUITY
A fixed annuity is a series of payments made during the annuity period which are
guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Separate Account. The general account value as of
the annuity calculation date will be used to determine the fixed annuity monthly
payment. The first monthly annuity payment will be based upon the annuity option
elected and the appropriate annuity option table. Fixed annuity payments will
remain level.
ANNUITY UNIT
The value of an annuity unit for each investment option was arbitrarily set
initially at $10. This was done when the first investment option shares were
purchased. The investment option annuity unit value for any business day is
determined by multiplying the investment option annuity unit value for the
immediately preceding business day by the product of (a) the Net Investment
Factor for the business day for which the annuity unit value is being
calculated, and (b) 0.999919.
NET INVESTMENT FACTOR
The Net Investment Factor for any investment option for any business day is
determined by dividing:
(a) the accumulation unit value as of the close of the current business day, by
(b) the accumulation unit value as of the close of the immediately preceding
business day.
The Net Investment Factor may be greater or less than one, as the annuity unit
value may increase or decrease.
EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each annuity payment after the
first annuity payment will not be affected by variations in actual mortality or
expense experience.
FINANCIAL STATEMENTS
The statutory basis financial statements of the Company included herein should
be considered only as bearing upon the ability of the Company to meet its
obligations under the contracts. There are no financial statements for the
Separate Account because as of this date, the Separate Account has not yet
commenced operations.
FIDELITY SECURITY LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT ON STATUTORY
FINANCIAL STATEMENTS
STATUTORY FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997:
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
Statutory Statements of Income
Statutory Statements of Capital and Surplus
Statutory Statements of Cash Flow
Notes to Statutory Financial Statements
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Fidelity Security Life Insurance Company
Kansas City, Missouri
We have audited the accompanying statutory basis statements of admitted assets,
liabilities and capital and surplus of Fidelity Security Life Insurance Company
(the "Company") as of December 31, 1998 and 1997, and the related statutory
statements of income, changes in capital and surplus, and cash flows for the
years then ended. 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.
As described in Note 1 to the financial statements, these financial statements
were prepared in conformity with the accounting practices prescribed or
permitted by the Insurance Department of the State of Missouri which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as of December 31, 1998 and 1997, or the results of its
operations or its cash flows for the years then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the statutory basis admitted assets, liabilities, and
capital and surplus of the Company as of December 31, 1998 and 1997 and the
results of its operations and its cash flows for the years then ended, on the
basis of accounting described in Note 1.
Deloitte & Touche LLP
March 31, 1999
Kansas City, Missouri
<TABLE>
<CAPTION>
FIDELITY SECURITY LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------------
ADMITTED ASSETS 1998 1997
<S> <C> <C>
Bonds, at amortized cost (market, $353,603,634 and $310,834,847) $334,624,376 $295,524,002
Preferred stocks, at market in 1998 (cost of $176,700) and
at cost in 1997 (market of $288,000) 147,000 434,450
Common stocks, at market (cost, $3,259,537 and $1,149,183) 3,494,581 1,249,641
Mortgage loans 10,731 141,000
Policy loans 6,644,747 6,653,054
Short-term investments, at cost 16,416,559 28,528,184
Cash and cash equivalents 3,976,804 3,409,647
Other invested assets 3,835,985 2,145,081
Due and deferred premiums 12,663,688 7,676,317
Accrued investment income 4,921,052 4,438,134
Due from other companies 12,706,062 8,320,728
State guaranty fund assessments 336,133
Due from brokers, including margin accounts 533,554 444,812
------- -------
TOTAL $400,311,272 $358,965,050
============ ============
LIABILITIES, CAPITAL AND SURPLUS
Liabilities and reserves:
Aggregate reserves:
Life insurance and annuity contracts $305,727,836 $284,062,809
Accident and health insurance 17,455,014 6,905,663
Claim reserves:
Life insurance 2,088,971 2,175,173
Accident and health insurance 10,371,746 6,443,495
Premiums received in advance 693,307 1,309,157
Due to other companies 11,370,713 8,391,606
Due and deferred premium collection expenses 336,831 206,022
Commissions, taxes and general expenses 3,494,856 4,750,541
Income taxes payable 380,039 627,539
Group contingency reserves 2,200,291 2,322,249
Interest maintenance reserve 2,559,766 2,342,172
Asset valuation reserve 2,253,143 1,982,314
--------- ---------
Total liabilities and reserves 358,932,513 321,518,740
Contingencies (Note 9)
Capital and surplus:
Common stock, $2.50 par value:
Authorized, 1,100,000 shares
Issued, 1,000,000 shares 2,500,000 2,500,000
Preferred stock, $100.00 par value:
Authorized 50,000 shares
Issued and outstanding, 30,000 shares 3,000,000 3,000,000
Paid-in and contributed surplus 983,948 975,583
Unassigned surplus 35,809,973 31,900,683
---------- ----------
42,293,921 38,376,266
Less treasury stock, at cost 915,162 929,956
------- -------
Total capital and surplus 41,378,759 37,446,310
---------- ----------
TOTAL $400,311,272 $358,965,050
============ ============
</TABLE>
See notes to statutory financial statements.
<TABLE>
<CAPTION>
FIDELITY SECURITY LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------
1998 1997
INCOME:
<S> <C> <C>
Life premiums $ 23,879,432 $ 37,967,874
Annuity deposits 33,468,795 17,256,642
Accident and health premiums 74,608,947 52,221,741
Investment income 24,883,798 24,370,889
---------- ----------
Total income 156,840,972 131,817,146
----------- -----------
POLICY BENEFITS AND EXPENSES:
Benefits to policy owners and beneficiaries:
Life 11,778,643 10,657,195
Annuities 26,867,025 23,414,194
Accident and health 20,728,099 14,369,433
---------- ----------
59,373,767 48,440,822
Increase in aggregate reserves 32,214,364 24,741,595
---------- ----------
Total policy benefits and expenses 91,588,131 73,182,417
COMMISSIONS 46,421,453 41,344,463
GENERAL INSURANCE EXPENSES 11,294,624 10,091,716
INSURANCE TAXES, LICENSES AND FEES 1,161,985 1,486,990
CHANGE IN LOADING AND COST OF COLLECTION
ON DUE AND DEFERRED PREMIUMS 169,873 (111,776)
------- --------
150,636,066 125,993,810
----------- -----------
INCOME BEFORE INCOME TAXES AND
NET REALIZED CAPITAL GAIN 6,204,906 5,823,336
INCOME TAX EXPENSE 1,597,505 1,423,930
--------- ---------
INCOME BEFORE NET REALIZED
CAPITAL GAIN 4,607,401 4,399,406
NET REALIZED CAPITAL GAIN, NET OF FEDERAL
INCOME TAX PROVISION OF $46,828 AND $158,534 90,902 160,299
------ -------
NET INCOME $ 4,698,303 $ 4,559,705
=========== ===========
</TABLE>
See notes to statutory financial statements.
<TABLE>
<CAPTION>
FIDELITY SECURITY LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CAPITAL AND SURPLUS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
COMMON STOCK $ 2,500,000 $ 2,500,000
=========== ===========
PREFERRED STOCK $ 3,000,000 $ 3,000,000
=========== ===========
PAID-IN SURPLUS $ 983,948 $ 975,583
========= =========
UNASSIGNED SURPLUS:
Balance, beginning of year $31,900,683 $27,497,741
Net income 4,698,303 4,559,705
Net unrealized capital gains 104,885 48,278
Dividends on preferred stock (232,500) (232,500)
Change in liability for reinsurance in unauthorized companies (339,051)
Assumption reinsurance costs (455,452)
Change in nonadmitted assets 403,934 (409,939)
Change in asset valuation reserve (270,829) 437,398
------- -------
Balance, end of year 35,809,973 31,900,683
LESS TREASURY STOCK (915,162) (929,956)
------- -------
TOTAL CAPITAL AND SURPLUS $41,378,759 $37,446,310
=========== ===========
</TABLE>
See notes to statutory financial statements.
<TABLE>
<CAPTION>
FIDELITY SECURITY LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Premium and annuity considerations $ 93,484,436 $ 94,164,913
Deposit type funds 30,345,405 14,221,920
Considerations for supplemental contracts with life contingencies 2,124,884 2,074,773
Considerations from supplemental contracts without life
contingencies and dividend accumulations 998,506 959,949
Net investment income 23,093,697 23,133,275
Commissions and expense allowances on reinsurance ceded 4,050,722 3,063,180
Miscellaneous income 60,001 272,122
Death benefits (9,624,772) (9,151,385)
Annuity benefits (24,311,073) (21,024,483)
Disability benefits and benefits under accident and health policies (16,799,848) (14,426,349)
Surrender benefits and other fund withdrawals (2,240,073) (1,698,436)
Group conversions (16,528)
Interest on policy or contract funds (13,358) (11,992)
Payments on supplementary contracts with life contingencies (1,293,146) (1,090,371)
Payments on supplemental contracts without life and dividend
accumulation (1,262,806) (1,299,339)
Commissions on premiums and annuity considerations (47,355,334) (42,981,711)
Commissions and expense allowances on reinsurance assumed (3,300,358) (1,761,598)
General insurance expenses (12,403,957) (10,057,122)
Insurance, taxes, licenses and fees (1,149,267) (1,559,958)
Federal income taxes (2,160,000) (1,342,000)
---------- ----------
Net cash flows from operating activities 32,243,659 31,468,860
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold, matured, or repaid 55,982,347 27,911,674
Costs of investments acquired (96,586,451) (42,699,598)
Net increase (decrease) in policy loans and premium notes 8,307 (2,552,669)
----- ----------
Net cash flows used in investing activities (40,595,797) (17,340,593)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES AND
MISCELLANEOUS SOURCES:
Capital, and surplus paid in 8,366 416
Other cash provided 5,533,065 4,634,354
Dividends paid to stockholders (232,500) (232,500)
Other applications, net (8,501,261) (6,616,837)
---------- ----------
Net cash flows used in financing activities
and miscellaneous sources (3,192,330) (2,214,567)
---------- ----------
INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS (11,544,468) 11,913,700
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 31,937,831 20,024,131
---------- ----------
End of year $ 20,393,363 $ 31,937,831
============ ============
</TABLE>
See notes to statutory financial statements.
FIDELITY SECURITY LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Nature of Operations - Fidelity Security Life Insurance Company (the
"Company") is a stock life insurance company writing life, accident and
health and variable contracts. The Company domiciles in the State of
Missouri and is licensed in the District of Columbia and all states except
New York, where it is licensed as a reinsurer. The Company currently
markets group annuities, group life and group accident and health,
including group medical and self funding arrangements primarily through
independent brokers and third party administrators who specialize in group
coverage.
Statutory Accounting Principles - The Company prepares its statutory
financial statements in accordance with accounting practices prescribed or
permitted by the Insurance Department of the State of Missouri and not in
conformity with generally accepted accounting principles ("GAAP").
Prescribed statutory accounting practices include a variety of publications
of the National Association of Insurance Commissioners ("NAIC"), as well as
state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed.
The principal differences between GAAP and prescribed or permitted
statutory accounting practices are: (a) premiums are taken into income on a
pro rata basis over the policy term, whereas related acquisition and
commission costs for the full policy term are expensed currently; (b)
policy reserves are based on statutory mortality and interest requirements
and without consideration for withdrawals, which may differ from reserves
based on reasonably conservative estimates of mortality, interest and
withdrawals; (c) the tax effect of temporary differences between financial
statements and tax returns is not recognized; (d) group contingency
reserves are reported as a liability rather than as an appropriation of
surplus; (e) statutory asset valuation and interest maintenance reserves
are reported as liabilities; (f) nonadmitted assets are excluded from the
statement of financial position; (g) changes in the reserve for reinsurance
in unauthorized companies is recorded directly to unassigned surplus; (h)
statutory reporting provides that premiums related to investment annuity
products are to be recorded as revenue; (i) statutory reporting does not
require classification of debt and equity securities as trading, available
for sale or held to maturity, whereas, for GAAP purposes, trading
securities are recorded at fair value with unrealized gains and losses
included in income; securities available for sale are recorded at fair
value with unrealized gains and losses reported as a separate component of
shareholder's equity until realized and; (j) deposits made to the state
guarantee fund of Missouri are considered non-admitted assets and are
recorded directly to surplus. This practice was permitted by the Insurance
Department of the State of Missouri for year ended December 31, 1998.
The aggregate effects of these differences on unassigned surplus and net
income have not been determined. Also, the presentation of cash flows is in
accordance with statutory practices rather than GAAP.
Basis of Valuation of Invested Assets - Asset values are generally stated
as follows:
o Bonds, corporate securities and mortgage-backed securities - at
amortized cost.
o Preferred stock - at cost, or lower of cost or market if not in good
standing, as prescribed by the Security Valuation Office ("SVO") of
the NAIC.
o Common stock - at market, as prescribed by the SVO of the NAIC.
o Mortgage loans - at the unpaid principal balance.
o Policy loans - unpaid balance plus accrued interest.
o Short-term investments - at cost.
o Other invested assets - at market.
Asset Valuation Reserve ("AVR") - AVR is a required reserve for life
insurance companies and is calculated based on a statutory formula for
investments in bonds, preferred stocks, common stocks, mortgage loans on
real estate, and real estate and other investments. The reserve is designed
to mitigate the effect on unassigned surplus of fluctuations in the market
value of common stock, real estate and other invested assets and credit
losses on long-term bonds and preferred stock. Changes in the reserve are
applied directly to unassigned surplus.
Interest Maintenance Reserve ("IMR") - The IMR is designed to capture the
tax-effected capital gains and losses which result from changes in the
overall level of interest rates and amortize them into income over the
approximate remaining life of the investment sold. Interest-related
realized gains and losses, net of tax, resulting from the irrevocable sale,
transfer or reinsurance of a block of liabilities are credited to IMR and
amortized into income in the current period. Certain investment gains and
losses are deferred, net of tax, and added to the interest maintenance
reserve to be amortized using statutory formulas and included in investment
income over the remaining life of the investments sold.
Use of Estimates - The preparation of statutory financial statements in
accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Missouri requires 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.
Policy Reserves - Statutory reserves for life insurance policies, other
than single premium life insurance, have been computed primarily by the
Commissioners Reserve Valuation Method and Net Level reserve methods. These
methods take into account statutory valuation mortality rates and valuation
interest rates. Interest rates vary from 2.5% to 5.5% depending on year of
issue and type of insurance. Mortality is based on 1958 CSO, 1958 CET, and
1980 CSO also depending on issue year and type of insurance.
For single premium life insurance policies, reserves have been computed by
the Universal Life Insurance Reserves methods and are based on 1980 CSO
mortality with 4.0% interest.
Annuity reserves are calculated by the Commissioners Annuity Reserve
Valuation Method reserve method. This takes into account valuation interest
rates, future guaranteed interest rates, surrender charges available at
various dates into the future, and all other policy guaranteed provisions,
including the guaranteed settlement option rates in the policy forms.
Reclassifications - Certain reclassifications have been made to the 1997
statutory basis financial statements to conform to the 1998 presentation.
Fair Values of Financial Instruments - Management has identified the
following financial instruments in the statutory financial statements: cash
and short-term investments, bonds, preferred stocks, common stocks,
mortgage loans, policy loans, receivables, payables, other invested assets
and other liabilities. Fair values of bonds and stocks are presented in
Note 2. For the remaining instruments, management believes the carrying
value approximates fair value due to the short maturity, terms and
fluctuations in market conditions of those instruments. The estimates
presented herein are not necessarily indicative of the amounts that 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.
Codification - In March 1998, the NAIC adopted Codification of Statutory
Accounting Principles ("Codification"). The Codification, which is intended
to standardize regulatory accounting and reporting for the insurance
industry, is proposed to be effective January 1, 2001. However, statutory
accounting principles will continue to be established by individual state
laws and permitted practices and it is uncertain when, or if, the State of
Missouri will require adoption of Codification for the preparation of
statutory financial statements. The Company has not finalized the
quantification of the effects of the Codification on its statutory
financial statements.
2. INVESTMENTS
Market value information for investments are values determined by the NAIC
at December 31, 1998 and 1997, except for certain collateralized mortgage
obligation investments which are obtained from the Merrill Lynch Bloomberg
Data Base Service.
At December 31, 1998 and 1997, bonds having an amortized value of
$3,240,846 and $3,242,694, respectively, were on deposit with state
insurance departments in accordance with statutory reserve deposit
requirements.
The amortized cost, estimated market value and unrealized market gains and
losses of bonds are as follows:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S.
government corporations
<S> <C> <C> <C> <C>
and agencies $ 73,212,327 $ 2,501,245 $ 29,608 $ 75,683,964
Corporate securities 198,190,996 14,042,008 846,302 211,386,702
Mortgage-backed securities 63,221,053 3,335,116 23,201 66,532,968
---------- --------- ------ ----------
Total $ 334,624,376 $ 19,878,369 $ 899,111 $ 353,603,634
============= ============ ========= =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S.
government corporations
<S> <C> <C> <C> <C>
and agencies $ 38,329,834 $ 473,696 $ 4,596 $ 38,798,934
Corporate securities 184,052,004 11,612,394 467,179 195,197,219
Mortgage-backed securities 73,142,164 3,739,548 43,018 76,838,694
---------- --------- ------ ----------
Total $ 295,524,002 $ 15,825,638 $ 514,793 $ 310,834,847
============= ============ ========= =============
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
One year or less $ 11,429,675 $ 11,549,128
After one year through five years 53,229,025 55,115,289
After five years through ten years 42,166,060 44,445,583
After ten years 164,578,563 175,960,666
----------- -----------
271,403,323 287,070,666
Mortgage-backed securities 63,221,053 66,532,968
---------- ----------
$ 334,624,376 $ 353,603,634
============= =============
</TABLE>
The consideration received, carrying value and realized gains and losses on
sales and maturities of bonds and stocks were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Consideration received $ 54,466,624 $ 26,734,761
Carrying value 54,238,068 26,335,266
---------- ----------
Net realized gains $ 228,556 $ 399,495
========= =========
Investment gains $ 1,018,144 $ 448,925
Investment losses (789,588) (49,430)
-------- -------
Net realized gains $ 228,556 $ 399,495
========= =========
</TABLE>
Net realized gains of $788,727 and $295,082, less tax expenses of $268,166
and $50,163, were deferred and recorded in the interest maintenance reserve
during 1998 and 1997, respectively (see Note 3).
3. STATUTORY INVESTMENT RESERVES
The tables shown below present changes in the major elements of the Asset
Valuation Reserve and Interest Maintenance Reserve.
<TABLE>
<CAPTION>
1998 1997
Asset Valuation Reserve:
<S> <C> <C>
Balance, beginning of year $ 1,982,314 $ 2,419,712
Unrealized investment gains 104,885 48,278
Required by formula 165,944 (485,676)
------- --------
Balance, end of year $ 2,253,143 $ 1,982,314
=========== ===========
Interest Maintenance Reserve:
Balance, beginning of year $ 2,342,172 $ 2,376,933
Realized investment gains, net of tax 520,561 244,919
Amortization of investment gains (302,967) (279,680)
-------- --------
Balance, end of year $ 2,559,766 $ 2,342,172
=========== ===========
</TABLE>
4. FEDERAL INCOME TAXES
Under the Tax Reform Act of 1984, life insurance companies with assets of
less than $500,000,000 and taxable income less than $3,000,000 are allowed
a small life company deduction of 60% of taxable income. The deduction is
gradually phased out as income exceeds $3,000,000. This special deduction
has been applied to the Company and is the primary reason for the Company's
lower effective tax rate.
Under a previous tax act, certain items deductible from taxable income were
credited to a "policyholders' surplus" memorandum account. The 1984 Tax Act
froze the balance in this account and provides for taxation of the balance
if the companies do not meet certain limitations, fail to qualify as a life
insurance company for two consecutive years, or distribute the amounts to
shareholders. At December 31, 1998, "policyholders' surplus" amounted to
approximately $3,736,000. The Company has no present plans to distribute
the amount in "policyholders' surplus" and, as the Company qualifies as a
life company, no provisions for Federal income taxes on the "policyholders'
surplus" have been made in the accompanying statutory financial statements.
5. CAPITAL AND SURPLUS
Following is a schedule outlining activity in treasury stock and paid-in
surplus for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Number Treasury Paid-in
of Stock, and Contributed
Shares at Cost Surplus
<S> <C> <C> <C>
Balance, January 1, 1997 27,378 $ 749,518 $ 975,167
Purchases 5,870 181,576
Sales (50) (1,138) 416
--- ------ ---
Balance, December 31, 1997 33,198 929,956 975,583
Sales (650) (14,794) 8,365
---- ------- -----
Balance, December 31, 1998 32,548 $ 915,162 $ 983,948
====== ========= =========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Related parties provide the Company with certain administrative and
marketing services on a direct cost reimbursement basis. Expenses incurred
by the Company in 1998 and 1997 related to those services were $514,213 and
$470,286, respectively. The Company pays a majority of expenses on a direct
basis to third party vendors. In addition, commission and policy
administration expenses paid by the Company in 1998 and 1997 related to
policies serviced by related parties were $2,732,623 and $1,758,942,
respectively. The Company also had net amounts due from related parties of
$156,835 and due to related parties of $150 at December 31, 1998 and 1997,
respectively.
The Company has ceded $3,125,118 and $3,275,907 of life insurance in force
at December 31, 1998 and 1997, respectively, to an insurance company owned
by the President of the Company. American Service Life Insurance Company
("ASLIC") received $26,842 and $29,509 of ceded premium from the Company
for the years ended December 31, 1998 and 1997, respectively.
In January 1997, a related party dissolved its profit sharing plan. Upon
dissolution, approximately $2,700,000 was transferred to the Company's
annuity deposits account. Employees were given the option of keeping their
funds as an annuity or transferring the funds to various investment
vehicles offered by a bank.
Other invested assets at December 31, 1998 and 1997 of $3,835,985 and
$2,145,081, respectively, consists primarily of an investment in a limited
partnership, the general partner of which is the President of the Company.
The limited partnership is engaged in the speculative trading of commodity
futures, option contracts and other commodity interests, including forward
contracts in foreign currencies.
Effective January 1, 1997, the Company and ASLIC terminated an existing
agreement on a block of business in which ASLIC assumed 2.5% of the
Company's life insurance business and 2% of the Company's accident and
health insurance business.
7. REINSURANCE CEDED AND ASSUMED WITH OTHER INSURANCE COMPANIES
The Company reinsures portions of insurance it writes. The maximum amount
of insurance retained by the Company on any one life is $75,000.
A summary of reinsurance for each of the years in the two-year period ended
December 31, 1998 follows:
<TABLE>
<CAPTION>
Assumed Ceded
Direct from Other to Other Net
Year Description Amount Companies Companies Amount
<S> <C> <C> <C> <C>
1998 Life insurance
in force (000) $ 5,418,653 $ 33,172 $ (1,934,124) $ 3,517,701
Premiums:
Life and
supplemental
contracts 29,091,128 2,866,801 (4,955,107) 27,002,822
Accident
and health 137,593,931 13,242,294 (76,227,278) 74,608,947
1997 Life insurance
in force (000) $ 4,812,551 $ 24,234 $ (1,279,086) $ 3,557,699
Premiums:
Life and
supplemental
contracts 27,646,366 18,116,746 (4,760,535) 41,002,577
Accident
and health 112,779,590 2,282,783 (62,840,632) 52,221,741
</TABLE>
Future policy and claim reserves are stated after reduction of applicable
reinsurance reserves which aggregated approximately $10,231,000 in 1998 and
$8,547,000 in 1997 on life business, and $40,709,000 in 1998 and
$23,832,000 in 1997 on accident and health business. The Company is
contingently liable for the portion of the policies reinsured in the event
the reinsurance companies are unable to pay their portion of any resulting
claim.
8. REINSURANCE
The Company follows a policy of reinsuring portions of ordinary life and
accidental death coverages as well as certain accident and health risks.
The Company recorded a reinsurance recoverable of $5,901,594 and $4,809,276
as of December 31, 1998 and 1997, respectively, which is recorded in due
from other companies on the statements of admitted assets, liabilities and
capital and surplus. The Company was also primarily liable to reinsurers
for the amounts of $4,000,702 and $5,113,694 as of December 31, 1998 and
1997, respectively. Such liabilities are recorded in due to other companies
on the statements of admitted assets, liabilities and capital and surplus.
9. CONTINGENCIES
The Company is named defendant in various lawsuits by policyholders
alleging breach of the Company's covenant of good faith and fair dealings.
The lawsuits, although various in nature, are primarily the result of the
Company denying benefits, as it is the Company's interpretation that the
plaintiffs misrepresented the facts in applying for a policy or the claims
in question were not covered by the policy acquired. Lawsuits of this type
are commonplace in the industry. The Company intends to vigorously defend
against these lawsuits and is of the opinion that, even if the Company is
held liable, any monetary damages assessed would probably not exceed the
current reserves for these litigated claims, and if so, the amount would
not have a material impact on the Company's statutory financial statements.
10. ACQUISITIONS OF LINES OF BUSINESS
In January 1997, the Company assumed a line of business of another
insurance company. The Company received approximately $14,000,000 in cash
and $2,000,000 in policy loans to assume $16,000,000 in life insurance
policy reserves.
In June 1998, the Company initiated the process of assuming three
additional lines of business of other insurance companies. The Company
received approximately $29,728,000 in cash and $168,000 in policy loans,
agent's balances and due and deferred premiums to assume $674,000 in life
insurance policy reserves, $9,137,000 in accident and health reserves,
$813,000 in supplementary contract reserves and $19,727,000 in annuity
contract reserves. These agreements were initiated on an indemnity basis.
During fiscal 1999, the indemnity reinsurance will be converted to
assumption reinsurance upon the completion of various events outlined in
the contracts. The Company paid approximately $455,000 to assume these
lines of business.
******
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The following statutory basis financial statements of the Company are included
in Part B hereof:
1. Independent Auditors' Report on Statutory Financial Statements
2. Statutory Financial Statements for the years ended December 31, 1998
and 1997:
3. Statutory Statements of Admitted Assets, Liabilities and Capital and
Surplus
4. Statutory Statements of Income
5. Statutory Statements of Capital and Surplus
6. Statutory Statements of Cash Flow
7. Notes to Statutory Financial Statements
B. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Separate Account.*
2. Not Applicable.
3. (i) Draft Distribution and Principal Underwriters Agreement.
(ii) Draft Affiliation Agreement.
(iii) Draft Form of Selling Agreement.
4. (i) Individual Flexible Purchase Payment Deferred Variable and Fixed
Annuity Contract.
(ii) IRA Endorsement.
(iii) 403(b) Endorsement.
(iv) Unisex Endorsement.
(v) Company Completion Benefit.
(vi) Company Completion Benefit.
(vii) Loan Provision Endorsement.
(viii)401 Plan Endorsement.
(ix) 457 Plan Endorsement.
(x) Terminal Illness and Nursing Home or Hospital Confinement
Endorsement.
(xi) Roth 408(a) Endorsement.
5. Application Forms.
6. (i) Copy of Articles of Incorporation of the Company.*
(ii) Copy of the Bylaws of the Company.*
7. Not Applicable.
8. (i) IMSF Participation Agreement.
(ii) BBOI Participation Agreement.
9. Opinion and Consent of Counsel.
10. Independent Auditors Consent.
11. Not Applicable.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Company Organizational Chart.*
* Incorporated by reference to Registrant's Form N-4 (File Nos. 333-69647 and
811-09167) electronically filed on December 23, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Executive Officers and Directors of the Company:
Name and Principal Position and Offices
Business Address* with Depositor
- ----------------------- ----------------------------------------
Richard Forrest Jones Chief Executive Officer, Chief Financial
Officer, Director
Michael Eugene Hall Sr. Vice President, Director
Leland Eugene Schmitt Sr. Vice President, Secretary, Director
Robert Bruce Schorb Sr. Vice President, Director
Mark Linsley Burley Vice President of Administration
Benjamin Arthur Pullan Controller, Asst. Secretary
David James Smith III Vice President of Marketing and Advertising
John Collings Caton Vice President-Actuary
Dorothy Marie Jones Director
Albert Harry Wohlers Director
1440 N. Northwest Hwy.
Park Ridge, IL
George John Bereska Director
Richard L. Andrews Director
118 Hill Hall
Columbia, MO
Robert Eugene McGannon Director
922 Walnut
Kansas City, Missouri
Gale Thomas Bartow Consultant, Director
1201 Fairway Circle
Blue Springs, MO
* The principal business address for all officers and directors listed above
is 3130 Broadway, Kansas City, Missouri 64111-2406 except as noted above.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart is incorporated by reference to Registrant's
Form N-4 (File Nos. 333-69647 and 811-09167) electronically filed on December
23, 1998.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
ITEM 28. INDEMNIFICATION
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 mater
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.
The Bylaws of the Company (Article XII) provide, in part, that:
The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not Applicable.
(b) National Pension & Group Consultants, Inc. ("NPGC") is the principal
underwriter for the Policies. The following persons are the officers and
directors of NPGC. The principal business address for each officer and
director of NPGC is 3130 Broadway, Kansas City, MO 64111-2406.
Name and Principal Positions and Offices
Business Address with Underwriter
---------------- ----------------
Richard F. Jones President, Treasurer
Michael E. Hall Vice President
N. Susan Kirks Secretary
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
David James, Assistant Vice President, whose address is 3130 Broadway, Kansas
City, Missouri 64111-2406, maintains physical possession of the accounts, books
or documents of the Separate Account required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby 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 sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby 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 hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Fidelity Security Life Insurance Company ("Company") hereby represents
that the fees and charges deducted under the Policies described in the
Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant has caused this Registration Statement to be
signed on its behalf in the City of Kansas City and State of Missouri, on this
12th day of April 1999.
FSL SEPARATE ACCOUNT M
(Registrant)
By: FIDELITY SECURITY LIFE INSURANCE COMPANY
(Depositor)
By: /S/ LELAND EUGENE SCHMITT
________________________________________________
Leland Eugene Schmitt, Senior Vice President and
Secretary
FIDELITY SECURITY LIFE INSURANCE
(Depositor)
By: /S/ LELAND EUGENE SCHMITT
________________________________________________
Leland Eugene Schmitt, Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chief Executive Officer,
RICHARD F. JONES* Chief Financial Officer, 4/9/99
- ---------------------- --------
Richard F. Jones and Director (Principal
Executive Officer and
Principal Financial
Officer)
BENJAMIN A. PULLAN* Controller (Principal 4/9/99
- ---------------------- Accounting Officer) --------
Benjamin A. Pullan
/s/ LELAND E. SCHMITT Director 4/9/99
- ---------------------- --------
Leland E. Schmitt
ROBERT L. SCHORB* Director 4/9/99
- ---------------------- --------
Robert L. Schorb
MICHAEL E. HALL* Director 4/9/99
- ---------------------- --------
Michael E. Hall
DOROTHY M. JONES* Director 4/9/99
- ---------------------- --------
Dorothy M. Jones
GALE T. BARTOW* Director 4/9/99
- ---------------------- --------
Gale T. Bartow
*By /S/ LELAND E. SCHMITT
_______________________________________
Leland E. Schmitt, Power of Attorney
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Richard F. Jones, Chief Executive
Officer of Fidelity Security Life Insurance Company (FSL), a corporation duly
organized under the laws of the State of Missouri, do hereby appoint Leland E.
Schmitt and Benjamin A. Pullan, each individually, as my attorney and agent, for
me, and in my name as a Chief Executive Officer of FSL on behalf of FSL or
otherwise, with full power to execute, deliver and file with the Securities and
Exchange Commission all documents required for registration of a security under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ RICHARD F. JONES
- ------------------- --------------------
Linda K. Harper Richard F. Jones
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Richard F. Jones, Chief Financial
Officer of Fidelity Security Life Insurance Company (FSL), a corporation duly
organized under the laws of the State of Missouri, do hereby appoint Leland E.
Schmitt and Benjamin A. Pullan, each individually, as my attorney and agent, for
me, and in my name as a Chief Financial Officer of FSL on behalf of FSL or
otherwise, with full power to execute, deliver and file with the Securities and
Exchange Commission all documents required for registration of a security under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ RICHARD F. JONES
- ------------------- --------------------
Linda K. Harper Richard F. Jones
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Richard F. Jones, a Director of Fidelity
Security Life Insurance Company (FSL), a corporation duly organized under the
laws of the State of Missouri, do hereby appoint Leland E. Schmitt and Benjamin
A. Pullan, each individually, as my attorney and agent, for me, and in my name
as a Director of FSL on behalf of FSL or otherwise, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ RICHARD F. JONES
- ------------------- --------------------
Linda K. Harper Richard F. Jones
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Benjamin A. Pullan, Controller and
Assistant Secretary of Fidelity Security Life Insurance Company (FSL), a
corporation duly organized under the laws of the State of Missouri, do hereby
appoint Leland E. Schmitt, as my attorney and agent, for me, and in my name as
Controller and Assistant Secretary of FSL on behalf of FSL or otherwise, with
full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of a security under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ BENJAMIN A. PULLAN
- ------------------- ------------------------
Linda K. Harper Benjamin A. Pullan
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Leland E. Schmitt, a Director of
Fidelity Security Life Insurance Company (FSL), a corporation duly organized
under the laws of the State of Missouri, do hereby appoint Benjamin A. Pullan,
as my attorney and agent, for me, and in my name as a Director of FSL on behalf
of FSL or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ LELAND E. SCHMITT
- ------------------- ---------------------
Linda K. Harper Leland E. Schmitt
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Robert L. Schorb, a Director of Fidelity
Security Life Insurance Company (FSL), a corporation duly organized under the
laws of the State of Missouri, do hereby appoint Leland E. Schmitt and Benjamin
A. Pullan, each individually, as my attorney and agent, for me, and in my name
as a Director of FSL on behalf of FSL or otherwise, with full power to execute,
deliver and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ ROBERT L. SCHORB
- ------------------- --------------------
Linda K. Harper Robert L. Schorb
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Michael E. Hall, a Director of Fidelity
Security Life Insurance Company (FSL), a corporation duly organized under the
laws of the State of Missouri, do hereby appoint Leland E. Schmitt and Benjamin
A. Pullan, each individually, as my attorney and agent, for me, and in my name
as a Director of FSL on behalf of FSL or otherwise, with full power to execute,
deliver and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ MICHAEL E. HALL
- ------------------- -------------------
Linda K. Harper Michael E. Hall
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Dorothy M. Jones, a Director of Fidelity
Security Life Insurance Company (FSL), a corporation duly organized under the
laws of the State of Missouri, do hereby appoint Leland E. Schmitt and Benjamin
A. Pullan, each individually, as my attorney and agent, for me, and in my name
as a Director of FSL on behalf of FSL or otherwise, with full power to execute,
deliver and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ DOROTHY M. JONES
- ------------------- --------------------
Linda K. Harper Dorothy M. Jones
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that I, Gale Bartow, a Director of Fidelity
Security Life Insurance Company (FSL), a corporation duly organized under the
laws of the State of Missouri, do hereby appoint Leland E. Schmitt and Benjamin
A. Pullan, each individually, as my attorney and agent, for me, and in my name
as a Director of FSL on behalf of FSL or otherwise, with full power to execute,
deliver and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 22nd day of December, 1998.
WITNESS:
/S/ LINDA K. HARPER /S/ GALE T. BARTOW
- ------------------- -------------------
Linda K. Harper Gale T. Bartow
FSL SEPARATE ACCOUNT M
PRE-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON FORM N-4
INDEX TO EXHIBITS
EXHIBIT NO.
EX-99.B3(i) Draft Distribution and Principal Underwriters Agreement.
EX-99.B3(ii) Draft Affiliation Agreement.
EX-99.B3(iii) Draft Form of Selling Agreement.
EX-99.B4(i) Individual Flexible Purchase Payment Deferred Variable and Fixed
Annuity Contract.
EX-99.B4(ii) IRA Endorsement
EX-99.B4(iii) 403(b) Endorsement
EX-99.B4(iv) Unisex Endorsement
EX-99.B4(v) Company Completion Benefit Endorsement
EX-99.B4(vi) Company Completion Benefit Endorsement
EX-99.B4(vii) Loan Provision Endorsement
EX-99.B4(viii) 401 Plan Endorsement
EX-99.B4(ix) 457 Plan Endorsement
EX-99.B4(x) Terminal Illness Endorsement
EX-99.B4(xi) Roth 408(a) Endorsement
EX-99.B5(i) Form of Application.
EX-99.B5(ii) Form of Application.
EX-99.B5(iii) Form of Application.
EX-99.B8(i) IMSF Participation Agreement.
EX-99.B8(ii) BBOI Participation Agreement.
EX-99.B9 Opinion and Consent of Counsel.
EX-99.B10 Independent Auditors Consent.
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
THIS AGREEMENT is made this ___ day of April, 1999, by and among Fidelity
Security Life Insurance Company ("FSL"), a Missouri corporation, with its
principal offices in Kansas City, Missouri and each of the investment companies
as set forth in Schedule A attached hereto, as the same may be amended from time
to time, each acting on its own behalf and not on behalf of any other investment
company and each being solely responsible for its obligations, (each, a
"Separate Account" and collectively, the "Separate Accounts"), each of which is
a registered, open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") of FSL established pursuant to
Missouri Revised Statutes Section 376.309, with its principal offices in Kansas
City, Missouri, and National Pension and Group Consultants, Inc. (the
"Distributor"), a Missouri corporation.
RECITALS
WHEREAS, the Distributor is engaged principally in the business of
distributing variable insurance products and investment company shares, is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member of the National Association of
Securities Dealers, Inc. ("NASD"); and
WHEREAS, FSL and each Separate Account have registered variable annuity
contracts (the "Contracts") under the Securities Act of 1933, as amended (the
"1933 Act"), and desire to retain the Distributor to distribute the Contracts
and the Distributor is willing to distribute the Contracts in the manner and on
the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, FSL, each Separate Account, and the Distributor hereby agree
as follows:
1. Definitions. The terms "affiliated person," "assignment," "interested
person," and "majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified under the 1940 Act and
rules thereunder. In addition, the term "representative," when used in this
Agreement shall have the meaning specified under the 1934 Act and rules
thereunder.
2. Distribution and Principal Underwriting of the Contracts.
(a) Right to Distribute Contracts. FSL and each Separate Account hereby
grant to the Distributor the exclusive right, subject to the requirements of the
1933 Act, the 1934 Act, and the 1940 Act, and the terms set forth herein, to act
as agent for distribution of the Contracts and as principal underwriter during
the term of this Agreement. The Distributor shall at all times function as and
be deemed to be an independent contractor and nothing herein contained shall
constitute the Distributor or its agents, officers, or employees as officers or
employees of FSL solely by virtue of their activities in connection with the
sale of the Contracts hereunder. The Distributor will use its best efforts to
solicit applications for the Contracts and to undertake to provide sales
services relative to the Contracts and otherwise to perform all duties and
functions that are necessary and proper for the distribution of the Contracts in
accordance with applicable laws, including the rules of the NASD.
FSL and each Separate Account hereby authorize the Distributor to enter
into written sales or service agreements, on such terms and conditions as the
Distributor may determine are consistent with this Agreement, with
broker-dealers that are registered under the 1934 Act and are members of the
NASD and who agree to distribute the Contracts.
In performing its functions under this Agreement, Distributor may enter
into affiliation agreements with validly licensed insurance agencies in the
states and other jurisdictions that require such licensing or registration in
connection with sales or solicitation of the Contracts. All such insurance
agencies shall be properly authorized as required under applicable state law to
receive insurance commissions generated from sales of the Contracts.
Distributor represents that each insurance agency will be an associated
person of Distributor as that term is defined under Section 3(a)(18) of the
Securities Exchange Act of 1934, as amended. Distributor further represents that
it will maintain supervision and control over the activities of each Registered
Representative appointed by an insurance agency engaged in the solicitation and
sales of Contracts pursuant to this Agreement.
(b) Limits on Authority. This Agreement notwithstanding, FSL retains the
ultimate right to control the sale of the Contracts, including the right to
suspend sales in any jurisdiction or jurisdictions, to appoint and discharge
agents of FSL, or to refuse to sell a Contract to any applicant for any reason
whatsoever. Furthermore, the Distributor and its representatives shall not have
authority, on behalf of FSL: to make, alter, or discharge any Contract or other
variable contract entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any premium, or to receive
any monies or premiums. The Distributor shall not expend, nor contract for the
expenditure of, the funds of FSL. The Distributor shall not possess or exercise
any authority on behalf of FSL other than that expressly conferred on the
Distributor by this Agreement.
(c) Registration; Compliance with NASD Conduct Rules. The Distributor
represents and warrants to FSL that the Distributor is, and during the term of
this Agreement shall remain, registered as a broker-dealer under the 1934 Act,
admitted as a member with the NASD, and that the Distributor is and shall remain
during the term of this Agreement in compliance with Section 9(a) of the 1940
Act. To the extent necessary to distribute the Contracts, the Distributor shall
be duly registered or otherwise qualified under all applicable securities laws
of any state or other jurisdiction in which the Distributor is licensed or
otherwise authorized to distribute the Contracts, if required. The Distributor
shall be responsible for the training, supervision, and control of its
representatives for the purpose of the NASD Conduct Rules and all applicable
federal and state securities law requirements.
(d) Marketing Materials; Preparation and Filing. FSL shall design and
develop all promotional, sales, and advertising material relating to the
Contracts and any other marketing-related documents for use in the sale of the
Contracts, subject to review and approval by Distributor of such material and
documents in accordance with Section 2210 of the NASD Conduct Rules. The
Distributor shall be responsible for filing such material with the NASD and any
state securities regulatory authorities requiring such filings. FSL shall be
responsible for filing all promotional, sales, or advertising material, as
required, with any state insurance regulatory authorities. FSL shall be
responsible for preparing the Contract forms and filing them with applicable
state insurance regulatory authorities, and for preparing the prospectuses and
registration statements for the Contracts and filing them with the Securities
and Exchange Commission (the "SEC") and state regulatory authorities, to the
extent required. The parties shall notify each other expeditiously of any
comments provided by the SEC, NASD, or any securities or insurance regulatory
authority on such material, and will cooperate expeditiously in resolving and
implementing any comments, as applicable.
3. Books and Records.
(a) FSL, each Separate Account, and the Distributor shall cause to be
maintained and preserved all books of account and related financial records as
are required by the 1934 Act, the NASD, and any other applicable laws and
regulations. These books and records as to all transactions hereunder shall be
maintained so as to disclose clearly and accurately the nature and details of
the transactions. All the books and records maintained by FSL on behalf of the
Distributor, or by any person on behalf of FSL, or by the Distributor directly,
in connection with the offer and sale of the Contracts, shall be maintained and
preserved in conformity with the requirements of Rules 17a-3 and 17a-4 under the
1934 Act or the corresponding provisions of any future federal securities laws
or regulations. All such books and records shall be maintained and held by FSL
or by any person on behalf of FSL on behalf of and as agent for the Distributor,
whose property they are and shall remain. Such books and records shall be at all
times subject to inspection by the SEC in accordance with Section 17(a) of the
1934 Act. FSL shall have access to all records maintained in connection with the
Contracts.
(b) FSL, as agent for the Distributor, shall confirm to each purchaser of a
Contract, in accordance with Rule 10b-10 under the 1934 Act, acceptance of
premiums and such other transactions as are required by and in accordance with
Rule 10b-10 and administrative interpretations thereunder.
4. Reports.
(a) The Distributor shall cause FSL and each Separate Account to be
furnished with such reports as either or both may reasonably request for the
purpose of meeting reporting and record keeping requirements under the 1933 Act,
the 1934 Act, and the 1940 Act and rules thereunder, as well as the insurance
laws of the State of Missouri and any other applicable states or jurisdictions.
(b) The Distributor and FSL shall submit to all regulatory and
administrative bodies having jurisdiction over the present and future operations
of each Separate Account, any information, reports, or other material which any
such body by reason of this Agreement may request or require pursuant to
applicable laws or regulations.
5. Maintaining Registration and Approvals. FSL shall be responsible for
maintaining the registration of the Contracts with the SEC and any state
securities regulatory authority with which such registration is required, and
for gaining and maintaining approval of the Contract forms where required under
the insurance laws and regulations of each state or other jurisdiction in which
the Contracts are to be offered.
6. Issuance and Administration of Contracts. FSL shall be responsible for
issuing the Contracts and administering the Contracts and each Separate Account.
Distributor shall have full responsibility for the securities activities of all
persons employed by FSL, engaged directly or indirectly in the Contract
operations, and for the training, supervision, and control of such persons to
the extent of such activities.
7. Non-Exclusivity. FSL and each Separate Account agree that the services
to be provided by the Distributor hereunder are not to be deemed exclusive and
the Distributor is free to act as distributor of other variable insurance
products or investment company shares.
8. Affiliated Persons. It is understood that any Contract owner or agent of
each Separate Account may be a Contract owner, shareholder, director, officer,
employee, or agent of, or be otherwise interested in, the Distributor, any
affiliated person of the Distributor, any organization in which the Distributor
may have an interest or any organization which may have an interest in the
Distributor; that the Distributor, any such affiliated person, or any such
organization may have an interest in each Separate Account and that the
existence of any such dual interest shall not affect the validity hereof or any
transaction thereunder except as may otherwise be provided in the articles of
organization or by-laws of the Distributor or by specific provisions of
applicable law.
9. Indemnification.
(a) By FSL. FSL on its behalf and on behalf of each Separate Account shall
indemnify and hold harmless the Distributor and any officer, director, or
employee of the Distributor against any and all losses, claims, damages, or
liabilities, joint or several (including any investigative, legal, and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit, or proceeding or any claim asserted), to which
the Distributor and/or any such person may become subject, under any statute or
regulation, any NASD rule or interpretation, at common law or otherwise, insofar
as such losses, claims, damages, or liabilities:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in light of the circumstances in which they were made, contained
in any registration statement or in any prospectus for the Contracts; provided
that FSL shall not be liable in any such case to the extent that such loss,
claim, damage, or liability arises out of, or is based upon, an untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon information furnished in writing to FSL by the Distributor specifically for
use in the preparation of any such registration statement or any amendment
thereof or supplement thereto; or
(ii) result from any breach by FSL of any provision of this Agreement.
This indemnification agreement shall be in addition to any liability that FSL
may otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage, or
liability is due to the willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty by the person seeking indemnification.
(b) By The Distributor. The Distributor shall indemnify and hold harmless
FSL on its behalf and on behalf of each Separate Account and any officer,
director, or employee of FSL or each Separate Account against any and all
losses, claims, damages, or liabilities, joint or several (including any
investigative, legal, and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit, or proceeding or any
claim asserted), to which FSL and/or any such person may become subject under
any statute or regulation, any NASD rule or interpretation, at common law or
otherwise, insofar as such losses, claims, damages, or liabilities:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances in which they were made,
contained in any registration statement or in any prospectus for the Contracts;
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon information furnished in writing by the Distributor to FSL specifically for
use in the preparation of any such registration statement or any amendment
thereof or supplement thereto; or
(ii) result from any breach by the Distributor of any provision of this
Agreement; or
(iii) result from the Distributor's own misconduct or negligence.
This indemnification agreement shall be in addition to any liability that the
Distributor may otherwise have; provided, however, that no person shall be
entitled to indemnification pursuant to this provision if such loss, claim,
damage, or liability is due to the willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty by the person seeking indemnification.
(c) General. Promptly after receipt by a party entitled to indemnification
("indemnified person") under this Paragraph 9 of notice of the commencement of
any action as to which a claim will be made against any person obligated to
provide indemnification under this Paragraph 9 ("indemnifying party"), such
indemnified person shall notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, but failure to so notify
the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to the indemnified person otherwise than on account
of this Paragraph 9. The indemnifying party will be entitled to participate in
the defense of the indemnified person but such participation will not relieve
such indemnifying party of the obligation to reimburse the indemnified person
for reasonable legal and other expenses incurred by such indemnified person in
defending himself or itself.
The indemnification provisions contained in this Paragraph 9 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of the Distributor or FSL, as the case may be,
shall be entitled to the benefits of the indemnification provisions contained in
this Paragraph 9.
10. Regulation. This Agreement shall be subject to the provisions of the
1933 Act, the 1934 Act, and the 1940 Act and the rules, regulation, and rulings
thereunder, and of the NASD, as in effect from time to time, including such
exemptions and other relief as the SEC, its staff, or the NASD may grant, and
the terms hereof shall be interpreted and construed in accordance therewith.
11. Investigation and Proceedings.
(a) Each party hereto shall advise the other promptly of (i) any action of
the SEC or any authorities of any state or territory, of which it has knowledge,
affecting registration or qualification of each Separate Account and the
Contracts, or the right to offer the Contracts for sale, and (ii) the happenings
of any event that makes untrue any statement or which requires the making of any
change, in the registration statement or prospectus for the Contracts in order
to make the statements therein not misleading.
(b) FSL, each Separate Account, and the Distributor agree to cooperate
fully in any regulatory inspection, inquiry, investigation, or proceeding or any
judicial proceeding with respect to FSL, each Separate Account, or the
Distributor, their affiliates and their representatives to the extent that such
inspection, inquiry, investigation, or proceeding is in connection with the
Contracts distributed under this Agreement.
12. Duration and Termination of the Agreement.
(a) This Agreement shall become effective with respect to the Contracts as
of the date first written above, and shall continue in full force and effect
until termination or expiration. This Agreement may be amended at any time by
mutual agreement of the parties hereto.
(b) This Agreement shall continue in effect for two years from the date of
its execution, and thereafter from year to year, but only so long as such
continuance is specifically approved at least annually by (i) each Separate
Account's Board of Managers (the "Board"), or by a vote of the majority of the
outstanding voting securities of each Separate Account, and (ii) a vote of a
majority of those members of the Board who are not parties to this Agreement nor
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval.
(c) This Agreement may be terminated at any time for any reason by either
party upon 90 days' written notice to the other party, without payment of any
penalty. This Agreement may be terminated immediately at the option of either
party to this Agreement upon the other party's material breach of any provision
of this Agreement, unless such breach has been cured within 10 days after
receipt of notice from the non-breaching party of such breach.
(d) This Agreement shall automatically terminate in the event of its
assignment. (The term "assigned" shall not include any transaction exempted from
Section 15(b)(2) of the 1940 Act).
(e) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the obligation to settle accounts, and the
provisions contained in Paragraph 9 regarding indemnification agreements.
13. Rights, Remedies, etc. are Cumulative. 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. Failure of either
party to insist upon strict compliance with any of the conditions of this
Agreement shall not be construed as a waiver of any of the conditions, but the
same shall remain in full force and effect. No waiver of any of the provisions
of this Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
14. Interpretation. This Agreement constitutes the whole agreement between
the parties hereto with respect to the subject matter hereof, and supersedes all
prior oral or written understandings, agreements, or negotiations between the
parties with respect to such matter. No prior writing by or between the parties
with respect to the subject matter hereof shall be used by either party in
connection with the interpretation of any provisions of this Agreement.
15. Severability. This is a severable Agreement. In the event that any
provision of this Agreement would require a party to take action prohibited by
applicable federal or state law or prohibit a party from taking action required
by applicable federal or state law, then it is the intention of the parties
hereto that such provision shall be enforced to the extent permitted under the
law, and, in any event, that all other provisions of this Agreement shall remain
valid and duly enforceable as if the provision at issue had never been a part
hereof.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
be deemed one instrument.
17. Notices. All notices and other communications provided for hereunder
shall be in writing and shall be either hand-delivered, transmitted by
registered or certified United States mail with return receipt requested, or by
overnight mail by a nationally recognized courier. All notices shall be
effective upon delivery and shall be addressed as follows:
(a) If to FSL:
Fidelity Security Life Insurance Company
3130 Broadway
Kansas City, Missouri 64111
Attention: ____________________
(b) If to each Separate Account:
Fidelity Security Life Insurance Company, Separate Account
3130 Broadway
Kansas City, Missouri 64111
Attention: ____________________
(c) If to the Distributor:
National Pension and Group Consultants, Inc.
3130 Broadway
Kansas City, Missouri 64111
Attention: ____________________
or to such other address as FSL, each Separate Account, or the Distributor shall
designate by written notice to the other parties.
18. Miscellaneous. Captions in this Agreement are included for convenience
or reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, Fidelity Security Life Insurance Company, each Separate
Account, and the Distributor have caused this Agreement to be executed in their
names and on their behalf by and through their duly authorized officer on the
day and year first above written.
FIDELITY SECURITY LIFE INSURANCE COMPANY
By:___________________________________________
Name:_________________________________________
Title:__________________________________________
EACH OF THE SEPARATE ACCOUNTS
LISTED ON SCHEDULE A, ATTACHED HERETO.
By: _________________________________________
Name: _______________________________________
Title:________________________________________
NATIONAL PENSION AND GROUP CONSULTANTS, INC.
By: ___________________________________________
Name:_________________________________________
Title:__________________________________________
SCHEDULE A
TO THE DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
List of Separate Accounts
FSL Separate Account M
AFFILIATION AGREEMENT
THIS AGREEMENT is made among Fidelity Security Life Insurance Company (the
"Insurance Company"), National Pension and Group Consultants, Inc.
("Underwriter") and Forrest T. Jones & Company (the "Selling Entity"), an
affiliated insurance agency of Underwriter.
In consideration of the mutual promises contained in this agreement, the
parties agree as follows:
1. Purpose and Background. The Underwriter, the Insurance Company and
Selling Entity enter into this agreement for the purpose of authorizing Selling
Entity through certain of its insurance licensed agents to solicit applications
for such life insurance, annuity contracts and such other insurance products as
shall be mutually agreed upon (collectively, the "Insurance Policies") as are
listed on the Schedule Pages. The Schedules Pages may be amended from time to
time to add other Insurance Policies.
2. Licensing and Appointment. The Insurance Company has appointed
Underwriter to serve as the distributor and principal underwriter of the
variable life or variable annuity Insurance Policies. The Underwriter is
registered with the SEC, the National Association of Securities Dealers, Inc.
("NASD") and all appropriate state securities regulatory authorities as a
broker/dealer.
3. Securities Licensing/NASD Compliance. Underwriter shall at all times
when performing its functions under this agreement, be registered as a
securities broker with the SEC and NASD and licensed or registered as a
securities broker/dealer in the states and other local jurisdictions that
require such licensing or registration in connection with sales of variable
products.
Underwriter agrees to abide by all applicable state and federal rules and
regulations promulgated thereunder. For the purpose of compliance with any such
laws or regulations, Underwriter acknowledges and agrees that in performing
services covered by this agreement, it is acting in the capacity of an
independent broker and dealer, as defined by the By-Laws of the NASD, and not as
an agent or employee of any registered investment company.
4. Insurance Licensing. Selling Entity represents that at all times when
performing its functions under this agreement, it shall be validly licensed as
an insurance agency in the states and other jurisdictions that require such
licensing or registration in connection with sales or solicitation of the
Insurance Policies. Selling Entity represents that it is properly authorized as
required under applicable state law to receive insurance commissions generated
from sales of the Insurance Policies.
5. Selling Entity; Sale and Solicitation of Variable Insurance Policies
Underwriter and Selling Entity represent that they will engage in the
solicitation and sale of Insurance Policies in accordance with applicable
securities laws and regulations. In this process, Underwriter represents that
Selling Entity is an associated person as that term is defined under Section
3(a)(18) of the Securities Exchange Act of 1934, as amended. Underwriter further
represents that it will maintain supervision and control over the activities of
each of the validly insurance licensed representatives appointed by Selling
Entity engaged in the solicitation and sales of Insurance Policies pursuant to
this agreement. Each such representative will be a registered representative of
Underwriter (each, a "Registered Representative").
Underwriter will ensure that Selling Entity will be licensed as required to
receive commissions for the sale of variable products in each applicable state.
Additionally, Underwriter represents that individuals who are not properly
licensed under securities laws and regulations will not engage in any way in the
solicitation or sale of variable Insurance Policies.
Underwriter agrees that it will maintain such books and records (including
but not limited to FOCUS reports) as are necessary to comply with the rules of
the NASD or other self-regulatory organizations.
6. Appointment of Selling Agency. The Insurance Company and Underwriter
hereby authorize the Selling Entity to sell those Insurance Policies listed on
the Schedule Pages, as such pages may be amended from time to time, including
the variable Insurance Policies through its validly appointed and licensed
Registered Representatives. Selling Entity is also appointed to perform certain
administrative services necessary to facilitate the solicitation and sales of
the Insurance Policies.
Selling Entity is appointed a general agency of Insurance Company and is
authorized to sell the Insurance Policies listed on the Schedule Pages.
Pursuant to the appointments described in this Section 6, Selling Entity
must comply with the following requirements:
(a) All securities services provided in connection with the sale of
variable Insurance Policies will be through Underwriter and its Registered
Representatives;
(b) All individuals soliciting sales of Insurance Policies will be properly
licensed and appointed by the Insurance Company as required in accordance with
the state insurance laws of those jurisdictions in which the Insurance Policies
are distributed;
(c) Unregistered employees will not engage in any securities activities,
nor receive any compensation based on transactions in insurance securities or
the provision of securities advice;
(d) Underwriter will maintain books and records relating to transactions in
insurance securities at its home office; and
(e) Customers purchasing variable Insurance Policies will make their checks
payable to Insurance Company unless a netting agreement has been entered into.
For the purpose of compliance with any applicable state insurance laws or
regulations promulgated under them, Underwriter and the Selling Entity
acknowledge and agree that solely in performing the insurance-selling functions
reflected by this agreement, they or the Registered Representative are acting as
the agent of the Insurance Company, and in that capacity are authorized only to
solicit applications from the public for the Insurance Policies.
7. Responsibility for Registered Representatives Activities. Underwriter
and Selling Entity will select and supervise persons whom they will train to
solicit applications for the Insurance Policies in conformance with applicable
state and federal laws and regulations. Persons engaged in the sale of variable
Insurance Policies will be registered representatives of Underwriter in
accordance with the rules of the NASD. All individuals soliciting sales of
Insurance Policies will be properly licensed and appointed by the Insurance
Company in accordance with the state insurance laws of those jurisdictions in
which the Insurance Policies may lawfully be distributed.
The Insurance Company shall have authority to determine whether to appoint
or terminate a particular Registered Representative of the Underwriter as an
insurance agent of the Insurance Company. Underwriter agrees to cooperate in
supplying information or making recommendations necessary to complete such
insurance agent appointments.
Additionally, Underwriter represents and warrants that it has reviewed the
"General Recommendation Letter" set forth as Exhibit 1 to this agreement and
that all of the information contained in the General Recommendation Letter is
true for each of its agents for whom it seeks appointment. Should Underwriter
become aware of any information which would contradict the representations
contained in the General Letter of Recommendation for any of its Registered
Representatives who the Insurance Company has appointed, it will promptly
provide such information to the Insurance Company.
Underwriter further represents and warrants that each of its Registered
Representatives who have been appointed by the Insurance Company will continue
to meet the requirements set forth in the General Letter of Recommendation.
In jurisdictions which require that Insurance Company perform background
information prior to appointment, Underwriter agrees to provide such information
as may be necessary to perform such review, including but not limited to
obtaining permission from each Registered Representative who seeks such
appointment.
Upon request by Underwriter, Selling Entity shall furnish such appropriate
records as may be necessary to establish supervision of its Registered
Representatives in connection with sales of the Insurance Policies. Upon
Underwriter's review of such supervisory materials, Selling Entity shall make
such changes to its registered representatives' rules of conduct as Underwriter
may reasonably request but only to the extent that such requests relate to sales
of the Insurance Policies.
Selling Entity shall notify Underwriter if any Registered Representative
ceases to be a registered representative of Selling Entity or ceases to maintain
the proper licensing required for the sale of the Insurance Policies or fails to
meet material rules and standards imposed by either Underwriter or Selling
Entity.
8. Suitability of Sales of Contract. Underwriter will review all contract
and policy applications for suitability, completeness, and correctness as to
form. Underwriter shall also be responsible for ensuring compliance with NASD
suitability rules and standards applicable to purchases of the Insurance
Policies and that all sales are in compliance with applicable laws and
regulations.
Underwriter will promptly, but in no case later than the end of the
business day that Underwriter receives applications and payment, forward to the
Insurance Company, at the address provided, all such applications found suitable
and in good form, together with any payments received with such applications.
Underwriter will immediately return to the applicant all applications deemed by
Underwriter to be unsuitable together with any payments received therewith. The
Insurance Company reserves the right to reject any Insurance Policy application
and return any payment made in connection with an application which is rejected.
Insurance Policies issued will be forwarded to Underwriter, or at the direction
of Underwriter, to the Registered Representative for delivery to the Contract
Owner. Underwriter shall obtain and retain a written receipt for each Insurance
Policy which it or its Registered Representative delivers.
9. Solicitation/Representatives Concerning the Contracts. Underwriter will
perform the selling functions required by this agreement in accordance with the
terms and conditions of any applicable prospectus(es). Underwriter will make
only representations included in the prospectus or in any authorized
supplemental material. No sales solicitations, including the delivery of
supplemental sales literature or other such materials, shall occur, be delivered
to, or used with a prospective purchaser unless accompanied or preceded by
appropriate and then-current prospectus(es).
Any material prepared or used by Selling Entity or its Registered
Representative, which describes in whole or in part or refers by name or form to
any of the Insurance Policies or underlying funds or uses the name of the
Insurance Company, Underwriter or the logos or service marks of any of them, or
the name, logos or service marks of any "Affiliated Company" of any of them, as
that term is defined in Section 2(a)(2) of the Investment Company Act of 1940,
must be approved by Underwriter in writing prior to any such use.
Selling Entity acknowledge that information pertaining to Underwriter and
Insurance Company is proprietary in nature. Selling Entity agrees that it will
not disclose any information concerning Insurance Company's or Underwriter's
products, services or programs to any person for consideration or otherwise
unless Insurance Company and/or Underwriter consent to such use in writing.
Selling Entity agrees that, following the termination of this agreement for any
reason, they will not enter into any plan, program scheme or course of action
which would systematically attempt to induce any Contract owner(s) away from
Insurance Company, except that Selling Entity may always recommend a move to
another company's product if such move would be more suitable than Insurance
Company's product for a particular client or clients or in the event of a
detrimental change in the financial stability of Insurance Company which Selling
Entity believes would jeopardize its clients.
10. Client Information/Confidential Information During the term of this
agreement Insurance Company and Underwriter will have access to confidential
information ("Confidential Information"). Confidential Information includes, but
is not limited to, the names, addresses, telephone numbers, social security
numbers, documents, profiles and portfolios of Registered Representatives and of
applicants for and purchasers of Insurance Policies. Neither Underwriter nor
Insurance Company shall use, copy or disclose such Confidential Information in
any systematic manner, except as required to perform services under this
agreement. The parties acknowledge that the Insurance Company may continue to
service the Insurance Policies sold pursuant to this agreement, including, as
appropriate, to accept additional contributions and premium for and to modify,
add, or exchange coverage to the Insurance Policy of a policyowner who purchased
from an agent of the Selling Entity.
The parties also understand that Insurance Company and/or Underwriter may
respond to policyowners inquiries concerning other Insurance Company products
and services. The parties also agree that this Section 10 shall not apply to
individuals with whom the Underwriter or Insurance Company have a pre-existing
relationship. Similarly, the parties understand that Selling Entity may have
access to trade secrets belonging to the Insurance Company and the Underwriter.
Selling Entity agrees that it will not use or disclose such trade secrets
without the written permission of the Insurance Company and/or the Underwriter,
as the case may be.
11. Compensation. Compensation payable to Underwriter on sales of the
Insurance Policies sold by Registered Representatives will be paid to the
Selling Entity designates, in accordance with the compensation schedule(s) set
forth on the Schedule Pages. Such Schedule Pages may be amended from time to
time and compensation will be paid in accordance with the compensation schedule
in effect at the time the premium payments are received by the applicable
Insurance Company (in the case of annuities) or at the time the applications are
received (in the case of life insurance). The Insurance Company and Underwriter
reserve the privilege of revising the compensation schedules set forth in the
Schedule Pages at any time with reasonable prior written notice to Selling
Entity.
12. Assignment of Agreement. This agreement may not be assigned except by
mutual consent and will continue, subject to the termination by any party on
written notice to the other party, except that in the event Selling Entity
ceases to be validly licensed as an insurance agency in the states and other
jurisdictions that require such licensing or registration in connection with
sales or solicitation of the Insurance Policies, this agreement will immediately
terminate. Underwriter reserves the right to designate, at its sole discretion,
an alternative Principal Underwriter for the distribution of the Contracts
covered by this agreement with 30 days prior written notice to Selling Entity,
except in the event that FSL replaces Underwriter as discussed below.
The parties understand that if FSL replaces Underwriter any such
substituted party will automatically assume all of Underwriter's rights and
duties under this agreement. FSL may assume such functions itself, or assign
these to affiliated, properly licensed broker-dealers. FSL will notify Selling
Entity if any such substitution occurs.
13. Indemnification. No party to this agreement will be liable for any
obligation, act or omission of the other. Each party to this agreement will hold
harmless and indemnify the (1) Registered Investment Companies which are used to
fund the Contracts, (2) Insurance Company, (3) Underwriter and (4) Selling
Entity, as appropriate, for any loss or expense suffered as a result of the
violation or noncompliance by any party to this agreement of any of the terms of
this agreement or of any applicable law or regulation. No party nor any of its
employees or agents will be liable to the other party for any direct, special or
consequential damages arising out of or in connection with the performance of
any services pursuant to this agreement. Each party to this agreement agrees to
indemnify and hold harmless any other affected party for any losses, claims,
damages or liabilities (or actions in respect thereof) which arise out of or are
based on any untrue statement or alleged untrue statement of a material fact
required to be stated or necessary to make the statements made not misleading in
the connection with the solicitation, sale, or administration of the of the
Insurance Policies.
14. Notices. All notices to the Insurance Company or Underwriter relating
to this agreement should be sent to the attention of :
Fidelity Security Life Insurance Company
3130 Broadway
Kansas City, Missouri 64111
Attention: ____________________
All notices to Selling Entity should be sent to the attention of:
Forrest T. Jones & Company
3130 Broadway
Kansas City, Missouri 64111
Attention: ____________________
15. Independent Contractors. Underwriter and Insurance Company are
independent contractors with respect to Selling Entity and Registered
Representatives.
16. Governing Law. This agreement shall be construed in accordance with and
governed by the laws of the state of Missouri.
17. Amendment of Agreement. Except as provided in this section, the terms
of this agreement may not be amended except by the written agreement of all
parties hereto. Notwithstanding the requirement that any amendment to this
agreement be in writing, the parties agree that Underwriter reserves the right
to amend this agreement at any time, and the submission of an application by
Selling Entity after notice of any such amendment has been sent to the other
parties shall constitute the other parties' agreement to any such amendment. The
parties also agree that Insurance Company may amend the Compensation Schedules
attached to Exhibit 1 of this agreement at any time upon reasonable notice in
writing to the Selling Entity. Following provision of notice of a change in
compensation schedules, submission of additional business shall operate to
ratify acceptance of such schedules.
18. Termination. This agreement may be terminated, without cause, by any
party upon 90 days' prior written notice, and may be terminated, for failure to
perform satisfactorily or other cause, by any party immediately; and shall be
terminated if Selling Agent shall cease to be a validly licensed as an insurance
agency in the states and other jurisdictions that require such licensing or
registration in connection with sales or solicitation of the Insurance Policies.
Notwithstanding, the following sections shall survive any such termination:
Sections 7, 9, 10 11, 13, 16, 19, 20, and 21.
19. Waiver Upon Termination. Failure of any party to terminate this
agreement for any of the causes set forth in this agreement will not constitute
a waiver of the right to terminate this agreement at a later time for any of
these causes.
20. Books and Records. Selling Entity shall maintain all books and records
required by applicable laws and regulations in connection with the offer and
sale of the Insurance Policies. The books, accounts and records of Selling
Entity relating to the sale of the Insurance Policies shall be maintained so as
to clearly and accurately disclose the nature and details of all transactions.
Underwriter and Insurance Company reserve the right to request reasonable
periodic inspection of such books and records as relate to the sale and
solicitation of the Insurance Policies.
21. Cooperation with Regulatory Investigations. Selling Entity and
Underwriter and Insurance Company agree to cooperate fully in any insurance,
securities or other regulatory investigation, inquiry, inspection, or proceeding
or in any judicial proceeding arising in connection with the Insurance Policies.
Selling Entity and Underwriter shall cooperate with each other to resolve any
customer complaint, and each agrees to promptly notify the other upon receipt of
notice of any investigation, claim, or proceeding involving the Insurance
Policies or any situation which would materially affect the respective party's
ability to perform its obligations hereunder. Each of the parties to this
agreement agrees that it will promptly notify the other parties of any material
claim of which it becomes aware involving the sale or solicitation of the
Insurance Policies.
22. Fidelity Bond. Underwriter represents that all of its directors,
officers, employees and Registered Representatives are and shall be continuously
covered by a blanket fidelity bond, covering for larceny and embezzlement,
issued by a reputable bonding company. This bond shall be maintained at
Underwriter's expense and shall be, at least, of the form, type and amount
required under the NASD Rules of Fair Practice.
23. Counterparts. This agreement may be executed in one or more
counterpart, each of which shall be deemed in all respects an original.
24. Arbitration. Selling Entity and Underwriter and Insurance Company agree
that any dispute or claim arising out of the terms of this agreement shall be
submitted and settled in accordance with the Code of Arbitration Procedure of
the NASD.
In reliance on the representations set forth and in consideration of the
undertakings described herein, the parties represented below do hereby contract
and agree. This agreement is effective ________________.
FIDELITY SECURITY LIFE INSURANCE COMPANY
By:__________________________________________
Name:________________________________________
Title:_________________________________________
NATIONAL PENSION AND GROUP CONSULTANTS, INC.
By: _____________________________________
Name:___________________________________
Title:____________________________________
FORREST T. JONES & COMPANY
By:_____________________________
Name: __________________________
Title:____________________________
Exhibit 1
Affiliation Agreement Schedule Page
Selling Entity is authorized to solicit applications for the life insurance
policies, annuity contracts and the other insurance products listed below:
FSL Flexible Premium Variable Annuity
All products described herein are subject to state availability. Compensation
Schedules and additional terms for each product described above are listed on
the following pages. Consistent with the terms of this agreement, Compensation
Schedules may be changed at any time.
Payment of compensation for any product is subject to the following conditions
and limitations, in addition to any applicable provision of this agreement.
1. Chargebacks of Commissions. If the Insurance Company returns all or a
portion of a premium paid with respect to an Insurance Policy, Selling Entity
shall be obligated to refund to Underwriter applicable commissions on the amount
of such premium only where:
(a) consistent with this agreement, the Insurance Policy solicited is
returned as not taken under the policy "free look" provisions;
(b) premiums are refunded due to overpayments, errors in billing or in the
timing of automatic premium collection deductions, or errors resulting in policy
reissue;
(c) the check delivered in payment of any contract premium does not clear
and the premium collection deductions, or errors resulting in policy reissue;
(d) the Insurance Policy on which commission payments were made is
terminated or premium is refunded because the Registered Representative(s) or
Selling Entity who sold the Insurance Policy committed an act, error or omission
which materially contributed to the termination of the Insurance Policy or the
need to return premium;
(e) the Insurance Company rejects the application;
(f) a judicial or regulatory authority directs the Insurance Company to
return premium payments without assessment of a surrender charge;
(g) the applicant's initial premium on a 1035 exchange is returned
because the expected rollover amount from another policy or contract is not
transferred due to the exchange not meeting the legal requirements to qualify
for a tax-free exchange;
(h) the Insurance Company returns unearned premium on a life insurance
contract as required by the provisions of the policy;
(i) the Insurance Company determines that it has a legal liability to
return premiums on a life insurance contract within the first year after the
Insurance Policy is issued; or
(j) the Insurance Company and Selling Entity mutually agree to return all
or a portion of a premium with respect to a particular contract or policy.
2. Free Look Provision. If any Insurance Policy is redeemed at any time or
if within 45 days after confirmation by the Insurance Company of any premium
payments credited to an Insurance Policy, that Insurance Policy is tendered for
full or partial surrender, or the life at risk thereunder dies, then, at the
option of the Insurance Company or Underwriter, no commission will be payable
with respect to such premium payments and any commission previously paid for
said premium payments must be refunded to the Insurance Company or Underwriter
as directed by Underwriter. Underwriter agrees to notify Selling Entity with 10
business days after the request for repurchase or redemption, or notification of
death of the life at risk is received by the Insurance Company.
3. Rebating. If Selling Entity or any Registered Representative rebates or
offers to rebate all or any part of a premium on an Insurance Policy issued by
the Insurance Company in violation of applicable state insurance laws or
regulations, or if Selling Entity or any Registered Representative shall
withhold any premium on an Insurance Policy issued by the Insurance Company, the
same may be grounds for termination of this agreement by Underwriter. If Selling
Entity induces or attempts to induce any Insurance Policy owner to relinquish an
Insurance Policy except under circumstances where there is reasonable grounds
for believing the policy, contract or certificate is not suitable for such
person, Selling Entity's right to receive any compensation under this agreement
shall cease and terminate.
COMMISSION SCHEDULE FOR
ANNUITY CONTRACTS
This Schedule is attached to and is made a part of this agreement. In no
event will FSL be liable for the payment of any compensation with respect to any
solicitation made, in whole or in part, by any person not appropriately licensed
to conduct such activities.
The compensation arrangements described below shall govern commission
payouts. Commission will be paid in accordance with instructions received from
Selling Entity.
1. Commissions based on premium payments will be based only on premium
actually received and accepted by the Insurance Company.
2. No commission will be earned on the initial exchange of any FSL
contract. Subsequent premium payments will, as permitted by law be eligible for
commission payments.
3. The Insurance Company reserves the right to reduce first year
commissions and renewal commissions if necessary, on any annuity contracts sold
to residents of any jurisdiction which imposes new, and/or additional premium or
similar taxes or charge. In such event, the Insurance Company will notify
Selling Entity.
4. If, within 45 days after confirmation of any premium credited to any
Insurance Policy by the Insurance Company, the Insurance Policy is canceled or
surrendered, or if the Insurance Policy owner shall die, then, at the option of
the Insurance Company, no commissions will be payable with respect to that
premium and any commission previously paid on that premium must be refunded to
the Insurance Company.
Compensation is listed by annuity product as follows:
EXHIBIT 2
GENERAL LETTER OF RECOMMENDATION
Underwriter ("we") hereby represent and warrants to Fidelity Security Life
Insurance Company ("FSL") that all the following requirements will be fulfilled
in conjunction with the submission of licensing/appointment papers for all
applicants as sub-agents submitted by Underwriter. Underwriter will, upon
request, forward proof of compliance with same to FSL.
1. We have made a thorough and diligent inquiry and investigation relative
to each applicant's identity, residence and business reputation and declare that
each applicant is personally known to us, has been examined by us, is known to
be of good moral character, has a good business reputation, is reliable, is
financially responsible and is worthy of appointment by FSL. Each individual is
trustworthy, competent and qualified to act as an agent for FSL to hold himself
out in good faith to the general public. We will notify FSL of any applicant who
has been discharged from bankruptcy within three years preceding the date of
application.
2. We have on file a B-300, B-301, or U-4 form which was completed by each
applicant. We have fulfilled all the necessary investigative requirements for
the registration of each applicant as a registered representative through our
NASD member firm, and each applicant is presently registered as an NASD
registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the findings of
all investigative information is favorable.
3. We certify that all education requirements have been met for the
specific state each applicant is requesting a license in, and that, all such
persons have fulfilled the appropriate examination, education and training
requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license, we
certify that those items forwarded to FSL are those of the applicant and the
securities registration is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a license with
FSL in order to place insurance chiefly and solely on his life or property,
lives or property of his relatives, or property or liability of his associates.
6. We certify that each applicant will receive close and adequate
supervision, and that we will make inspection when needed or any or all risks
written by these applicants, to the end that the insurance interest of the
public will be properly protected.
7. We will be responsible for all acts and omissions of each applicant
within the scope of his agency appointment during any period of a temporary
license and a permanent license. This responsibility is full and complete
without regard to any technical distinction between this relationship and that
which exists in law between principal and agent.
8. We will not permit any applicant to transact insurance as an agent until
duly licensed therefore. No applicants have been given a contract or furnished
supplies, nor have any applicants been permitted to write, solicit business, or
act as an agent in any capacity, and they will not be so permitted until the
certificate of authority or license applied for is received.
FORM OF
SELLING AGREEMENT
THIS AGREEMENT is made among Fidelity Security Life Insurance Company (the
"Insurance Company"), National Pension and Group Consultants, Inc.
("Underwriter") and ___________ ("Broker/Dealer"), together with its affiliated
insurance agencies (collectively, the "Selling Entities") as are specified on
the Selling Agreement Schedule Pages attached to this agreement as Exhibit 1
(the "Schedule Pages").
In consideration of the mutual promises contained in this agreement, the
parties agree as follows:
1. Purpose and Background. The Underwriter, the Insurance Company,
Broker/Dealer and Selling Entities enter into this agreement for the purpose of
authorizing Broker/Dealer and Selling Entities through certain of their
insurance licensed agents to solicit applications for such life insurance,
annuity contracts and such other insurance products as shall be mutually agreed
upon (collectively, the "Insurance Policies") as are listed on the Schedule
Pages. The Schedules Pages may be amended from time to time to add other
Insurance Policies and to note any additional insurance agency affiliates.
2. Licensing and Appointment. The Insurance Company has appointed
Underwriter to serve as the distributor and principal underwriter of the
variable life or variable annuity Insurance Policies. The Underwriter is
registered with the SEC, the National Association of Securities Dealers, Inc.
("NASD") and all appropriate state securities regulatory authorities as a
broker/dealer.
The Underwriter hereby appoints the Broker/Dealer to distribute the
variable Insurance Policies listed on the Schedule Pages through its validly
insurance licensed representatives ("Registered Representatives").
3. Securities Licensing/NASD Compliance. Broker/Dealer shall at all times
when performing its functions under this agreement, be registered as a
securities broker with the SEC and NASD and licensed or registered as a
securities broker/dealer in the states and other local jurisdictions that
require such licensing or registration in connection with sales of variable
products.
Broker/Dealer agrees to abide by all applicable state and federal rules and
regulations promulgated thereunder. For the purpose of compliance with any such
laws or regulations, Broker/Dealer acknowledges and agrees that in performing
Broker/Dealer services covered by this agreement, it is acting in the capacity
of an independent broker and dealer, as defined by the By-Laws of the NASD, and
not as an agent or employee of either Underwriter or any registered investment
company.
4. Insurance Licensing. Broker/Dealer and Selling Entities represent that
at all times when performing their functions under this agreement, each of them
shall be validly licensed as an insurance agency in the states and other
jurisdictions that require such licensing or registration in connection with
sales or solicitation of the Insurance Policies. Broker/Dealer represents that
the Selling Entities are properly authorized as required under applicable state
law to receive insurance commissions generated from sales of the Insurance
Policies.
5. Selling Entities; Sale and Solicitation of Variable Insurance Policies
Broker/Dealer and Selling Entities each represent that they will engage in
the solicitation and sale of Insurance Policies in accordance with applicable
securities laws and regulations. In this regard, Broker/Dealer may have
established affiliation agreements with each of the Selling Entities pursuant to
which such agencies may receive commissions from the sale of variable insurance
products.
In this process, Broker/Dealer represents that each Selling Entity is an
associated person as that term is defined under Section 3(a)(18) of the
Securities Exchange Act of 1934, as amended. Broker/Dealer further represents
that it will maintain supervision and control over the activities of each
Registered Representative appointed by a Selling Entity engaged in the
solicitation and sales of Insurance Policies pursuant to this agreement.
Broker/Dealer will ensure that each Selling Entity designated to receive
commissions on behalf of Broker/Dealer will be licensed as required to receive
commissions for the sale of variable products in each applicable state.
Additionally, Broker/Dealer represents that individuals who are not properly
licensed under securities laws and regulations will not engage in any way in the
solicitation or sale of variable Insurance Policies.
Broker/Dealer agrees that it will maintain such books and records
(including but not limited to FOCUS reports) as are necessary to comply with the
rules of the NASD or other self-regulatory organizations.
6. Appointment of Broker/Dealer and Selling Agencies. The Insurance Company
and Underwriter hereby authorize the Broker/Dealer and the Selling Entities to
sell those Insurance Policies listed on the Schedule Pages, as such pages may be
amended from time to time, including the variable Insurance Policies through its
validly appointed and licensed Registered Representatives. Broker/Dealer is also
appointed to perform certain administrative services necessary to facilitate the
solicitation and sales of the Insurance Policies.
Selling Entities are each appointed general agencies of Insurance Company
and each is authorized to sell the Insurance Policies listed on the Schedule
Pages.
Pursuant to the appointments described in this Section 6, Broker/Dealer and
Selling Entities must comply with the following requirements:
(a) All securities services provided in connection with the sale of
variable Insurance Policies will be through Broker/Dealer and its Registered
Representatives;
(b) All individuals soliciting sales of Insurance Policies will be properly
licensed and appointed by the Insurance Company as required in accordance with
the state insurance laws of those jurisdictions in which the Insurance Policies
are distributed;
(c) Unregistered employees will not engage in any securities activities,
nor receive any compensation based on transactions in insurance securities or
the provision of securities advice;
(d) Broker/Dealer will maintain books and records relating to transactions
in insurance securities at its home office; and
(e) Customers purchasing variable Insurance Policies will make their checks
payable to Insurance Company unless a netting agreement has been entered into.
For the purpose of compliance with any applicable state insurance laws or
regulations promulgated under them, Broker/Dealer and the Selling Entities
acknowledge and agree that solely in performing the insurance-selling functions
reflected by this agreement, they or the Registered Representative are acting as
the agent of the Insurance Company, and in that capacity are authorized only to
solicit applications from the public for the Insurance Policies.
7. Responsibility for Registered Representatives Activities. Broker/Dealer
and Selling Entities will select and supervise persons whom they will train to
solicit applications for the Insurance Policies in conformance with applicable
state and federal laws and regulations. Persons engaged in the sale of variable
Insurance Policies will be registered representatives of Broker/Dealer in
accordance with the rules of the NASD. All individuals soliciting sales of
Insurance Policies will be properly licensed and appointed by the Insurance
Company in accordance with the state insurance laws of those jurisdictions in
which the Insurance Policies may lawfully be distributed.
The Insurance Company shall have authority to determine whether to appoint
or terminate a particular Registered Representative of the Broker Dealer as an
insurance agent of the Insurance Company. Broker/Dealer agrees to cooperate in
supplying information or making recommendations necessary to complete such
insurance agent appointments.
Additionally, Broker/Dealer represents and warrants that it has reviewed
the "General Recommendation Letter" set forth as Exhibit 1 to this agreement and
that all of the information contained in the General Recommendation Letter is
true for each of its agents for whom it seeks appointment. Should Broker/Dealer
become aware of any information which would contradict the representations
contained in the General Letter of Recommendation for any of its Registered
Representatives who the Insurance Company has appointed, it will promptly
provide such information to the Insurance Company.
Broker/Dealer further represents and warrants that each of its Registered
Representatives who have been appointed by the Insurance Company will continue
to meet the requirements set forth in the General Letter of Recommendation.
In jurisdictions which require that Insurance Company perform background
information prior to appointment, Broker/Dealer agrees to provide such
information as may be necessary to perform such review, including but not
limited to obtaining permission from each Registered Representative who seeks
such appointment.
Upon request by Underwriter, Broker/Dealer and/or any such Selling Entities
shall furnish such appropriate records as may be necessary to establish
supervision of its Registered Representatives in connection with sales of the
Insurance Policies. Upon Underwriter's review of such supervisory materials,
Broker/Dealer shall make such changes to its registered representatives' rules
of conduct as Underwriter may reasonably request but only to the extent that
such requests relate to sales of the Insurance Policies.
Broker/Dealer shall notify Underwriter if any Registered Representative
ceases to be a registered representative of Broker/Dealer or ceases to maintain
the proper licensing required for the sale of the Insurance Policies or fails to
meet material rules and standards imposed by either Broker/Dealer or the Selling
Entities.
8. Suitability of Sales of Contract. Broker/Dealer will review all contract
and policy applications for suitability, completeness, and correctness as to
form. Broker/Dealer shall also be responsible for ensuring compliance with NASD
suitability rules and standards applicable to purchases of the Insurance
Policies and that all sales are in compliance with applicable laws and
regulations.
Broker/Dealer will promptly, but in no case later than the end of the
business day that Broker/Dealer receives applications and payment, forward to
the Insurance Company, at the address provided, all such applications found
suitable and in good form, together with any payments received with such
applications. Broker/Dealer will immediately return to the applicant all
applications deemed by Broker/Dealer to be unsuitable together with any payments
received therewith. The Insurance Company reserves the right to reject any
Insurance Policy application and return any payment made in connection with an
application which is rejected. Insurance Policies issued will be forwarded to
Broker/Dealer, or at the direction of Broker/Dealer, to the Registered
Representative for delivery to the Contract Owner. Broker/Dealer shall obtain
and retain a written receipt for each Insurance Policy which it or its
Registered Representative delivers.
9. Solicitation/Representatives Concerning the Contracts. Broker/Dealer
will perform the selling functions required by this agreement in accordance with
the terms and conditions of any applicable prospectus(es). Broker/Dealer will
make only representations included in the prospectus or in any authorized
supplemental material. No sales solicitations, including the delivery of
supplemental sales literature or other such materials, shall occur, be delivered
to, or used with a prospective purchaser unless accompanied or preceded by
appropriate and then-current prospectus(es).
Any material prepared or used by Broker/Dealer or its Registered
Representative, which describes in whole or in part or refers by name or form to
any of the Insurance Policies or underlying funds or uses the name of the
Insurance Company, Underwriter or the logos or service marks of any of them, or
the name, logos or service marks of any "Affiliated Company" of any of them, as
that term is defined in Section 2(a)(2) of the Investment Company Act of 1940,
must be approved by Underwriter in writing prior to any such use.
Broker/Dealer and Selling Entities acknowledge that information pertaining
to Underwriter and Insurance Company is proprietary in nature. Selling Entities
agree that they will not disclose any information concerning Insurance Company's
or Underwriter's products, services or programs to any person for consideration
or otherwise unless Insurance Company and/or Underwriter consent to such use in
writing. Broker/Dealer and Selling Entities agree that, following the
termination of this agreement for any reason, they will not enter into any plan,
program scheme or course of action which would systematically attempt to induce
any Contract owner(s) away from Insurance Company, except that Broker/Dealer may
always recommend a move to another company's product if such move would be more
suitable than Insurance Company' product for a particular client or clients or
in the event of a detrimental change in the financial stability of Insurance
Company which Broker/Dealer believes would jeopardize its clients.
10. Client Information/Confidential Information During the term of this
agreement Insurance Company and Underwriter will have access to confidential
information ("Confidential Information"). Confidential Information includes, but
is not limited to, the names, addresses, telephone numbers, social security
numbers, documents, profiles and portfolios of Registered Representatives and of
applicants for and purchasers of Insurance Policies. Neither Underwriter nor
Insurance Company shall use, copy or disclose such Confidential Information in
any systematic manner, except as required to perform services under this
agreement. The parties acknowledge that the Insurance Company may continue to
service the Insurance Policies sold pursuant to this agreement, including, as
appropriate, to accept additional contributions and premium for and to modify,
add, or exchange coverage to the Insurance Policy of a policyowner who purchased
from an agent of the Selling Entities.
The parties also understand that Insurance Company and/or Underwriter may
respond to policyowners inquiries concerning other Insurance Company products
and services. The parties also agree that this Section 10 shall not apply to
individuals with whom the Underwriter or Insurance Company have a pre-existing
relationship. Similarly, the parties understand that Broker/Dealer and Selling
Entities may have access to trade secrets belonging to the Insurance Company and
the Underwriter. Broker/Dealer agrees that it will not use or disclose such
trade secrets without the written permission of the Insurance Company and/or the
Underwriter, as the case may be.
11. Compensation. Compensation payable to Broker/Dealer on sales of the
Insurance Policies sold by Registered Representatives will be paid to the
Selling Entity Broker/Dealer designates, in accordance with the compensation
schedule(s) set forth on the Schedule Pages. Such Schedule Pages may be amended
from time to time and compensation will be paid in accordance with the
compensation schedule in effect at the time the premium payments are received by
the applicable Insurance Company (in the case of annuities) or at the time the
applications are received (in the case of life insurance). The Insurance Company
and Underwriter reserve the privilege of revising the compensation schedules set
forth in the Schedule Pages at any time with reasonable prior written notice to
Broker/Dealer.
12. Assignment of Agreement. This agreement may not be assigned except by
mutual consent and will continue, subject to the termination by any party on
written notice to the other party, except that in the event Broker/Dealer ceases
to be a registered Broker/Dealer or a member of the NASD, this agreement will
immediately terminate. Underwriter reserves the right to designate, at its sole
discretion, an alternative Principal Underwriter for the distribution of the
Contracts covered by this agreement with 30 days prior written notice to
Broker/Dealer, except in the event that FSL replaces Underwriter as discussed
below.
The parties understand that if FSL replaces Underwriter any such
substituted party will automatically assume all of Underwriter's rights and
duties under this agreement. FSL may assume such functions itself, or assign
these to affiliated, properly licensed broker-dealers. FSL will notify
Broker/Dealer if any such substitution occurs.
13. Indemnification. No party to this agreement will be liable for any
obligation, act or omission of the other. Each party to this agreement will hold
harmless and indemnify the (1) Registered Investment Companies which are used to
fund the Contracts, (2) Insurance Company, (3) Underwriter, (4) Broker/Dealer,
and (5) Selling Entities, as appropriate, for any loss or expense suffered as a
result of the violation or noncompliance by any party to this agreement of any
of the terms of this agreement or of any applicable law or regulation. No party
nor any of its employees or agents will be liable to the other party for any
direct, special or consequential damages arising out of or in connection with
the performance of any services pursuant to this agreement. Each party to this
agreement agrees to indemnify and hold harmless any other affected party for any
losses, claims, damages or liabilities (or actions in respect thereof) which
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact required to be stated or necessary to make the statements made
not misleading in the connection with the solicitation, sale, or administration
of the of the Insurance Policies.
14. Notices. All notices to the Insurance Company or Underwriter relating
to this agreement should be sent to the attention of :
Fidelity Security Life Insurance Company
3130 Broadway
Kansas City, Missouri 64111
Attention: ____________________
All notices to Broker/Dealer will be duly given if mailed or faxed to the
address provided to Insurance Company by Broker/Dealer from time to time.
15. Independent Contractors. Underwriter and Insurance Company are
independent contractors with respect to Broker/Dealer, Selling Entities, and
Registered Representatives.
16. Governing Law. This agreement shall be construed in accordance with and
governed by the laws of the state of Missouri.
17. Amendment of Agreement. Except as provided in this section, the terms
of this agreement may not be amended except by the written agreement of all
parties hereto. Notwithstanding the requirement that any amendment to this
agreement be in writing, the parties agree that Underwriter reserves the right
to amend this agreement at any time, and the submission of an application by
Broker/Dealer after notice of any such amendment has been sent to the other
parties shall constitute the other parties' agreement to any such amendment. The
parties also agree that Insurance Company may amend the Compensation Schedules
attached to Exhibit 1 of this agreement at any time upon reasonable notice in
writing to the Broker/Dealer and Selling Entities. Following provision of notice
of a change in compensation schedules, submission of additional business shall
operate to ratify acceptance of such schedules.
18. Termination. This agreement may be terminated, without cause, by any
party upon 90 days' prior written notice, and may be terminated, for failure to
perform satisfactorily or other cause, by any party immediately; and shall be
terminated if Broker/Dealer shall cease to be a registered Broker/Dealer under
the Securities Exchange Act of 1934, as amended, or a member of the NASD.
Notwithstanding, the following sections shall survive any such termination:
Sections 7, 9, 10 11, 13, 16, 19, 20, and 21.
19. Waiver Upon Termination. Failure of any party to terminate this
agreement for any of the causes set forth in this agreement will not constitute
a waiver of the right to terminate this agreement at a later time for any of
these causes.
20. Books and Records. Broker/Dealer and Selling Entities shall maintain
all books and records required by applicable laws and regulations in connection
with the offer and sale of the Insurance Policies. The books, accounts and
records of Broker/Dealer and Selling Entities relating to the sale of the
Insurance Policies shall be maintained so as to clearly and accurately disclose
the nature and details of all transactions. Underwriter and Insurance Company
reserve the right to request reasonable periodic inspection of such books and
records as relate to the sale and solicitation of the Insurance Policies.
21. Cooperation with Regulatory Investigations. Broker/Dealer, Selling
Entities and Underwriter and Insurance Company agree to cooperate fully in any
insurance, securities or other regulatory investigation, inquiry, inspection, or
proceeding or in any judicial proceeding arising in connection with the
Insurance Policies. Broker/Dealer and Underwriter shall cooperate with each
other to resolve any customer complaint, and each agrees to promptly notify the
other upon receipt of notice of any investigation, claim, or proceeding
involving the Insurance Policies or any situation which would materially affect
the respective party's ability to perform its obligations hereunder. Each of the
parties to this agreement agrees that it will promptly notify the other parties
of any material claim of which it becomes aware involving the sale or
solicitation of the Insurance Policies.
22. Fidelity Bond. Broker/Dealer represents that all of its directors,
officers, employees and Registered Representatives are and shall be continuously
covered by a blanket fidelity bond, covering for larceny and embezzlement,
issued by a reputable bonding company. This bond shall be maintained at
Broker/Dealer's expense and shall be, at least, of the form, type and amount
required under the NASD Rules of Fair Practice.
23. Counterparts. This agreement may be executed in one or more
counterpart, each of which shall be deemed in all respects an original.
24. Arbitration. Broker/Dealer, Selling Entities and Underwriter and
Insurance Company agree that any dispute or claim arising out of the terms of
this agreement shall be submitted and settled in accordance with the Code of
Arbitration Procedure of the NASD.
In reliance on the representations set forth and in consideration of the
undertakings described herein, the parties represented below do hereby contract
and agree. This agreement is effective ________________.
FIDELITY SECURITY LIFE INSURANCE COMPANY
By:__________________________________________
Name:________________________________________
Title:_________________________________________
NATIONAL PENSION AND GROUP CONSULTANTS, INC.
By: _____________________________________
Name:___________________________________
Title:____________________________________
----------------------
(Broker/Dealer)
By:_____________________________
Name: __________________________
Title:____________________________
----------------------
(Insurance Agency)
By:_____________________________
Name: __________________________
Title:____________________________
----------------------
(Insurance Agency)
By:_____________________________
Name: __________________________
Title:____________________________
Exhibit 1
Selling Agreement Schedule Page
Broker/Dealer and Selling Entities are authorized to solicit applications
for the life insurance policies, annuity contracts and the other insurance
products listed below:
FSL Flexible Premium Variable Annuity
All products described herein are subject to state availability. Compensation
Schedules and additional terms for each product described above are listed on
the following pages. Consistent with the terms of this agreement, Compensation
Schedules may be changed at any time.
Payment of compensation for any product is subject to the following conditions
and limitations, in addition to any applicable provision of this agreement.
1. Chargebacks of Commissions. If the Insurance Company returns all or a
portion of a premium paid with respect to an Insurance Policy, Broker/Dealer
shall be obligated to refund to Underwriter applicable commissions on the amount
of such premium only where:
(a) consistent with this agreement, the Insurance Policy solicited is
returned as not taken under the policy "free look" provisions;
(b) premiums are refunded due to overpayments, errors in billing or in the
timing of automatic premium collection deductions, or errors resulting in policy
reissue;
(c) the check delivered in payment of any contract premium does not clear
and the premium collection deductions, or errors resulting in policy reissue;
(d) the Insurance Policy on which commission payments were made is
terminated or premium is refunded because the Registered Representative(s) or
Broker-Dealer who sold the Insurance Policy committed an act, error or omission
which materially contributed to the termination of the Insurance Policy or the
need to return premium;
(e) the Insurance Company rejects the application;
(f) a judicial or regulatory authority directs the Insurance Company to
return premium payments without assessment of a surrender charge;
(g) the applicant's initial premium on a 1035 exchange is returned because
the expected rollover amount from another policy or contract is not transferred
due to the exchange not meeting the legal requirements to qualify for a tax-free
exchange;
(h) the Insurance Company returns unearned premium on a life insurance
contract as required by the provisions of the policy;
(i) the Insurance Company determines that it has a legal liability to
return premiums on a life insurance contract within the first year after the
Insurance Policy is issued; or
(j) the Insurance Company and Broker/Dealer mutually agree to return all or
a portion of a premium with respect to a particular contract or policy.
2. Free Look Provision. If any Insurance Policy is redeemed at any time or
if within 45 days after confirmation by the Insurance Company of any premium
payments credited to an Insurance Policy, that Insurance Policy is tendered for
full or partial surrender, or the life at risk thereunder dies, then, at the
option of the Insurance Company or Underwriter, no commission will be payable
with respect to such premium payments and any commission previously paid for
said premium payments must be refunded to the Insurance Company or Underwriter
as directed by Underwriter. Underwriter agrees to notify Broker/Dealer with 10
business days after the request for repurchase or redemption, or notification of
death of the life at risk is received by the Insurance Company.
3. Rebating. If Broker/Dealer or any Registered Representative of
Broker/Dealer rebates or offers to rebate all or any part of a premium on an
Insurance Policy issued by the Insurance Company in violation of applicable
state insurance laws or regulations, or if Broker/Dealer or any Registered
Representative of Broker/Dealer shall withhold any premium on an Insurance
Policy issued by the Insurance Company, the same may be grounds for termination
of this agreement by Underwriter. If Broker/Dealer induces or attempts to induce
any Insurance Policy owner to relinquish an Insurance Policy except under
circumstances where there is reasonable grounds for believing the policy,
contract or certificate is not suitable for such person, Broker-Dealers right to
receive any compensation under this agreement shall cease and terminate.
COMMISSION SCHEDULE FOR
ANNUITY CONTRACTS
This Schedule is attached to and is made a part of this agreement. In no
event will FSL be liable for the payment of any compensation with respect to any
solicitation made, in whole or in part, by any person not appropriately licensed
to conduct such activities.
The compensation arrangements described below shall govern commission
payouts. Commission will be paid in accordance with instructions received from
Broker/Dealer.
1. Commissions based on premium payments will be based only on premium
actually received and accepted by the Insurance Company.
2. No commission will be earned on the initial exchange of any FSL
contract. Subsequent premium payments will, as permitted by law be eligible for
commission payments.
3. The Insurance Company reserves the right to reduce first year
commissions and renewal commissions if necessary, on any annuity contracts sold
to residents of any jurisdiction which imposes new, and/or additional premium or
similar taxes or charge. In such event, the Insurance Company will notify
Broker/Dealer.
4. If, within 45 days after confirmation of any premium credited to any
Insurance Policy by the Insurance Company, the Insurance Policy is canceled or
surrendered, or if the Insurance Policy owner shall die, then, at the option of
the Insurance Company, no commissions will be payable with respect to that
premium and any commission previously paid on that premium must be refunded to
the Insurance Company.
Compensation is listed by annuity product as follows:
EXHIBIT 2
GENERAL LETTER OF RECOMMENDATION
Broker/Dealer ("we") hereby represent and warrants to Fidelity Security
Life Insurance Company ("FSL") that all the following requirements will be
fulfilled in conjunction with the submission of licensing/appointment papers for
all applicants as sub-agents submitted by Broker/Dealer. Broker/Dealer will,
upon request, forward proof of compliance with same to FSL.
1. We have made a thorough and diligent inquiry and investigation relative
to each applicant's identity, residence and business reputation and declare that
each applicant is personally known to us, has been examined by us, is known to
be of good moral character, has a good business reputation, is reliable, is
financially responsible and is worthy of appointment by FSL. Each individual is
trustworthy, competent and qualified to act as an agent for FSL to hold himself
out in good faith to the general public. Broker/Dealer will notify FSL of any
applicant who has been discharged from bankruptcy within three years preceding
the date of application.
2. We have on file a B-300, B-301, or U-4 form which was completed by each
applicant. We have fulfilled all the necessary investigative requirements for
the registration of each applicant as a registered representative through our
NASD member firm, and each applicant is presently registered as an NASD
registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the findings of
all investigative information is favorable.
3. We certify that all education requirements have been met for the
specific state each applicant is requesting a license in, and that, all such
persons have fulfilled the appropriate examination, education and training
requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license, we
certify that those items forwarded to FSL are those of the applicant and the
securities registration is a true copy of the original.
5. We hereby warrant that the applicant is not applying for a license with
FSL in order to place insurance chiefly and solely on his life or property,
lives or property of his relatives, or property or liability of his associates.
6. We certify that each applicant will receive close and adequate
supervision, and that we will make inspection when needed or any or all risks
written by these applicants, to the end that the insurance interest of the
public will be properly protected.
7. We will be responsible for all acts and omissions of each applicant
within the scope of his agency appointment during any period of a temporary
license and a permanent license. This responsibility is full and complete
without regard to any technical distinction between this relationship and that
which exists in law between principal and agent.
8. We will not permit any applicant to transact insurance as an agent until
duly licensed therefore. No applicants have been given a contract or furnished
supplies, nor have any applicants been permitted to write, solicit business, or
act as an agent in any capacity, and they will not be so permitted until the
certificate of authority or license applied for is received.
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 Broadway
Kansas City, MO 64111-2406
Fidelity Security Life Insurance Company (referred to as "we, us and our"). We
will make Annuity Payments as described in this Contract beginning on the
Annuity Date.
This Contract is issued in return for the payment of the initial purchase
payment.
[10] DAY RIGHT TO EXAMINE
This Contract may be returned within [10] days after you receive it by mailing
or delivering the contract to either us or the agent who sold it. Return of this
Contract by mail is effective on being postmarked, properly addressed and
postage prepaid. The returned Contract will be treated as if it were never
issued. We will promptly refund your Contract Value as of the Business Day we
receive your Contract. Your Contract Value may be more or less than your
purchase payment.
Signed for the Company.
- ------------------------------ ------------------------------
Secretary President
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
NONPARTICIPATING
NO DIVIDENDS
READ YOUR CONTRACT CAREFULLY.
ANNUITY PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN
BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
THE VARIABLE PROVISIONS OF THIS CONTRACT CAN BE FOUND ON PAGES __ AND __.
TABLE OF CONTENTS
PAGE
CONTRACT SCHEDULE.........................................................3
DEFINITIONS...............................................................8
GENERAL PROVISIONS.......................................................10
ANNUITANT, OWNERSHIP, ASSIGNMENT PROVISIONS..............................11
BENEFICIARY PROVISIONS...................................................11
PURCHASE PAYMENT PROVISIONS..............................................12
CONTRACT VALUE PROVISION.................................................12
FIXED ACCOUNT PROVISIONS.................................................13
SEPARATE ACCOUNT PROVISIONS..............................................13
TRANSFER PROVISIONS......................................................15
DEATH BENEFIT PROVISIONS.................................................16
ANNUITY PROVISIONS.......................................................18
SURRENDER PROVISIONS.....................................................21
SUSPENSION OR DEFERRAL OF PAYMENTS OR TRANSFERS
FROM THE SEPARATE ACCOUNT.......................................22
DEFERRAL OF PAYMENTS OR TRANSFERS
FROM THE FIXED ACCOUNT..........................................22
RESERVES, VALUES AND BENEFITS............................................22
<TABLE>
<CAPTION>
CONTRACT SCHEDULE
<S> <C>
OWNER: [John Doe] AGE AT ISSUE: [ ]
JOINT OWNER: [Jane Doe] AGE AT ISSUE: [ ]
ANNUITANT: [John Doe] AGE AT ISSUE: [ ]
CONTRACT NUMBER: [ ] ISSUE DATE: [ ]
PLAN TYPE: [Non-qualified] ANNUITY DATE: [ ]
</TABLE>
<TABLE>
<CAPTION>
PURCHASE PAYMENTS: [Purchase payments can be made either as "Lump Sum Payments" or
as "Easy Pay Payments."
<S> <C>
Lump Sum Payments: Any purchase payment of $5,000 or more.
Easy Pay Payment: $50 or more per month.
Maximum Total Purchase Payments: The maximum total of all purchase
payments is $500,000 without our
prior consent.]
BENEFICIARY: [As designated by you at Issue Date unless changed in accordance with the
Contract provisions.]
PRODUCT EXPENSE CHARGE: [We assess each Subaccount of the Separate Account a
Product Expense Charge against the average daily net asset
value of the Subaccount as follows:
Lump Sum Payments: 0.90%, on an annual basis.
Easy Pay Payments: For contracts
that have a Contract Value
of $100,000 or more, 0.90%,
on an annual basis. For
contracts that have a
Contract Value less than
$100,000, 1.50%, on an
annual basis.
</TABLE>
INVESTMENT OPTIONS:
[Investors Mark Series Fund, Inc.
Money Market Portfolio
Growth & Income Portfolio
Large Cap Growth Portfolio
Small Cap Equity Portfolio
Berger Institutional Products Trust
Berger/BIAM IPT - International Fund]
SEPARATE ACCOUNT: [FSL SEPARATE ACCOUNT M]
ALLOCATION GUIDELINES:
[1. Currently, you can select from any of the Subaccounts or the
Fixed Account. However, we reserve the right to limit this in the
future.
2. If the purchase payments and forms required to issue a Contract
are in good order, the initial purchase payment will be credited
to your Contract within two (2) business days after receipt at
the Annuity Service Office. Additional purchase payments will be
credited to your Contract as of the Business Day they are
received.
3. Allocations must be in whole numbers. Each allocation must be at
least $25. Allocations made pursuant to a pre-approved
Rebalancing or Dollar Cost Averaging programs are not subject to
these limitations.]
TRANSFERS:
NUMBER OF PERMITTED: [Currently, there are no limits on the number of
transfers between Subaccounts that can be made during the Accumulation Period.
We reserve the right to change this.
Currently, during the Accumulation Period, you can make twelve (12)
transfers every Contract Year without charge. You can transfer Contract Values
into the Fixed Account from the Subaccounts.
Currently, during the Accumulation Period, you can only make one transfer
in a calendar quarter out of the Fixed Account into the Subaccounts.
Currently, during the Annuity Period, you can make four (4) transfers each
Contract Year between Subaccounts or out of the Subaccounts into the General
Account.]
TRANSFER FEE: [We will charge $50 for each additional transfer during the
Accumulation Period in excess of twelve (12) transfers in any Contract Year.
Transfers made at the end of the "Right to Examine Period" by us and any
transfers made pursuant to the Dollar Cost Averaging or Rebalancing Programs or
as a result of a Loan, will not be counted in determining the application of any
Transfer Fee.]
MINIMUM AMOUNT TO BE TRANSFERRED: [$500, or your entire interest in the
Fixed Account or the Subaccount, if less. This requirement is waived if the
transfer is pursuant to the Dollar Cost Averaging or Rebalancing Programs or as
a result of a Loan.]
MINIMUM AMOUNT WHICH MUST REMAIN IN THE FIXED ACCOUNT OR
ANY SUBACCOUNT AFTER A TRANSFER: [$100]
SURRENDERS AND INTERNAL TRANSFERS:
SURRENDER CHARGE: [A Surrender Charge is assessed against purchase payments
surrendered. The Surrender Charge is calculated at the time of each surrender.
Each purchase payment is tracked from the date of its receipt and the type of
purchase payment. Purchase Payments will be deducted on a Last-in-First-out
(LIFO) basis. Surrender Charges are determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
SURRENDER CHARGES
Number of Complete Years % Charge
------------------------ --------
from Receipt of Purchase Payment Easy Pay Lump Sum
-------------------------------- -------- --------
<S> <C> <C> <C>
0-1 6% 7%
1 6 6
2 6 5
3 5 4
4 5 3
5 4 2
6 3 1
7 2 0
8 2 0
9 1 0
10 and thereafter 0 0
</TABLE>
WAIVER OF SURRENDER CHARGE: [Each Contract Year a partial surrender of 10%
of the Contract Value may be made free from any Surrender Charge on a
non-cumulative basis.
It is our current practice to waive Surrender Charges for an Owner of one of our
annuity contracts who wishes to transfer Contract Values to another of our
annuity contracts. The following will apply to such internal transfers:
1. there is an internal transfer fee of 2% of the amount transferred when
you make a transfer of Contract Value to another contract (including
this contract) issued by us;
2. once transferred into the other contract, the amount transferred will
be subject to a Adjusted Surrender Charge in accordance with the
following schedule:
<TABLE>
<CAPTION>
ADJUSTED SURRENDER CHARGES
Number of Complete Years You have been
Number of Complete our Annuity Customer.
Years from Transfer 5 Years or less 5-10 Years 10 Years +
------------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
0-1 6% 4% 3%
1 5 3 3
2 4 2 2
3 3 1 1
4 2 0 0
5 1 0 0
6 and longer 0 0 0
</TABLE>
3. if your contract was issued prior to the effective date of this
registration, or is no longer subject to a withdrawal or surrender charge
we will not assess the internal transfer fee for the first internal
transfer you make. Once Contract Values are in the new contract they will
be subject to the Adjusted Surrender Charges. Any subsequent internal
transfer will be subject to items 1 and 2 above.
<TABLE>
<CAPTION>
<S> <C>
MINIMUM PARTIAL SURRENDER: [$500, or your entire interest in the Fixed
Account or Subaccount]
MINIMUM CONTRACT VALUE WHICH MUST REMAIN IN THE CONTRACT
AFTER A PARTIAL SURRENDER: [Lump Sum $5,000; Easy Pay $1,000]
</TABLE>
FIXED ACCOUNT:
CURRENT INTEREST RATE AS OF ISSUE DATE: [X%, guaranteed through the
end of the current calendar year]
MINIMUM GUARANTEED INTEREST RATE: [3%]
ENDORSEMENTS:
[IRA Endorsement]
[403(b) Endorsement]
[Unisex Endorsement]
[Company Completion Benefit]
[Loan Provision Endorsement]
[401 Plan Endorsement]
[457 Plan Endorsement]
[Terminal Illness and Nursing Home or Hospital Confinement Endorsement]
[Roth 408(a) Endorsement]
ANNUITY SERVICE OFFICE:
FIDELITY SECURITY LIFE INSURANCE COMPANY
[3130 Broadway]
[Kansas City, MO 64111-2406]
DEFINITIONS
ACCUMULATION UNIT - A unit of measure used to calculate the Contract Value in a
Subaccount of the Separate Account.
ACCUMULATION PERIOD - The period prior to the Annuity Date during which you can
make purchase payments.
ANNUITANT - The natural person on whose life Annuity Payments are based. You may
change the Annuitant at any time prior to the Income Date unless the Owner is
not a natural person. On or after the Annuity Date, any reference to Annuitant
shall also include any Joint Annuitant.
ANNUITY OR ANNUITY PAYMENTS - The series of payments made to the Owner or other
named payee after the Annuity Date under the Annuity Option elected.
ANNUITY DATE - The date on which Annuity Payments begin. The Annuity Date is
shown on the Contract Schedule.
ANNUITY PERIOD - The period starting on the Annuity Date during which Annuity
Payments are paid.
ANNUITY SERVICE OFFICE - The office indicated on the Contract Schedule to which
notices, requests and purchase payments must be sent. All sums payable by us
under the Contract are payable through the Annuity Service Office.
ANNUITY UNIT - A unit of measure used to calculate Variable Annuity Payments
after the Annuity Date.
ATTAINED AGE - The age of any Owner or Annuitant on his/her birthday nearest the
date for which age is being determined.
BENEFICIARY - The person(s) or entity(ies) who will receive any death benefit
payable under this Contract.
BUSINESS DAY - Each day that the New York Stock Exchange and we are open for
business. The Separate Account will be valued each Business Day.
COMPANY - Fidelity Security Life Insurance Company.
CONTRACT ANNIVERSARY - An anniversary of the Issue Date of this Contract.
CONTRACT VALUE - The sum of your interest in the Fixed Account and the
Subaccounts of the Separate Account.
CONTRACT YEAR - One year from the Issue Date and from each Contract Anniversary.
FIXED ACCOUNT - A portion of the General Account into which you can allocate
purchase payments or transfer Contract Value. At our discretion, we may from
time to time declare an excess interest rate for this Account. The Fixed Account
is only available prior to the Annuity Date.
FIXED ANNUITY - A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by us and do not vary with the investment
experience of the Separate Account.
Fixed Annuity payments are made out of our General Account.
GENERAL ACCOUNT - Our general investment account which contains all of our
assets with the exception of the Separate Account and other segregated asset
accounts.
INVESTMENT OPTION - The investment choices within the Separate Account available
under the Contract. Current Investment Options are shown on the Contract
Schedule.
ISSUE DATE - The date this Contract was issued. The Issue Date is shown on the
Contract Schedule.
JOINT OWNER - If there is more than one Owner, each Owner shall be a Joint Owner
of the Contract. Joint Owners have equal ownership rights and must both
authorize any exercising of those ownership rights unless otherwise allowed by
us. Any Joint Owner must be the spouse of the other Owner, unless limited by
state law.
OWNER - The person(s) or entity(ies) entitled to the ownership rights under this
Contract. If Joint Owners are named, all references to Owner shall mean Joint
Owners.
SEPARATE ACCOUNT - A separate investment account of the Company designated on
the Contract Schedule.
SUBACCOUNT - Separate Account assets are divided into Subaccounts. Assets of
each Subaccount will be invested in shares of an Investment Option.
VARIABLE ANNUITY - A series of payments made during the Annuity Period which
vary in amount with the investment experience of each applicable Subaccount.
GENERAL PROVISIONS
THE CONTRACT - The entire contract consists of this Contract and application,
riders or endorsements attached to this Contract.
INCONTESTABILITY - We will not contest this Contract at any time following the
Issue Date.
NON-PARTICIPATING - This Contract will not share in any distribution of
dividends.
MISSTATEMENT OF AGE OR SEX - We may require proof of age or sex of the Annuitant
before making any life Annuity Payments under this Contract. If the age or sex
of the Annuitant has been misstated, the amount payable will be the amount that
the Contract Value would have provided at the correct age or sex.
Once Annuity Payments have begun, any underpayments will be made up in one sum
with the next Annuity Payment. Any overpayments will be deducted from future
Annuity Payments until the total is repaid.
CONTRACT SETTLEMENT - This Contract must be returned to us prior to any
settlement. Prior to any payment of a death claim, due proof of death must be
submitted to us.
PROTECTION OF PROCEEDS - No Beneficiary may commute, encumber, alienate or
assign any payments under this Contract. To the extent permitted by law, no
payments will be subject to the debts, contracts or engagements of any payee or
to any judicial process to levy upon or attach the same for payment thereof.
REPORTS - At least once each calendar year we will furnish you with a report
showing the Contract Value and any other information as may be required by law.
Reports will be sent to your last known address.
TAXES - Any taxes paid to any governmental entity relating to this Contract will
be deducted from the purchase payments or Contract Value when incurred. We will,
at our sole discretion, determine when taxes have resulted from: the investment
experience of the Separate Account; receipt by us of the purchase payments; or
commencement of Annuity Payments. We may, at our sole discretion, pay taxes when
due and deduct that amount from the Contract Value at a later date. Payment at
an earlier date does not waive any right we may have to deduct amounts at a
later date. We will deduct any withholding taxes required by applicable law.
EVIDENCE OF SURVIVAL - We may require satisfactory evidence of the continued
survival of any person(s) on whose life Annuity Payments are based.
MODIFICATION OF CONTRACT - This Contract may be modified by us in order to
maintain compliance with applicable state and federal law. This Contract may be
changed or altered only by our President or our Secretary. A change or
alteration will be made in writing.
ANNUITANT, OWNERSHIP, ASSIGNMENT PROVISIONS
OWNER - You, as the Owner, have all the interest and rights under this Contract.
The Owner is the person designated as such on the Issue Date, unless changed.
You may change the Owner at any time. A change of Owner will automatically
revoke any prior designation of Owner. A request for change must be:
1. made in writing; and
2. received by us at the Annuity Service Office.
The change will become effective as of the date the written request is signed. A
new designation of Owner will not apply to any payment made or action taken by
us prior to the time the new designation was received.
JOINT OWNER - A Contract may be owned by Joint Owners. Any Joint Owner must be
the spouse of the other Owner, unless limited by state law. Upon the death of
either Owner, the surviving Joint Owner will be the primary Beneficiary. Any
other Beneficiary designation will be treated as a contingent Beneficiary unless
otherwise indicated in a written notice to us.
ANNUITANT - The Annuitant is the person on whose life Annuity Payments are
based. The Annuitant is the person designated by you at the Issue Date, unless
changed prior to the Annuity Date. The Annuitant may not be changed in a
Contract which is owned by a non-individual. Any change of Annuitant is subject
to our underwriting rules then in effect.
ASSIGNMENT - You may, at any time during your lifetime, assign your rights under
this Contract. We will not be bound by any assignment until written notice of
the assignment is received by us at the Annuity Service Office. We are not
responsible for the validity of any assignment. We will not be liable as to any
payment or other settlement made by us before receipt of written notice of the
assignment.
BENEFICIARY PROVISIONS
BENEFICIARY - The Beneficiary designation in effect on the Issue Date will
remain in effect, unless changed. Unless you provide otherwise, the death
benefit will be paid in equal shares or all to the survivor as follows:
1. to the primary Beneficiaries who survive you and/or the Annuitant's
death, as applicable; or if there are none,
2. to the contingent Beneficiaries who survive you and/or the Annuitant's
death, as applicable; or if there are none,
3. to your estate.
CHANGE OF BENEFICIARY - Subject to the rights of any irrevocable Beneficiary,
you may change the primary Beneficiary or contingent Beneficiary. A change may
be made by filing a written request with us at the Annuity Service Office. The
change will take effect as of the date the written request is signed. We will
not be liable for any payment made or action taken before we record the change.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS - The initial purchase payment is due on the Issue Date. The
minimum subsequent purchase payment and maximum total purchase payments are
shown on the Contract Schedule. We reserve the right to reject any purchase
payment.
CHANGE IN PURCHASE PAYMENTS - Subject to the minimum and maximum payments shown
on the Contract Schedule, you may increase or decrease or change the frequency
of subsequent purchase payments.
ALLOCATION OF PURCHASE PAYMENTS - The allocation of purchase payments is made
in accordance with the selection made at the Issue Date. We have reserved the
right to allocate initial purchase payments to a Money Market Subaccount. Unless
you elect otherwise, subsequent purchase payments will be allocated in
accordance with your initial selection. Allocation of the purchase payments is
subject to the allocation guidelines set forth in the Contract Schedule.
NO DEFAULT - Unless you make a total surrender, this Contract will remain in
force until the Annuity Date. This Contract will not be in default if subsequent
purchase payments are not made.
CONTRACT VALUE PROVISION
CONTRACT VALUE - The Contract Value for any Business Day is the sum of the
Contract Value in each of the Subaccounts of the Separate Account and the
Contract Value in the Fixed Account as of such Business Day.
The Contract Value in a Subaccount of the Separate Account is determined by
multiplying the number of Accumulation Units allocated to the Contract for the
Subaccount by the Accumulation Unit Value.
Surrenders will result in the cancellation of Accumulation Units in a Subaccount
or a reduction in the Fixed Account.
FIXED ACCOUNT PROVISIONS
FIXED ACCOUNT VALUE - The Fixed Account Value at any time is equal to :
1. the purchase payments allocated to the Fixed Account; plus
2. amounts transferred to the Fixed Account; plus
3. interest credited to the Fixed Account; less
4. any prior partial surrenders and Surrender Charges deducted from the
Fixed Account; less
5. amounts transferred from the Fixed Account; less
6. any applicable premium taxes or Transfer Fees deducted from the Fixed
Account.
INTEREST TO BE CREDITED - We guarantee that the interest to be credited to the
Fixed Account will not be less than the Minimum Guaranteed Interest Rate shown
on the Contract Schedule. We may credit additional interest at our sole
discretion to the Fixed Account option. The Current Interest Rate as of the
Issue Date is shown on the Contract Schedule.
SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT - The Separate Account is designated on the Contract
Schedule and consists of assets set aside by us, which are kept separate from
our general assets and all of our other Separate Account assets. The assets of
the Separate Account, equal to reserves and other liabilities of your Contract
and those of other owners, will not be charged with liabilities arising out of
any other business we may do.
The Separate Account assets are divided into Subaccounts. The assets of the
Subaccounts are allocated to the Investment Options shown on the Contract
Schedule.
INVESTMENTS OF THE SEPARATE ACCOUNT - Purchase payments applied to the Separate
Account are allocated to a Subaccount of the Separate Account. We may, from time
to time, add additional Investment Options to those options shown on the
Contract Schedule. You may be permitted to transfer Contract Values to the
additional Investment Option. However, the right to make any transfer will be
limited by any terms and conditions in effect at the time of transfer.
If the shares of any of the Investment Options become unavailable for investment
by the Separate Account, or our Board of Directors deems further investment in
these shares inappropriate, we may limit further purchase of such shares or
substitute shares of another Investment Option for shares already purchased
under this Contract.
VALUATION OF ASSETS - Assets of the Separate Account are valued at their fair
market value in accordance with our procedures.
ACCUMULATION UNIT - Accumulation Units shall be used to account for all amounts
allocated to or surrendered from a Subaccount of the Separate Account as a
result of purchase payments, surrenders, transfers, or fees and charges. We will
determine the number of Accumulation Units of a Subaccount purchased or
canceled. This is done by dividing the amount allocated to (or the amount
withdrawn from) the Subaccount, by the dollar value of one Accumulation Unit of
the Subaccount as of the Business Day during which the request for the
transaction is received at the Annuity Service Office.
NET INVESTMENT FACTOR - The Net Investment Factor for each Subaccount is
determined by dividing A by B and multiplying by (1-C) where:
A is (i) the net asset value per share of the Investment Option
held by the Subaccount at the end of the current Business Day;
plus
(ii) any dividend or capital gains per share declared on
behalf of such Investment Option that has an ex-dividend date
as of the current Business Day.
B is the net asset value per share of the Investment Option held
by the Subaccount for the immediately preceding Business Day.
C is (i) the Business Day equivalent of the daily Product Charge
which is shown on the Contract Schedule; plus
(ii) a charge factor, if any, for any taxes or any tax reserve
we have established as a result of the operation of this
Subaccount.
ACCUMULATION UNIT VALUE - The Accumulation Unit Value for each Subaccount was
arbitrarily set initially at $10. Subsequent Accumulation Unit Values for each
Subaccount are determined by multiplying the Accumulation Unit Value for the
immediately preceding Business Day by the Net Investment Factor of the
Subaccount for the current Business Day.
The Accumulation Unit Value may increase or decrease from Business Day to
Business Day.
PRODUCT EXPENSE CHARGE - We deduct a Product Expense Charge from each Subaccount
of the Separate Account which is equal, on an annual basis, to the amount shown
on the Contract Schedule.
TRANSFER PROVISIONS
TRANSFERS - A transfer is subject to the following:
1. the maximum number of transfers without a Transfer Fee is shown on the
Contract Schedule;
2. we reserve the right to assess a Transfer Fee if the number of
transfers exceeds the maximum number of permissible free transfers not
subject to a Transfer Fee. We will notify you of the imposition of any
Transfer Fee. Any Transfer Fee we may impose is deducted from the
amount which is transferred;
3. you may not make a transfer until after the end of the Right to
Examine Period;
4. the minimum amount which may be transferred is shown on the Contract
Schedule;
5. a transfer will be effected as of the end of a Business Day when we
receive an acceptable transfer request containing all required
information including the amount which is to be transferred, and the
Subaccount(s) and/or the Fixed Account affected;
6. neither us or our Annuity Service Office are liable for a transfer
made in accordance with your instructions;
7. we reserve the right to restrict transfers between Subaccounts to a
maximum of twelve (12) per contract year and to restrict transfers
from being made on consecutive Business Days. We also reserve the
right to restrict transfers into and out of the Fixed Account;
8. your right to make transfers is subject to modification if we
determine, in our sole opinion, that the exercise of the right by one
or more Owners is, or would be, to the disadvantage of other Owners.
Restrictions may be applied in any manner reasonably designed to
prevent any use of the transfer right which is considered by us to be
to the disadvantage of other Owners. A modification could be applied
to transfers to, or from, one or more of the Subaccounts and could
include, but is not limited to:
a. the requirement of a minimum time period between each transfer;
b. not accepting a transfer request from an agent acting under a
power of attorney on behalf of more than one Owner; or
c. limiting the dollar amount that may be transferred between the
Subaccounts by an Owner at any one time;
9. during times of drastic economic or market conditions, we may suspend
the transfer privilege temporarily without notice and treat transfer
requests based on their separate components (a redemption order with a
simultaneous request for purchase of another Subaccount). In such a
case, the redemption order would be processed at the source
Subaccount's next determined Accumulation Unit. However, the purchase
into the new Subaccount would be effective at the next determined
Accumulation Unit value for the new Subaccount only after we receive
the proceeds from the source Subaccount, or we otherwise receive cash
on behalf of the source Subaccount;
10. transfers do not change the allocation instructions for future
purchase payments;
11. you may elect to make transfers by telephone. However, to elect this
option you must first make a written request in a form acceptable to
us. If there are Joint Owners, unless we are instructed to the
contrary, instructions by telephone will be accepted from either one
of the Joint Owners. We will use reasonable procedures to confirm that
instructions communicated by telephone are genuine;
12. transfers made during the Annuity Period are subject to the following:
a. you may make the number of transfers each Contract Year as set
forth in the Contract Schedule between the Subaccounts of the
Separate Account;
b. you may not make a transfer from the General Account to the
Separate Account;
c. the amount transferred to the General Account from a Subaccount
of the Separate Account will be based upon current Company
practice for such requests at the time of the transfer; and
d. you may not make a transfer within three (3) business days of an
Annuity Calculation Date.
DEATH BENEFIT PROVISIONS
DEATH OF OWNER DURING THE ACCUMULATION PERIOD - The death benefit will be paid
to the Beneficiary(ies) designated by you upon your death, or the death of any
Joint Owner, during the Accumulation Period. Upon the death of a Joint Owner,
the surviving Joint Owner, if any, will be treated as the primary Beneficiary.
Any other Beneficiary designation on record at the time of death will be treated
as a contingent Beneficiary.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD - The death benefit will be
the greater of:
(i) the purchase payments, less any surrenders and related Surrender
Charges;
(ii) the Contract Value determined as of the end of the Business Day during
which we receive both due proof of death and an election for the
payment method.
The amount of the death benefit is determined as of the end of the Business Day
during which we receive both due proof of death and an election for the payment
method. The death benefit amount remains in the Separate Account and/or Fixed
Account until distribution begins. From the time the death benefit is determined
until complete distribution is made, any amount in the Subaccount will be
subject to investment risk which is borne by the Beneficiary.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD - A Beneficiary must elect
the death benefit to be paid under one of the options below in the event of the
death of an Owner during the Accumulation Period. In addition, if the
Beneficiary is the spouse of the Owner, he or she may elect to continue the
Contract in his or her own name and exercise all the Owner's rights under the
Contract. In this event, the Contract Value will be adjusted to equal the death
benefit.
Option 1 - lump sum payment of the death benefit; or
Option 2 - the payment of the entire death benefit within five (5)
years of the date of the death of the Owner or any Joint Owner; or
Option 3 - payment of the death benefit under an Annuity Option over
the lifetime of the Beneficiary or over a period not extending beyond
the life expectancy of the Beneficiary with distribution beginning
within one (1) year of the date of death of the Owner or any Joint
Owner.
Any portion of the death benefit not applied under Option 3 within one (1) year
of the date of the Owner's or Joint Owner's death must be distributed within
five (5) years of the date of death.
If a lump sum payment is requested, the amount will be paid within seven (7)
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments Provision is in effect.
Payment to the Beneficiary, other than in a single sum, may only be elected
during the 60-day period beginning with the date of receipt of proof of death.
DEATH OF OWNER DURING THE ANNUITY PERIOD - If the Owner or a Joint Owner, who is
not the Annuitant, dies during the Annuity Period, any remaining payments under
the Annuity Option elected will continue at least as rapidly as under the method
of distribution in effect at the time of the Owner's death. Upon the death of
the Owner during the Annuity Period, the Beneficiary becomes the Owner.
DEATH OF ANNUITANT - Upon the death of an Annuitant, who is not the Owner,
during the Accumulation Period, the Owner automatically becomes the Annuitant.
The Owner may designate a new Annuitant, subject to the Company's underwriting
rules then in effect. If the Owner is a non-natural person, the death of the
primary Annuitant will be treated as the death of the Owner and a new Annuitant
may not be designated.
Upon the death of the Annuitant during the Annuity Period, the death benefit, if
any, will be as specified in the Annuity Option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
PAYMENT OF DEATH BENEFIT - We will require due proof of death before any death
benefit is paid. Due proof of death will be:
1. a certified death certificate;
2. a certified decree of a court of competent jurisdiction as to the
finding of death;
3. a written statement by a medical doctor who attended the deceased; or
4. any other proof satisfactory us.
Any death benefit will be paid in accordance with applicable law or regulations
governing death benefit payments.
ANNUITY PROVISIONS
ANNUITY DATE - You elect the Annuity Date at the time of issue. The Annuity Date
is shown on the Contract Schedule. The Annuity Date must be the first or
fifteenth day of a calendar month and must be at least one (1) month after the
Issue Date. The Annuity Date may not be later than the first day of the calendar
month following the Annuitant's [85th] birthday. If there are joint annuitants,
it is the birthday of the oldest Annuitant that is applicable.
Prior to the Annuity Date, you may, subject to the above, change the Annuity
Date upon thirty (30) days prior written notice to us at the Annuity Service
Office.
ANNUITY CALCULATION DATE - We will determine the amount of your Variable Annuity
Payments, including the first, no more than ten (10) Business Days prior to the
payment date. The payment dates for your Annuity Payments will be the same day
each month as the date you selected for the Annuity Date, i.e. the first or the
fifteenth.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS - Annuity Payments will be paid as
monthly installments or at any frequency acceptable to you and us. The Contract
Value on the Annuity Date is applied to the Annuity Table for the Annuity Option
elected. If the amount of the Contract Value to be applied under an Annuity
Option is less than $5,000, we reserve the right to make one lump sum payment in
lieu of Annuity Payments. If the amount of any Annuity Payment would be or
become less than $100, we will reduce the frequency of payments to an interval
which will result in each payment being at least $100.
BASIS OF PAYMENTS - The Annuity Tables are based on the 1983 Individual Annuity
Mortality Table with mortality projected to the year 2000 by projection scale G
and with an annual effective interest rate of [3%].
ANNUITY OPTIONS - The following Annuity Options may be elected:
Option 1 - Life Annuity - A monthly income payable during the lifetime
of the Annuitant and terminating with the last payment preceding
his/her death.
Option 2 - Life Annuity with a Guaranteed Period - A monthly income
payable during the lifetime of the Annuitant with the guarantee that
if, at the death of the Annuitant, payments have been made for less
than a stated certain period, which may be five (5), ten (10), fifteen
(15) or twenty (20) years, as elected, the monthly income will be
continued during the remainder of the elected period. However, the
Owner may elect to receive a single sum payment. A single sum payment
will be equal to the present value of remaining payments as of the date
of receipt of due proof of death commuted at the assumed investment
rate of [3%].
Option 3 - Survivorship Annuity - A monthly income payable during the
joint lifetime of the Annuitant and another named individual and
thereafter during the lifetime of the survivor, ceasing with the last
income payment due prior to the death of the survivor.
Option 4 - Any other option that is mutually agreed upon between you
and the Company will be available.
ELECTION OF ANNUITY OPTION - The Annuity Option is elected by you. If no Annuity
Option is elected, Option 2 with ten (10) years guaranteed will automatically be
applied. Prior to the Annuity Date, you may, upon thirty (30) days prior written
notice to us, change the Annuity Option.
ANNUITY - You can elect to have the Annuity Option payable as a Fixed Annuity or
a Variable Annuity or a combination. If you do not tell us and if all of the
Contract Value on the Annuity Calculation Date is allocated to the Fixed
Account, the Annuity will be paid as a Fixed Annuity. If all of the Contract
Value on that day is allocated to the Separate Account, the Annuity will be paid
as a Variable Annuity. If the Contract Value on that day is allocated to both
the Fixed Account and the Separate Account, the Annuity will be paid as a
combination of a Fixed Annuity and a Variable Annuity to reflect the allocation
between the Accounts. Variable Annuity Payments will reflect the investment
performance of the Separate Account in accordance with the allocation of the
Contract Value to the Subaccounts on the Annuity Date. Unless another payee is
designated, you will be the payee of the Annuity Payments.
The Contract Value will be applied to the applicable Annuity Tables. The Annuity
Table used will depend upon the Annuity Option elected. The amount of the first
payment for each $1,000 of Contract Value is shown in the Annuity Tables and is
based on the Annuitant's Attained Age. If, as of the Annuity Calculation Date,
the then current Annuity Option rates applicable to this class of contracts
provide a first Annuity Payment greater than that which is guaranteed under the
same Annuity Option under this Contract, the greater payment will be made.
FIXED ANNUITY - The Fixed Account Value will be used to determine the Fixed
Annuity monthly payment. The first monthly Annuity Payment will be based upon
the Annuity Option elected, the Annuitant's Attained Age and the appropriate
Annuity Option Table.
VARIABLE ANNUITY - Variable Annuity Payments:
1. are not predetermined as to dollar amount; and
2. will vary in amount with the net investment results of the applicable
Subaccount(s) of the Separate Account.
The dollar amount of Variable Annuity Payments for each applicable Subaccount
after the first payment is determined as follows:
1. the dollar amount of the first Variable Annuity Payment is divided by
the value of an Annuity Unit for each applicable Subaccount as of the
Annuity Calculation Date. This establishes the number of Annuity Units
for each monthly payment. The number of Annuity Units for each
applicable Subaccount remains fixed during the Annuity Period;
2. the fixed number of Annuity Units per payment in each Subaccount is
multiplied by the Annuity Unit Value for that Subaccount for the
Annuity Calculation Date. This result is the dollar amount of the
payment for each applicable Subaccount.
The total dollar amount of each Variable Annuity Payment is the sum of all
Subaccount Variable Annuity Payments.
ANNUITY UNIT - The value of an Annuity Unit for each Subaccount of the Separate
Account was arbitrarily set initially at $10. This was done when the first
Investment Option shares were purchased.
The Subaccount Annuity Unit Value at the end of any subsequent Business Day is
determined by multiplying the Subaccount Annuity Unit Value for the immediately
preceding Business Day by the net investment factor for the day for which the
Annuity Unit Value is being calculated; and multiplying the result by a factor
for the Business Day which negates the assumed interest rate used to develop the
Annuity Tables.
NET INVESTMENT FACTOR - The Net Investment Factor for any Subaccount of the
Separate Account for any Business Day after the first payment is determined by
dividing:
1. the Accumulation Unit Value as of the current Business Day; by
2. the Accumulation Unit Value as of the immediately preceding Business
Day.
The Net Investment Factor may be greater or less than one, as the Annuity Unit
Value may increase or decrease.
MORTALITY AND EXPENSE GUARANTEE - We guarantee that the dollar amount of each
Annuity Payment after the first Annuity Payment will not be affected by
variations in actual mortality or expenses.
SURRENDER PROVISIONS
SURRENDERS - Prior to the Annuity Date, you may, upon written request received
by us at the Annuity Service Office, make a total or partial surrender of the
Surrender Value. A surrender will result in the cancellation of Accumulation
Units from each applicable Subaccount of the Separate Account or a reduction in
the Fixed Account Value in the ratio that the Subaccount Value and/or the Fixed
Account Value bears to the total Contract Value. You must specify in writing in
advance which units are to be canceled, or which values are to be reduced, if
other than the above method is desired. We will pay the amount of any surrender
within seven (7) days of receipt of a request in good order unless the
Suspension or Deferral of Payments or Transfers from the Separate Account
provision or the Deferral of Payments or Transfers from the Fixed Account
provision is in effect.
Each partial surrender must be for an amount which is not less than the amount
shown on the Contract Schedule or, if smaller, the remaining Surrender Value.
The minimum Surrender Value which must remain in the Contract after a partial
surrender is shown on the Contract Schedule. The Surrender Value is the Contract
Value less any applicable Surrender Charge and less any Premium or other taxes.
SURRENDER CHARGE - Upon surrender of all or a portion of the Contract Value, a
Surrender Charge as set forth on the Contract Schedule may be assessed. Under
certain circumstances a surrender may be allowed without the imposition of a
Surrender Charge.
For a partial surrender, the Surrender Charge will be deducted from the
remaining Surrender Value, if sufficient, or from the amount surrendered. The
Surrender Charge will be deducted by canceling Accumulation Units from each
applicable Subaccount or reducing the Fixed Account Value in the ratio that the
Subaccount Value and/or Fixed Account bears to the total Contract Value. The
Owner must specify in writing in advance if other than the above method of
cancellation is desired.
SUSPENSION OR DEFERRAL OF PAYMENTS OR TRANSFERS
FROM THE SEPARATE ACCOUNT
We reserve the right to suspend or postpone payments for a surrender or transfer
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held
in the Separate Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate
Account's net assets; or
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in (2) and (3) exist.
DEFERRAL OF PAYMENTS OR TRANSFERS
FROM THE FIXED ACCOUNT
We reserve the right to defer payment for a surrender or transfer from the Fixed
Account for the period permitted by law but not for more than six (6) months
after written election is received by us at the Annuity Service Office.
RESERVES, VALUES AND BENEFITS
All reserves are greater than, or equal to, those required by statute. Any
values and death benefits that may be available under this Contract are not less
than the minimum benefits required by any law of the state in which this
Contract is delivered.
TABLES
[Company Logo]
IRA ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
64111-2466
The following provisions apply to a Contract which is issued as an Individual
Retirement Annuity under Internal Revenue Code (Code) Section 408(b). This
Endorsement forms a part of the Contract to which it is attached and is
effective as of the date of the Contract unless otherwise indicated in writing
by the Company. In the case of a conflict with any provision in the Contract the
provisions of this Endorsement will control.
The Contract is amended as follows:
1. The Owner and Annuitant shall be the same individual. There shall not
be a Joint Owner.
2. The interest of the Owner under the Contract is nonforfeitable.
3. The Contract may not be sold, assigned, discounted, pledged as
collateral for a loan or as security for the performance of any
obligation or for any other purpose, or otherwise transferred (other
than a transfer incident to a divorce or separation instrument in
accordance with Section 408(d)(6) of the Code) to any person other
than to the Company.
4. The Contract is established for the exclusive benefit of the Owner and
his or her Beneficiary(ies).
5. Except in the case of a rollover contribution (as permitted by Code
Sections 402(c),403(a)(4), 403(b)(8), or 408(d)(3)), or a contribution
made in accordance with the terms of a Simplified Employee Pension
(SEP) as described in Code Section 408(k), contributions shall not
exceed $2,000 for any taxable year. All Purchase Payments must be in
cash.
6. No contribution will be accepted under a SIMPLE plan established by
any employer pursuant to Code Section 408(p). No transfer or rollover
of funds attributable to contributions made by a particular employer
under its SIMPLE plan will be accepted from a SIMPLE IRA, that is, an
IRA used in conjunction with a SIMPLE plan, prior to the expiration of
the 2-year period beginning on the date the individual first
participated in that employer's SIMPLE plan.
7. (a) Distributions under the Contract must commence to be distributed
no later than the first day of April following the calendar year in
which the Owner attains age 70 1/2 (required beginning date) over:
(i) the life of the Owner, or the lives of the Owner and his or
her designated Beneficiary; or
(ii) a period certain not extending beyond the life expectancy of
the Owner, or the joint and last survivor life expectancy of
the Owner and his or her Beneficiary.
(b) If required distributions are to be made under an Annuity Option
in the Contract then all distributions made hereunder shall be
made in accordance with the requirements of Code Section
401(a)(9), including the incidental death benefit requirements of
Code Section 401(a)(9)(G), and the regulations thereunder,
including the minimum distribution incidental benefit requirement
of Code Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Life expectancy is computed by use of the expected
return multiples in Tables V and VI of Section 1.72-9 of the
Income Tax Regulations. Life expectancy for distributions under
an Annuity Option in the Contract may not be recalculated.
(c) If required distributions are not made under an Annuity Option in
the Contract then the amount to be distributed each year,
beginning with the first calendar year for which distributions
are required and then for each succeeding calendar year, shall
not be less than the quotient obtained by dividing the
individual's benefit by the lesser of (i) the applicable life
expectancy or (ii) if the individual's spouse is not the
designated beneficiary, the applicable divisor determined from
the table set forth in Q&A-4 or Q&A-5, as applicable, of Section
1.401(a)(9)-2 of the Proposed Income Tax Regulations.
Distributions after the death of the individual shall be
distributed using the applicable life expectancy as the relevant
divisor without regard to proposed regulations Section
1.401(a)(9)-2. Life expectancy is computed by use of the expected
return multiples in Tables V and VI of section 1.72-9 of the
Income Tax Regulations. Unless otherwise elected by the
individual by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election shall
be irrevocable by the individual and shall apply to all
subsequent years. The life expectancy of a non-spouse beneficiary
may not be recalculated. Instead, life expectancy will be
calculated using the attained age of such beneficiary during the
calendar year in which the individual attains age 70 1/2, and
payments for subsequent years shall be calculated based on such
life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life expectancy was first
calculated.
(d) An Owner shall be permitted to withdraw the required distribution
in any year from another individual retirement account or annuity
maintained for the benefit of the Owner in accordance with Notice
88-38. The Owner shall be responsible in such instance for
determining whether the minimum distribution requirements are
met, and the Company shall have no responsibility for such
determination.
8. Upon the death of the Owner:
(a) If the Owner dies after distribution of benefits has commenced,
the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Owner's death.
(b) If the Owner dies before distribution of benefits commences, the
entire amount payable to the Beneficiary will be distributed no
later than December 31 of the calendar year which contains the
fifth anniversary of the date of Owner's death except to the
extent that an election is made to receive distributions in
accordance with (i), (ii) or (iii) below:
(i) if any portion of the Contract proceeds is payable to a
Beneficiary, distributions may be made in installments over
the life or over a period not extending beyond the life
expectancy of the Beneficiary commencing no later than
December 31 of the calendar year immediately following the
calendar year in which the Owner died;
(ii) if the Beneficiary is the Owner's surviving spouse, and
benefits are to be distributed in accordance with (1) above,
distributions must begin on or before the later of (a)
December 31 of the calendar year immediately following the
calendar year in which the Owner died or (b) December 31 of
the calendar year in which the Owner would have attained age
70 1/2.; or
(iii)if the Beneficiary is the Owner's surviving spouse, the
spouse may treat the Contract as his or her own IRA. The
election will be deemed to have been made if such surviving
spouse makes a regular IRA contribution to the Contract,
makes a rollover to or from the Contract or fails to elect
any of the above provisions.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the Owner's death, unless
otherwise elected by the surviving spouse by the time distributions
are required to begin, life expectancies shall be recalculated
annually. Such election shall be irrevocable by the surviving spouse
and shall apply to all subsequent years. In the case of any other
Beneficiary, life expectancies shall be calculated using the attained
age of such Beneficiary during the calendar year in which
distributions are required to begin pursuant to this section, and
payments for any subsequent calendar year shall be calculated based on
such life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life expectancy was first calculated.
Life expectancy for distributions under an Annuity Option may not be
recalculated.
Distributions under this section are considered to have begun if
distributions are made on account of the Owner reaching his or her
required beginning date or if prior to the required beginning date
distributions irrevocably commence over a period permitted and in an
annuity form acceptable under Section 1.401(a)(9) of the Income Tax
Regulations.
9. Separate records will be maintained for the interest of each Owner and
the Company will furnish an annual calendar year report concerning the
status of the Contract.
All other terms and conditions of the Contract remain unchanged.
Fidelity Security Life Insurance Company has caused this Endorsement to be
signed by its President and Secretary.
- ------------------------------------------ -----------------------------
Secretary President
[Company Logo]
403(B) ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY, MO 64111-2406
- --------------------------------------------------------------------------------
The contract to which this endorsement is attached has been issued as a tax
sheltered annuity for the benefit of the Annuitant as provided under Section
403(b) of the Internal Revenue Code (Code). This Endorsement forms a part of the
Contract to which it is attached and is effective as of the date of the Contract
unless indicated otherwise in writing by the Company. In the case of a conflict
with any provision in the Contract, the provisions of this Endorsement will
control.
The Contract is amended as follows:
1. Exclusive Benefit. This contract is established for the exclusive benefit
of the Annuitant. The Annuitant must be an individual employee of an
organization in Section 403(b)(1)(a) of the Code. It may not be assigned,
pledged as collateral for a loan or as security for the performance of an
obligation, except pursuant to a loan from the Contract or to the Company
on surrender or settlement. Unless otherwise designated in the application
or by endorsement, the Annuitant shall be the Owner of this contract.
2. Nonforfeitability. None of the Annuitant's rights in this contract may be
forfeited.
3. Permitted Distributions. Distribution to the Annuitant under the Contract's
withdrawal, surrender or settlement provisions shall be made pursuant to
the terms of the plan document, if any, but withdrawals may not be made of
any amounts attributable to contributions made pursuant to a salary
reduction agreement after December 31, 1988 and the earnings on such
contributions and on such amounts held on December 31, 1988, or from that
portion of annuity proceeds transferred from a 403(b)(7) account, prior to
the earliest of: (1) the Annuitant's attained age of 59 1/2; (2) the
Annuitant's separation from service; (3) the Annuitant's disability, as
defined in section 72(m)(7) of the Code; (4) the Annuitant's hardship, as
defined in the Code and any regulations thereunder, or any other such
definition as may hereafter be assigned by the Secretary of the Treasury;
or (5) the Annuitant's death. Distribution made on account of hardship
shall not include any earnings on amounts contributed.
4. Maximum Contributions. Elective contributions made pursuant to section
403(b), rollover contributions pursuant to section 403(b)(8), and transfers
from a 403(b) contract under Rev. Rul. 90-24 may be made, subject to the
minimum premium payment limitations of the contract. Elective contributions
to the contract made pursuant to a salary reduction agreement may not
exceed the amount of the limitation in effect under Code Section 402(g) for
each calendar year. All contributions must be in cash and shall not exceed
the amount allowed by Code Section 403(b) and 415.
(a) Purchase payments must be made by an organization described in Code
Section 403(b)(1)(A), except in the case of a rollover contribution
under Code Sections 403(b)(8) or 408(d)(3), or a nontaxable transfer
from another contract qualifying under Code Section 403(b) or a
custodial account qualifying under Code Section 403(b)(7).
5. Lifetime Minimum Distribution Rules. The distribution of the annuity
proceeds from the contract shall be made in accordance with the minimum
distribution requirements of section 401(a)(9) of the Code and the Federal
Income Tax Regulations thereunder, including the incidental death benefit
provisions of section 1.401(a)(9)-2 of the Federal Income Tax Regulations,
all of which are herein incorporated by reference. For purposes of the
contract, the term "Required Beginning Date" shall mean, except as provided
otherwise in the Code and the Regulations thereunder, April 1 of the
calendar year following the later of (1) the calendar year in which the
Annuitant attains age 70 1/2 or (2) the calendar year in which the
Annuitant retires.
On or before the Required Beginning Date the Owner must elect to have the
Annuitant's entire annuity proceeds of the Policy distributed in one of the
following forms:
(a) a single sum payment;
(b) equal or substantially equal payments over the Annuitant's lifetime;
(c) equal or substantially equal payments over the lifetime of the
Annuitant and the lifetime of the Annuitant's designed beneficiary;
(d) equal or substantially equal payments over a specified period that may
not be longer than the Annuitant's life expectancy; or
(e) equal or substantially equal payments over a specified period that may
not be longer than the joint life and last survivor expectancy of the
Annuitant and his or her designated beneficiary.
Distributions under this provision are considered to have begun if they are
made on account of the Annuitant reaching his or her Required Beginning
Date. Life expectancy for distributions under any of the above payment
forms may not be recalculated.
Minimum Amounts to be Distributed. If the Annuitant's entire annuity
proceeds under the contract are to be distributed in other than a single
sum payment, the payments must be made in periodic payments at intervals of
no longer than one year (commencing with the Required Beginning Date and
each year thereafter). The minimum amount distributed must be at least an
amount equal to the quotient obtained by dividing the annuity proceeds
accruing after December 31, 1986, by the life expectancy of the Annuitant
or the joint and last survivor expectancy of the Annuitant and designated
beneficiary. After the Required Beginning Date, the annual distribution,
including that made for the year in which the Required Beginning Date
occurs, shall be made by December 31 of each year. The preceding sentence
shall not apply if the cash value is applied under a settlement option
meeting the requirements of Q&A F-3 of section 1.40(a)(9)-1 of the Income
Tax Regulations.
Upon the Annuitant's attainment of age 75, the payment specified in the
preceding paragraph shall be increased by an amount which shall be paid
from that portion of the annuity proceeds accrued prior to January 1, 1987.
Such increase shall be the quotient obtained by dividing: (1) that portion
of the annuity proceeds accrued prior to January 1, 1987, multiplied by .5
and increased by $1.00; by (2) the Annuitant's life expectancy or the joint
life and last survivor expectancy of the Annuitant and the designated
beneficiary.
Life expectancy and joint and last survivor life expectancy are computed by
use of the tables contained in section 1.72-9 of the Federal Income Tax
Regulations. For purposes of this computation, unless otherwise elected by
the Annuitant prior to the Required Beginning Date, life expectancies of
the Annuitant and spouse beneficiary shall be recalculated annually. An
Annuitant may elect no recalculation by filing an election with the Company
by the Required Beginning Date. Such election shall be irrevocable and
shall apply to all subsequent years. The life expectancy of a nonspouse
beneficiary shall not be recalculated. If the Annuitant's beneficiary is
other than his or her spouse, the recalculated joint life expectancy will
use the Annuitant's recalculated life expectancy and the life expectancy of
the beneficiary as of the date of the first payment minus the number of
whole years elapsed since distribution first commenced.
If the Annuitant's Beneficiary is other than his or her spouse, the
distribution must not be less than the amount obtained by dividing the
contract value by the divisor determined by the tables set forth in Q&A 4
of section 1.401(a)(9)-2 of the Income Tax Regulations.
After the Required Beginning Date, distributions under a settlement option
shall be made in accordance with the requirements of section 403(b)(10) of
the Code and the Regulations thereunder.
An Annuitant shall be permitted to withdraw the required distribution in
any year from another 403(b) contract or account maintained for the benefit
of the Annuitant in accordance with Notice 88-38. The Annuitant shall be
solely responsible in such instance for determining whether the minimum
distribution requirements are met, and the Company shall have no
responsibility for such determination.
6. Distribution Upon Death of Annuitant. If the Annuitant dies before all
contract values have been distributed, the following rules apply unless
deferral is allowed under Section 1.403(b)-2 of the Regulations:
(a) If the Annuitant dies after the distribution of benefits has started,
any remaining benefits will continue to be distributed at least as
rapidly as under the method of distribution being used at the
Annuitant's death.
(b) If the Annuitant dies before distribution of benefits begins, all
contract values must be distributed in accordance with the settlement
option selected by the beneficiary, subject to the following:
(1) With respect to that portion of the Cash Value accruing after
December 31, 1986, if the beneficiary is a surviving spouse,
payments to a spouse shall (1) commence on or before the later
of: (i) December 31 of the calendar year immediately following
the calendar year in which the Annuitant died; or (ii) December
31 of the calendar year in which the Annuitant would have
attained age 70 1/2; or (2) be distributed in their entirety to
such spouse on or before December 31 of the calendar year which
contains the fifth anniversary of the date of the Annuitant's
death. Should the surviving spouse die before payments begin,
these provisions shall apply after the death of the surviving
spouse as if the surviving spouse were the Annuitant.
(2) With respect to that portion of the Cash Value accruing after
December 31, 1986, if the beneficiary is an individual other than
a surviving spouse, payments to the beneficiary shall: (1)
commence no later than December 31 of the calendar year
immediately following the calendar year in which the Annuitant
died, or (2) be distributed in their entirety to the beneficiary
on or before December 31, of the calendar year which contains the
fifth anniversary of the date of the Annuitant's death.
(3) With respect to that portion of the Cash Value accruing after
December 31, 1986, if the beneficiary is not an individual,
payments to the beneficiary must be completely distributed on or
before December 31 of the calendar year which contains the fifth
anniversary of the date of the Annuitant's death.
Those portions of the Cash Value which are payable to a surviving
spouse and non-souse beneficiary(ies) shall be treated separately
for purposes of satisfying the foregoing restrictions.
(4) With respect to that portion of the Cash Value accrued as of
December 31, 1986, payments may commence to the Beneficiary at
the time elected by the Beneficiary. If no settlement option has
been selected and the beneficiary dies, the balance shall be paid
to the beneficiary's estate in a lump sum.
The required amount to be distributed each year under (1) or (2) above must
be at least an amount equal to the quotient obtained by dividing the
contract value as of the December 31 preceding distribution by the life
expectancy of the designated Beneficiary. Life expectancy is calculated
using the tables contained in Section 1.72-9 of the Income Tax Regulations.
The life expectancy of a surviving spouse beneficiary shall be recalculated
annually unless the surviving spouse elects not to recalculate life
expectancy. The life expectancy of any nonspouse designated beneficiary may
not be recalculated. The life expectancy of such nonspouse beneficiary is
calculated at the time of the first payment, and payments for later years
will be based on such life expectancy minus the number of whole years
elapsed since distribution first commenced.
For purposes of this paragraph, any amount paid to a child of the Annuitant
will be treated as if it has been paid to the surviving spouse if the
balance of the contract becomes payable to the surviving spouse when the
child reaches age of majority.
7. Direct Rollover Rules. With respect to any withdrawal, surrender or
settlement option payment under the contract which is an Eligible Rollover
Distribution, a Distributee may elect to have any portion of the Eligible
Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover. For purposes of this
provision:
(a) "Eligible Rollover Distribution" means any distribution of all or any
portion of the Cash Value, except that an Eligible Rollover
Distribution does not include: (1) any distribution that is one of a
series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint expectancy) of the
Distributee and the Distributee's designated beneficiary or for a
specified period of ten years or more; (2) any portion of a
distribution to the extent such distribution is required under section
401(a)(9) of the Code or not includable in gross income; and (3) for
any distributions after December 31, 1998, any hardship distributions
described in Code Section 401(k)(2)(B)(i)(iv).
(b) "Eligible Retirement Plan" means an individual retirement account
described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, or an annuity
contract, custodial account and retirement account described in
section 403(b) of the Code, that accepts the Distributee's Eligible
Rollover Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement Plan is
an individual retirement account or individual retirement annuity.
(c) "Direct Rollover" means a payment from the Cash Value paid by the
Company for the benefit of the Distributee to the Eligible Retirement
Plan specified by the Distributee.
(d) "Distributee" means the Annuitant. In addition, the Annuitant's
surviving spouse and Annuitant's spouse or former spouse under a
qualified domestic relations order, as defined in section 414(p) of
the Code, are Distributees with regard to such person's interest.
9. Employee Retirement Income Security Act of 1974 (ERISA). If this Contract
is part of a plan which is subject to ERISA, any payments and distributions
under this Contract (whether as income, as proceeds payable at the
Annuitant's death, upon partial redemption or full surrender or otherwise),
and any Beneficiary designation, shall be subject to the joint and survivor
annuity and preretirement survivor annuity requirements of ERISA Section
205.
9. Amendment. This contract shall be amended without consent of the Owner,
Annuitant or beneficiary (in Kansas, Pennsylvania and Washington only, with
consent of Owner) as required to insure that this contract continues to
satisfy the applicable requirements of the Code, as amended, and the
regulations thereunder, in effect during the term of this contract. A copy
of each amendment will be furnished to the Owner.
Secretary
April 7, 1999
[Company Logo]
Unisex Endorsement
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY, MO 64111-2406
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the date of the Contract unless indicated otherwise in writing
by the Company. In the case of a conflict with any provision in the Contract,
the provisions of this Endorsement will control.
The Contract is amended as follows:
1. The Misstatement of Age or Sex provision in the General Provisions is
amended by deleting any reference to the sex of the Annuitant.
2. The attached Tables will be used in place of the sex distinct Tables
in the Contract.
_____________________________________ ________________________________
Secretary President
[Company Logo]
COMPANY COMPLETION BENEFIT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY MO 64111-2406
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the date of the Contract unless otherwise indicated in writing
by the Company. In the case of a conflict with any provisions in the Contract,
the provisions of this Endorsement will control.
The Contract is amended as follows:
ARTICLE I - PURPOSE
The purpose of the Endorsement is to provide the Company Completion Benefits on
behalf of Qualified Annuitants (as defined herein) who become disabled (as
defined herein) while this Endorsement is effective.
ARTICLE II - DEFINITIONS
For the purposes of this Endorsement, the following terms shall be as defined or
referred to in the Annuity Contract to which this Endorsement is attached:
Annuitant, Annuity Date, Issue Date, Beneficiary, Contract.
All references to articles or sections herein refer to articles or sections of
this Endorsement, unless otherwise noted.
ARTICLE III - QUALIFIED ANNUITANT
3.1 Qualified Annuitant: An Annuitant who satisfies the eligibility
requirements of Section 3.2
3.2 Eligibility Requirements: These requirements are used for 401(k), 403(b),
and 457 plans. In order to attain the status of a Qualified Annuitant, the
following requirements must first be satisfied:
(a) the Annuitant shall incur a Disability as defined in Section 4.1;
(b) 9 months shall have elapsed between an Annuitant's Issue Date and his
Disability Effective Date, as defined in Section 4.2;
(c) the Annuitant shall comply in all respects with the requirements for
Proof of Disability in Section 4.5;
(d) prior to the Annuitant's Disability Effective Date, contributions
shall have been made for the Annuitant for not less than 9 of the 12
months immediately preceding his Disability Effective Date;
(e) the Disability of the Annuitant shall have continued without
interruption for not less than 180 consecutive days, and;
(f) the Annuitant's Disability Effective Date shall not be beyond the
earlier of his Normal Retirement Date or age 65.
ARTICLE IV - DISABILITY
4.1 Disability Defined: Disability means the Annuitant is unable, as the result
of an injury or sickness, to engage in any employment or occupation for
which he is or becomes qualified by reason of training , education, or
experience. Provided, however, if the Annuitant's disability is due to an
injury which occurred or a sickness for which medical advice or treatment
was received prior to the Annuitant's Issue Date, then two years must have
elapsed since (1) the injury occurred or the last date for which the
Annuitant received medical advice or treatment for the sickness, or (2) The
Annuitant's Issue Date, whichever occurs first, for such disability to be
considered a Disability for purposes of the Contract.
A sickness will be considered to have manifested itself if medical advice
or treatment thereof was recommended by or received from a licensed
physician or if such sickness resulted in the existence of symptoms which
would have caused an ordinarily prudent person to seek medical diagnosis,
care or treatment.
4.2 Disability Effective Date Defined: Disability Effective Date shall mean the
first day on which Disability is determined to exist.
4.3 Exclusions: No benefit shall be available under this Endorsement for any
disability resulting from:
(a) mental or emotional disorders, alcoholism or drugs, unless prescribed
by a physician;
(b) war or any act of war (declared or undeclared); participation in a
felony, riot or insurrection; service in the armed forces or units
auxiliary thereto;
(c) suicide, attempted suicide or intentionally self-inflicted injury;
(d) aviation, except as a fare-paying passenger on a scheduled commercial
flight;
(e) cosmetic surgery, except that cosmetic surgery shall not include
reconstructive surgery when such service is incidental to the trauma,
infection or other diseases of the involved part.
4.4 Recurrent Disability: If, following a period of Disability due to sickness
or injury for which benefits were payable, the Qualified Annuitant shall
resume her regular occupation and perform all the important duties thereof
for a continuous period of 180 days or more, any subsequent Disability
resulting from or contributed to by the same cause or causes shall be
considered as a new period of Disability and indemnified in accordance with
the applicable provisions of this Endorsement, but if said period during
which the Qualified Annuitant resumes his regular occupation shall be less
than 180 consecutive days, such subsequent Disability, provided the
Contract is in force, shall be deemed a continuation of the same Disability
and the Company shall provide benefits for the intervening months.
4.5 Proof of Disability:
(a) Form and Nature of Proof: The Annuitant shall provide any and all
information required by the Company in order to establish proof of the
existence of Disability. The Annuitant shall complete and submit to
the Company all reasonable and necessary forms the Company may request
to be submitted, including a written certification at the expense of
the Annuitant from a licensed physician, which verifies the existence
of Disability and establishes the Disability Effective Date. The
Company also reserves the right to require the Annuitant to be
examined by a licensed physician of its choice and at its expense to
verify the initial existence of Disability.
(b) Notice and Filing of Proof: Written notice of claim must be given to
the Company by the Annuitant within 60 days after the 180-day period
of continuous Disability, as described in Section 3.2(e). Thereafter,
all of the Company's requirements for proof of loss must be satisfied
within 60 days after receipt by the Annuitant of the Company's proof
of loss requirements.
(c) Proof of Continuing Disability: When, and as often as it may
reasonably require during the pendency of a claim hereunder, the
Company, at its own expense, shall have the right and opportunity to
have a licensed physician of its choice examine the Annuitant whose
injury or sickness is the basis of the claim.
ARTICLE V - BENEFITS
5.1 Company Completion Benefits: Subject to the terms and conditions of this
Endorsement, Company Completion Benefits shall be provided to a Qualified
Annuitant. Such benefits are provided for the exclusive benefit of the
Qualified Annuitant and his beneficiary.
5.2 Determination of Benefit Amount:
(a) Subject to the terms and conditions of this Endorsement, the Company
will establish and maintain an account on behalf of each Qualified
Annuitant and will credit to such account a monthly Completion Benefit
amount, determined in accordance with this Section.
(b) The amount of the monthly benefit amount shall be derived by dividing
(i) by (ii) where:
(i) is the total amount of contributions made on behalf of the
Annuitant under the Contract during the 36 months immediately
preceding his Disability Effective Date, less the total
contributions withdrawn by or for the Annuitant during that
period, and
(ii) is the number of months immediately preceding his Disability
Effective Date and counting back to the month in which the first
contribution was made on behalf of the Annuitant, or 36 months,
whichever is the lesser.
(c) In deriving the monthly benefit amount in accordance with the
preceding paragraph, the following contributions shall be excluded in
determining the total contributions made on behalf of the Annuitant:
(i) contributions made for service rendered by the Annuitant prior to
the Contract's Issue Date, and
(ii) contributions transferred to the Contract from another Company's
annuity contract or custodial account.
(d) Notwithstanding anything to the contrary in this Endorsement, if the
Company has credited Company Completion Benefits on behalf of an
apparently Qualified Annuitant, and the Company subsequently
determines that such Annuitant was not disabled in accordance with the
definition of Disability in Section 4.1, or was otherwise not entitled
to such benefits for one or more months during which the Company
Completion Benefits were credited, then the Company shall deduct from
that Annuitant's Company Completion Benefit account all amounts
credited to such Annuitant during any and all months in which the
Annuitant was not entitled to such benefits.
5.3 Failure to Provide Continuing Proof: A monthly Company Completion Benefit
amount shall not be credited by the Company for a Qualified Annuitant under
this Endorsement during any such period of time in which he refuses to be
examined by a licensed physician when reasonably requested by the Company,
or refuses to provide the Company with information which it believes is
necessary to establish continuing qualification pursuant to Section 4.5(c).
ARTICLE VI - INDIVIDUAL ACCOUNTING
6.1 Establishment of Accounts: The Company shall establish and maintain
individual accounting for each Qualified Annuitant. The maintenance of such
accounts is only for accounting purposes and a segregation of the assets
held under this Endorsement shall not be required. At any point in time,
the value of such account shall equal the aggregate monthly Company
Completion Benefits credited to it, plus interest as described in Section
6.4. The first Company Completion Benefit amount credited by the Company
for a Qualified Annuitant shall be credited on or about the first day of
that month which follows the month in which the 180-day requirement for
establishment of his Disability Effective Date is satisfied, and shall
equal the total of 7 monthly Company Completion Benefit amounts.
Thereafter, subject to the provisions of Section 5.3, the Company shall
credit Company Completion Benefit amounts monthly until the earliest of:
(a) the Qualified Annuitant's Normal Retirement Date (as defined in
Section 6.3);
(b) termination of his Disability;
(c) his attainment of age 65, or
(d) his death.
6.2 Distribution: The value of the Qualified Annuitant's account shall be
applied to the purchase of a life annuity (no period certain) on the first
to occur of his Normal Retirement Date (as defined in Section 6.3) or
attainment of age 65.
Notwithstanding any Contract provisions to the contrary, a Qualified
Annuitant's account value shall not be available for exercising the
Retirement, Termination, Withdrawal, or Death Benefits provisions of the
Contract. However, in the event of the Qualified Annuitant's death prior to
the application of his account value under this Section to the purchase of
a life annuity (no period certain), such account value shall be paid in a
single sum to his Beneficiary.
6.3 Normal Retirement Date - Defined: A Qualified Annuitant's Normal Retirement
Date shall be the normal date of retirement as specified in any pension,
profit sharing , deferred compensation or other retirement plan document
applicable to the Qualified Annuitant. If more than one such date is
applicable to the Qualified Annuitant, his Normal Retirement Date shall be
the earliest of such dates.
6.4 Interest: Interest will be compounded and credited daily at an effective
rate of four percent per annum from the Issue Date. The Company reserves
the right to credit additional interest. Interest shall continue to be
credited to a Company Completion Benefit account until such account is no
longer maintained by the Company.
ARTICLE VII - TERMINATION
7.1 Company's right to Terminate Endorsement: The Company reserves the right to
terminate this Endorsement at any time by providing at least 30 days prior
written notice to each Annuitant by the United States first class mail.
7.2 No Prejudice to Certain Qualified Annuitants: Notwithstanding the
termination of this Endorsement by the Company pursuant to Section 7.1,
this Endorsement shall remain in effect for certain Qualified Annuitants in
accordance with the following:
(a) For a Qualified Annuitant who is currently disabled in accordance with
Section 4.1 and for whom one or more monthly Company Completion
Benefit amounts have been credited by the Company immediately prior to
the effective date of such termination, the Company shall continue to
credit such amounts until the earliest of:
(i) the Qualified Annuitant's Normal Retirement Date;
(ii) termination of his Disability;
(iii) his attainment of age 65, or;
(iv) his death.
Thereafter, no further Company Completion Benefit amounts shall be
credited under this Endorsement
(b) For a Qualified Annuitant who is not currently disabled in accordance
with Section 4.1 but for whom an account is maintained under Article
VI by reason of a prior Disability, such account shall continue to be
maintained, but the Company shall be forever relieved from crediting
Company Completion Benefit amounts subsequent to termination.
IN WITNESS WHEREOF, the Company has executed this Endorsement at its home Office
at Kansas City, Missouri.
- ----------------------------------- ------------------------------------
Secretary President
[Company logo]
COMPANY COMPLETION BENEFIT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY MO 64111-2406
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the date of the Contract unless otherwise indicated in writing
by the Company. In the case of a conflict with any provisions in the Contract,
the provisions of this Endorsement will control.
The Contract is amended as follows:
ARTICLE I - PURPOSE
The purpose of the Endorsement is to provide the Company Completion Benefits on
behalf of Qualified Annuitants (as defined herein) who become disabled (as
defined herein) while this Endorsement is effective.
ARTICLE II - DEFINITIONS
For the purposes of this Endorsement, the following terms shall be as defined or
referred to in the Annuity Contract to which this Endorsement is attached:
Annuitant, Annuity Date, Issue Date, Beneficiary, Contract.
All references to articles or sections herein refer to articles or sections of
this Endorsement, unless otherwise noted.
ARTICLE III - QUALIFIED ANNUITANT
3.1 Qualified Annuitant: An Annuitant who satisfies the eligibility
requirements of Section 3.2
3.2 Eligibility Requirements: These requirements are used for IRA, Roth IRA,
and non-qualified annuities. In order to attain the status of a Qualified
Annuitant, the following requirements must first be satisfied:
(a) the Annuitant shall incur a Disability as defined in Section 4.1;
(b) One Year shall have elapsed between an Annuitant's Issue Date and his
Disability Effective Date, as defined in Section 4.2;
(c) the Annuitant shall comply in all respects with the requirements for
Proof of Disability in Section 4.5;
(d) the Annuitant will have made contributions to the Annuity Contract in
the tax year immediately preceding tax year containing his Disability
Effective Date;
(e) the Disability of the Annuitant shall have continued without
interruption for not less than 180 consecutive days, and;
(f) the Annuitant's Disability Effective Date shall not be beyond the
earlier of his Normal Retirement Date or age 65.
ARTICLE IV - DISABILITY
4.1 Disability Defined: Disability means the Annuitant is unable, as the result
of an injury or sickness, to engage in any employment or occupation for
which he is or becomes qualified by reason of training , education, or
experience. Provided, however, if the Annuitant's disability is due to an
injury which occurred or a sickness for which medical advice or treatment
was received prior to the Annuitant's Issue Date, then two years must have
elapsed since (1) the injury occurred or the last date for which the
Annuitant received medical advice or treatment for the sickness, or (2) the
Annuitant's Issue Date, whichever occurs first, for such disability to be
considered a Disability for purposes of the Contract.
A sickness will be considered to have manifested itself if medical advice
or treatment thereof was recommended by or received from a licensed
physician or if such sickness resulted in the existence of symptoms which
would have caused an ordinarily prudent person to seek medical diagnosis,
care or treatment.
4.2 Disability Effective Date Defined: Disability Effective Date shall mean the
first day on which Disability is determined to exist.
4.3 Exclusions: No benefit shall be available under this Endorsement for any
disability resulting from:
(a) mental or emotional disorders, alcoholism or drugs, unless prescribed
by a physician;
(b) war or any act of war (declared or undeclared); participation in a
felony, riot or insurrection; service in the armed forces or units
auxiliary thereto;
(c) suicide, attempted suicide or intentionally self-inflicted injury;
(d) aviation, except as a fare-paying passenger on a scheduled commercial
flight;
(e) cosmetic surgery, except that cosmetic surgery shall not include
reconstructive surgery when such service is incidental to the trauma,
infection or other diseases of the involved part.
4.4 Recurrent Disability: If, following a period of Disability due to sickness
or injury for which benefits were payable, the Qualified Annuitant shall
resume his regular occupation and perform all the important duties thereof
for a continuous period of 180 days or more, any subsequent Disability
resulting from or contributed to by the same cause or causes shall be
considered as a new period of Disability and indemnified in accordance with
the applicable provisions of this Endorsement, but if said period during
which the Qualified Annuitant resumes his regular occupation shall be less
than 180 consecutive days, such subsequent Disability, provided the
Contract is in force, shall be deemed a continuation of the same Disability
and the Company shall provide benefits for the intervening months.
4.5 Proof of Disability:
(a) Form and Nature of Proof: The Annuitant shall provide any and all
information required by the Company in order to establish proof of the
existence of Disability. The Annuitant shall complete and submit to
the Company all reasonable and necessary forms the Company may request
to be submitted, including a written certification at the expense of
the Annuitant from a licensed physician, which verifies the existence
of Disability and establishes the Disability Effective Date. The
Company also reserves the right to require the Annuitant to be
examined by a licensed physician of its choice and at its expense to
verify the initial existence of Disability.
(b) Notice and Filing of Proof: Written notice of claim must be given to
the Company by the Annuitant within 60 days after the 180-day period
of continuous Disability, as described in Section 3.2(e). Thereafter,
all of the Company's requirements for proof of loss must be satisfied
within 60 days after receipt by the Annuitant of the Company's proof
of loss requirements.
(c) Proof of Continuing Disability: When, and as often as it may
reasonably require during the pendency of a claim hereunder, the
Company, at its own expense, shall have the right and opportunity to
have a licensed physician of its choice examine the Annuitant whose
injury or sickness is the basis of the claim.
ARTICLE V - BENEFITS
5.1 Company Completion Benefits: Subject to the terms and conditions of this
Endorsement, Company Completion Benefits shall be provided to a Qualified
Annuitant. Such benefits are provided for the exclusive benefit of the
Qualified Annuitant and his beneficiary.
5.2 Determination of Benefit Amount:
(a) Subject to the terms and conditions of this Endorsement, the Company
will establish and maintain an account on behalf of each Qualified
Annuitant and will credit to such account a monthly Completion Benefit
amount, determined in accordance with this Section.
(b) The amount of the monthly benefit amount shall be derived by dividing
(i) by (ii) where:
(i) is the total amount of contributions made on behalf of the
Annuitant under the Contract during the three taxable years
immediately preceding his Disability Effective Date, less the
total contributions withdrawn by or for the Annuitant during that
period, and
(ii) is the number of years immediately preceding his Disability
Effective Date and counting back to the year in which the first
contribution was made on behalf of the Annuitant, or three
taxable years, whichever is the lesser.
(c) In deriving the monthly benefit amount in accordance with the
preceding paragraph, the following contributions shall be excluded in
determining the total contributions made on behalf of the Annuitant:
(i) contributions made for service rendered by the Annuitant prior to
the Contract's Issue Date, and
(ii) contributions transferred to the Contract from another Company's
annuity contract or custodial account.
(iii) any contributions to a single premium annuity.
(d) Notwithstanding anything to the contrary in this Endorsement, if the
Company has credited Company Completion Benefits on behalf of an
apparently Qualified Annuitant, and the Company subsequently
determines that such Annuitant was not disabled in accordance with the
definition of Disability in Section 4.1, or was otherwise not entitled
to such benefits for one or more months during which the Company
Completion Benefits were credited, then the Company shall deduct from
that Annuitant's Company Completion Benefit account all amounts
credited to such Annuitant during any and all months in which the
Annuitant was not entitled to such benefits.
5.3 Failure to Provide Continuing Proof: A monthly Company Completion Benefit
amount shall not be credited by the Company for a Qualified Annuitant under
this Endorsement during any such period of time in which he refuses to be
examined by a licensed physician when reasonably requested by the Company,
or refuses to provide the Company with information which it believes is
necessary to establish continuing qualification pursuant to Section 4.5(c).
ARTICLE VI - INDIVIDUAL ACCOUNTING
6.1 Establishment of Accounts: The Company shall establish and maintain
individual accounting for each Qualified Annuitant. The maintenance of such
accounts is only for accounting purposes and a segregation of the assets
held under this Endorsement shall not be required. At any point in time,
the value of such account shall equal the aggregate monthly Company
Completion Benefits credited to it, plus interest as described in Section
6.4. The first Company Completion Benefit amount credited by the Company
for a Qualified Annuitant shall be credited on or about the first day of
that month which follows the month in which the 180-day requirement for
establishment of his Disability Effective Date is satisfied, and shall
equal the total of 7 monthly Company Completion Benefit amounts.
Thereafter, subject to the provisions of Section 5.3, the Company shall
credit Company Completion Benefit amounts monthly until the earliest of:
(a) the Qualified Annuitant's Normal Retirement Date (as defined in
Section 6.3);
(b) termination of his Disability;
(c) his attainment of age 65, or
(d) his death.
6.2 Distribution: The value of the Qualified Annuitant's account shall be
applied to the purchase of a life annuity (no period certain) on the first
to occur of his Normal Retirement Date (as defined in Section 6.3) or
attainment of age 65.
Notwithstanding any Contract provisions to the contrary, a Qualified
Annuitant's account value shall not be available for exercising the
Retirement, Termination, Withdrawal, or Death Benefits provisions of the
Contract. However, in the event of the Qualified Annuitant's death prior to
the application of his account value under this Section to the purchase of
a life annuity (no period certain), such account value shall be paid in a
single sum to his Beneficiary.
6.3 Normal Retirement Date Defined: A Qualified Annuitant's Normal Retirement
Date shall be the normal date of retirement as specified in any pension,
profit sharing , deferred compensation or other retirement plan document
applicable to the Qualified Annuitant. If more than one such date is
applicable to the Qualified Annuitant, his Normal Retirement Date shall be
the earliest of such dates.
6.4 Interest: Interest will be compounded and credited daily at an effective
rate of four percent per annum from the Issue Date. The Company reserves
the right to credit additional interest. Interest shall continue to be
credited to a Company Completion Benefit account until such account is no
longer maintained by the Company.
ARTICLE VII - TERMINATION
7.1 Company's right to Terminate Endorsement: The Company reserves the right to
terminate this Endorsement at any time by providing at least 30 days prior
written notice to each Annuitant by the United States first class mail.
7.2 No Prejudice to Certain Qualified Annuitants: Notwithstanding the
termination of this Endorsement by the Company pursuant to Section 7.1,
this Endorsement shall remain in effect for certain Qualified Annuitants in
accordance with the following:
(a) For a Qualified Annuitant who is currently disabled in accordance with
Section 4.1 and for whom one or more monthly Company Completion
Benefit amounts have been credited by the Company immediately prior to
the effective date of such termination, the Company shall continue to
credit such amounts until the earliest of:
(i) the Qualified Annuitant's Normal Retirement Date;
(ii) termination of his Disability;
(iii) his attainment of age 65, or;
(iv) his death.
Thereafter, no further Company Completion Benefit amounts shall be
credited under this Endorsement
(b) For a Qualified Annuitant who is not currently disabled in accordance
with Section 4.1 but for whom an account is maintained under Article
VI by reason of a prior Disability, such account shall continue to be
maintained, but the Company shall be forever relieved from crediting
Company Completion Benefit amounts subsequent to termination.
IN WITNESS WHEREOF, the Company has executed this Endorsement at its home Office
at Kansas City, Missouri.
- ----------------------------------- ------------------------------------
Secretary President
[FIDELITY SECURITY LIFE LOGO]
LOAN PROVISION ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY MO 64111-2406
- --------------------------------------------------------------------------------
This Endorsement sets out the terms and conditions under which the Company will
make loans to an Annuitant. This Endorsement forms a part of the Contract to
which it is attached and is effective as of the date of the Contract unless
otherwise indicated in writing by the Company. In the case of a conflict with
any provisions in the Contract, the provisions of this Endorsement will control.
The Contract is amended as follows:
Loans
REQUIREMENTS: Prior to a Annuitant's Annuity Commencement Date, the Company will
make loans in accordance with the provisions of this Endorsement. Any such loans
will be made only after the Company has received a properly completed loan
application and agreement from the Annuitant. During the accumulation phase you
can make a loan out of the fixed account using the contract as collateral. No
loans are permitted out of the investment options and no loans are permitted
during the income phase. Repayment of the loan will be made into the fixed
account. The repayment will then be allocated in the same manner that your
purchase payments are being allocated.
No loan will be made for an amount less than $2,000. Nor will a loan be made for
an amount which, when combined with the loan balances of all similar loans to
the Annuitant, exceeds the lesser of (1) $50,000 reduced by the excess of the
highest outstanding loan balance of all other such loans of the Annuitant during
the one year period ending on the day before the date the loan is made over the
outstanding balance of all similar loans of the Annuitant on the date the loan
is made, (2) the greater of 50% of the Annuitant's Contract Value or $10,000, or
(3) 67% of the Annuitant's Contract Value.
Any such loan will be secured by the Annuitant's account held under the terms of
the Annuity Contract. The amount of such account which shall be encumbered as
security for such loan will always equal the loan balance. That portion of such
account encumbered by the loan balance will be credited with interest compounded
at the rate of 4% per annum instead of the rate then being paid on such accounts
by the Company. That portion of such account which remains unencumbered will
continue to be credited with interest at the rate then being paid by the Company
on such accounts. The amount of the Annuitant's account to be encumbered shall
be determined on a first-in, first-out basis.
INTEREST: Interest will accrue on the loan balance from the effective date of
the loan. At any time the loan balance will be the unpaid principal of the loan
plus any accrued and unpaid interest.
The company will set the loan interest rate at the beginning of each calendar
quarter, and this rate will apply in that quarter to any new or outstanding
loan. The loan interest rate will not exceed a maximum rate of 8% per annum.
The Company will notify the Annuitant of the initial loan interest rate at the
time a loan is made and of any change in the loan interest rate for an
outstanding loan.
REPAYMENT: Any loan made under the terms of this Endorsement must be repaid in
substantially equal payments not less frequently than quarterly within a 5-year
term, unless used to acquire, construct, reconstruct, or substantially
rehabilitate any dwelling unit which within a reasonable time is to be used as
the principal residence of the Annuitant. The Annuitant must certify to the
Company whether the loan is to be used in this manner and in such event the
repayment period may not exceed 10 years. In no event may the repayment period
be beyond the Annuitant's required distribution date.
Full repayment may be made at any time by paying the total loan balance.
Additional partial repayments may be made at any time. Repayments applied to
principal will be applied in the opposite manner in which it is encumbered.
EFFECT ON BENEFITS: If the Annuitant has any outstanding loan under this
Endorsement, any withdrawal benefit will be limited to an amount, which when
combined with the total of all such loan balances, will not cause the balance of
such loan to exceed the limits described above under "Requirements".
All loan balances under this Endorsement must be paid or satisfied in full
before any amount is applied on the Annuitant's behalf to provide benefits under
the Annuity Options, pay a death benefit, or a Surrender Benefit.
MISCELLANEOUS: The Company reserves its right to delay the making of a loan
under the Endorsement for a period not to exceed 6 months from the date a
completed loan application and agreement is received by it. The Company also
reserves the right to limit the number of loans a Annuitant may have outstanding
at any time.
If, at any time, the loan balance exceeds the Contract Value, all rights under
the Annuity Contract shall lapse.
This Endorsement is intended to comply with Internal Revenue Code Section 72(p).
However the Company assumes no responsibility nor makes any representation
regarding the tax consequences resulting from a loan made in accordance with
these provisions.
This Endorsement will expire with the Annuity Contract. It is subject to all the
provisions, definitions and limitations of the Annuity Contract not inconsistent
herewith.
- -------------------------------- ------------------------------
Secretary Date
- ------------------------------- ------------------------------
President Date
[FIDELITY SECURITY LIFE LOGO]
401 PLAN ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY, MO 64111-2406
- --------------------------------------------------------------------------------
The following provisions apply to a Contract which is issued under a Plan
qualified under Internal Revenue Code Section 401. This Endorsement forms a part
of the Contract to which it is attached and is effective as of the date of the
Contract unless otherwise indicated in writing by the Company. In the case of a
conflict with any provisions in the Contract, the provisions of this Endorsement
will control.
The Contract is amended as follows:
1. The Annuitant of this Contract will be the applicable Participant under
the Plan and the Owner of this Contract will be as designated in the
Plan.
2. This Contract and the benefits under it, cannot be sold, assigned,
transferred, discounted, pledged as collateral for a loan or as
security for the performance of an obligation or for any other purpose,
or otherwise transferred to any person other than the Company.
3. This Contract is purchased pursuant to the provisions of the Plan which
may limit the Owner's or Annuitant's rights under the Contract. No such
Plan provision shall limit the Owner's or Annuitant's rights under the
Contract unless an authorized person under the Plan has provided the
Company with written notification of such provision. In no event shall
any Plan provision enlarge the Company's obligations under the
Contract. Further, the availability of withdrawals and payments
pursuant to various options of the Contract may be restricted and
altered to the extent necessary to comply with Code Section 401 and the
Regulations thereunder.
- --------------------------- --------------------------------
Secretary President
[FIDELITY SECURITY LIFE LOGO]
457 PLAN ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY MO 64111-2406
- --------------------------------------------------------------------------------
The contract to which this Endorsement is attached is issued pursuant to ss. 457
of the Internal Revenue Code of 1986, as amended (the "Code"). This Endorsement
forms a part of the Contract to which it is attached and is effective as of the
date of the Contract unless otherwise indicated in writing by the Company. In
the case of a conflict with any provisions in the Contract, the provisions of
this Endorsement will control.
The Contract is amended as follows:
1. EXCLUSIVE BENEFIT. This contract is issued pursuant to an
eligible deferred compensation plan under ss. 457(b) of the Code
(the "Plan"). Pursuant to ss. 457(g) of the Code, notwithstanding
any other provision of the contract, effective January 1, 1999,
all contributions to the contract, and all accumulations thereon,
shall be held for the exclusive benefit of the Participants and
the Beneficiaries under the Plan. Such amounts and accumulations
shall not be subject to claim of right by the employer (owner) or
any of its creditors. No part of the contract may be diverted or
repaid to the employer except as permitted by applicable law.
2. OWNER/ANNUITANT. The Owner of the contract shall be the employer
under the Plan. The Owner's rights are subject to paragraph 1 of
this Endorsement. The Annuitant shall be a participant under the
Plan. There shall be no joint owner.
3. DEATH OF ANNUITANT. The death benefit provisions under the
contract shall be amended to read as follows:
Death of Annuitant During the Accumulation Period - The death benefit
will be paid to the Beneficiary(ies) designated by the Owner or its
designee during the Accumulation Period.
Death Benefit of Amount During the Accumulation Period - The death
benefit will be the greater of :
(i) the purchase payments, less any surrenders and related Surrender
Charges;
(ii) the Contract Value determined as of the end of the Business Day
during which we receive both due proof of death and an election
for the payment method.
The amount of the death benefit is determined as of the end of the
Business Day during which we receive both due proof of death and an
election for the payment method. The death benefit amount remains in
the Separate Account and/or Fixed Account until distribution begins.
From the time that the death benefit is determined until complete
distribution is made, any amount in the Subaccount will be subject to
investment risk which is borne by the Beneficiary.
Death Benefit Options During the Accumulation Period - A Beneficiary
must elect the death benefit to be paid under one of the options below
in the event of the death of the Annuitant during the Accumulation
Period.
Option 1 - lump sum payment of the death benefit; or
Option 2 - payment of the death benefit under an Annuity Option
over a period not to exceed fifteen (15) years (or the life
expectancy of the surviving spouse of the Annuitant if the spouse
is the Beneficiary) beginning within one (1) year of the date of
the death of the Annuitant.
Any distribution payable over a period of more than one year can only
be made in substantially nonincreasing amounts (paid not less
frequently than annually).
Any portion of the death benefit not applied under Option 2 within one
year of the date of the Annuitant's death shall be distributed over a
period of ten (10) years beginning on such date.
If a lump sum payment is requested, the amount will be paid within
seven (7) days of receipt of proof of death and the election, unless
the suspension or deferral of payments provision is in effect.
Payment to the Beneficiary, other than in a single sum, may only be
elected during the 60-day period beginning with the date of receipt of
proof of death.
Death of Annuitant During the Annuity Period - If the Annuitant dies
during the Annuity Period, any remaining payments under the Annuity
Option elected will continue at least as rapidly as under the method of
distribution in effect at the time of the Annuitant's death. Such
payments will be made to the Beneficiary.
Payment of Death Benefit - We will require due proof of death before
any death benefit is paid. Due proof of death will be:
1. a certified death certificate;
2. a certified decree of a court of competent jurisdiction as to the
finding of death;
3. a written statement by a medical doctor who attended the
deceased; or
4. any other proof satisfactory to us.
Any death benefit will be paid in accordance with applicable law or
regulations governing death benefit payments.
4. PLAN PROVISIONS/OTHER REQUIREMENTS. The contract is purchased
pursuant to the provisions of the Plan which may limit the
Owner's or Annuitant's rights under the contract. No such Plan
provision shall limit the Owner's or Annuitant's rights under the
contract unless the employer has provided the company with
written notification of such provision. In no event shall any
Plan provision enlarge the company's obligations under the
contract. Further, the availability of payments pursuant to
various options of the contract may be restricted and altered to
the extent necessary to comply with Code ss. 457 and the
Regulations thereunder.
5. AMENDMENT. This contract shall be amended without consent of the
Owner, Annuitant or Beneficiary (in Kansas, Pennsylvania, and
Washington only with consent of Owner) as required to ensure that
this contract continues to satisfy the applicable requirements of
the Code and the Regulations thereunder, in effect during the
term of this contract. A copy of each amendment will be furnished
to the Owner.
- ----------------------------------- -----------------------------------
Secretary President
[FIDELITY SECURITY LIFE LOGO]
TERMINAL ILLNESS AND NURSING HOME
OR HOSPITAL CONFINEMENT ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY, MO 64111-2406
- --------------------------------------------------------------------------------
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the date of the Contract unless otherwise indicated in writing
by the Company. In the case of a conflict with any provisions in the Contract,
the provisions of this Endorsement will control.
The Contract is amended as follows:
Terminal Illness
Surrender Benefit: The Company will not impose a Surrender Charge upon a lump
sum surrender prior to the Annuity Date of 100% of the Contract Value by an
Owner or Joint Owner who has a Terminal Illness. Payment of the amount
surrendered will be in lieu of any other benefits under the Contract. This
benefit will not apply if the Terminal Illness is first diagnosed prior to the
Issue Date of the Contract.
Definition: Terminal Illness means a disease, illness or injury which a medical
doctor certifies in writing to the Company is reasonably expected to result in
death within one year of such certification. Written certification must be in a
form satisfactory to the Company.
Confinement In A Nursing Home or Hospital
Surrender Benefit: The Company will not impose a Surrender Charge upon partial
surrenders made prior to the Annuity Date used to pay for the expenses of
confinement of Owner or Joint Owner in a Nursing Home or Hospital. Payment of
the amount withdrawn will be in lieu of any other benefits under the Contract as
to the amounts withdrawn.
Maximum Withdrawal: The maximum amount that can be withdrawn is $2,000 for each
month of Nursing Home or Hospital Confinement in a Contract Year up to the full
Contract Value.
Elimination Period: The Owner or Joint Owner must have been confined in a
Nursing Home or Hospital for a period of 30 days before this benefit is
available. Confinement must be continuous and not commence prior to the Issue
Date of this Contract. If a break in Nursing Home or Hospital confinement of at
least 60 days occurs, then a new Elimination Period will be required.
Proof of Confinement: Withdrawal under this provision can be made by written
request to the Company accompanied by such proof of Nursing Home or Hospital
confinement or continued confinement as the Company shall require.
Definitions: A Nursing Home for the purposes of this Endorsement is a facility
which meets all of the following standards:
1) It is licensed as a nursing home by the state, province or country in
which it is located, or is approved by Medicare;
2) It provides skilled, intermediate or custodial care to individuals who
are not able to care for themselves due to a sickness or injury and
which require nursing care;
3) Its primary function is to provide, for a charge, room and board and
nursing care. The care must be performed under the direction of a
licensed physician, registered nurse (R.N.), or licensed practical
nurse (LPN), except when receiving custodial nursing care; and
4) It is not, other than incidentally, a hospital, a home for the aged, a
retirement home, a rest home, a community living center, a residential
or congregate living facility, or a place mainly for the treatment of
alcoholism, mental illness or drug abuse.
A Hospital for the purposes of this Endorsement is a facility which meets
all of the following standards:
1) It is licensed as a hospital by the state, province or country in
which it is located;
2) It provides nursing services 24 hours a day and is supervised by a
staff of licensed physicians;
3) Its primary function is to provide for the care and treatment of sick
and injured persons as inpatients for a charge and has access to
medical and diagnostic facilities; and
4) It is not, other than incidentally, a nursing home, a home for the
aged, a retirement home, a rest home, a community living center, a
residential or congregate living facility or place mainly for the
treatment of alcoholism, mental illness or drug abuse.
Restrictions On Withdrawals
Current tax law imposes a tax penalty on certain withdrawals prior to age 59
1/2. Additional restrictions are placed on withdrawals from Contracts qualified
under Code Section 408(IRA), 408A (Roth IRA), 403(b) (TSA), 457 or 401.
Miscellaneous Provisions
This Endorsement is subject to all the provisions, definitions and limitations
of the Contract not inconsistent herewith.
- --------------------------------- ------------------------------------
Secretary President
ROTH 408(A) ENDORSEMENT
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY MO 64111-2406
- --------------------------------------------------------------------------------
The following provisions apply to a Contract which is issued as a Roth IRA under
Internal Revenue Code ("IRC") Section 408A. This Endorsement forms a part of the
Contract to which it is attached and is effective as of the date of the Contract
unless indicated otherwise in writing by the Company. In the case of a conflict
with any provision in the Contract, the provisions of this Endorsement will
control.
The Contract is amended as follows:
1. This Owner is the Annuitant. There shall be no Joint Owner.
2. This Contract is not transferable.
3. This Contract, and the benefits under it, cannot be sold, assigned or
pledged as collateral for a loan or as security for the performance of
an obligation or for any other purpose, or otherwise transferred to
any person other than to the Company.
4. The Owner's entire interest in this Contract is nonforfeitable.
5. The Contract is established for the exclusive benefit of the Owner and
the Owner's Beneficiary(ies).
6. Purchase Payments -
(a) Maximum permissible amount. Except in the case of a qualified
rollover contribution or a recharacterization (as defined in (e)
below), no Purchase Payment will be accepted unless it is in cash
and the total of such contributions to all the Owner's Roth IRAs
for a taxable year does not exceed $2,000, or the Owner's
compensation, if less, for that taxable year. The contribution
described in the previous sentence that may not exceed the lesser
of $2,000 or the Owner's compensation is referred to as a
"regular contribution". A "qualified rollover contribution" is a
rollover contribution that meets the requirements of Section
408(d)(3) of the Internal Revenue Code, except the
one-rollover-per-year rule of Section 408(d)(3)(B) does not apply
if the rollover contribution is from an IRA other than a Roth IRA
(a "nonRoth IRA"). Purchase Payments may be limited under (b)
through (d) below.
(b) Regular contribution limit. If (i) and/or (ii) below apply, the
maximum regular contribution that can be made to all the Owner's
Roth IRAs for a taxable year is the smaller amount determined
under (i) or (ii).
(i) The maximum regular contribution is phased out ratably between
certain levels of modified adjusted gross income ("modified AGI,"
defined in (f) below) in accordance with the following table:
<TABLE>
<CAPTION>
Filing Status Full Contribution Phase-out Range No Contribution
- -------------------------------------------------------------------------------------------
Modified AGI
------------
<S> <C> <C> <C>
Single or Head $95,000 or less Between $95,000 $110,000 or
of Household and $110,000 more
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Joint Return $150,000 or less Between $150,000 $160,000 or
or Qualifying and $160,000 more
Widow(er)
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Married- $0 Between $0 $10,000 or
Separate Return and $10,000 more
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
If the Owner's modified AGI for a taxable year is in the
phase-out range, the maximum regular contribution determined
under this table for that taxable year is rounded up to the next
multiple of $10 and is not reduced below $200.
(ii) If the Owner makes regular contributions to both Roth and nonRoth
IRAs for a taxable year, the maximum regular contribution that
can be made to all the Roth IRAs for that taxable year is reduced
by the regular contributions made to the nonRoth IRAs for the
taxable year.
(c) Qualified rollover contribution limit. A rollover from a nonRoth IRA
cannot be made to this IRA if, for the year the amount is distributed
from the nonRoth IRA, (i) the Owner is married and files a separate
return, (ii) the Owner is not married and has modified AGI in excess
of $100,000 or (iii) the Owner is married and together the Contract
Owner and the Owner's spouse have modified AGI in excess of $100,000.
For purposes of the preceding sentence, a husband and wife are not
treated as married for a taxable year if they have lived apart at all
times during that taxable year and file separate returns for the
taxable year.
(d) Simple IRA limits. No contributions will be accepted under a SIMPLE
IRA Plan established by any employer pursuant to Section 408(p). Also,
no transfer or rollover of funds attributable to contributions made by
a particular employer under its SIMPLE IRA Plan will be accepted from
a SIMPLE IRA, that is, an IRA used in conjunction with a SIMPLE IRA
Plan, prior to the expiration of the 2-year period beginning on the
date the Owner first participated in that employer's SIMPLE IRA Plan.
(e) Recharacterization. A regular contribution to a nonRoth IRA may be
recharacterized pursuant to the rules in Section 1.408A-5 of the
proposed regulations as a regular contribution to this IRA, subject to
the limits in (b) above.
(f) Modified AGI. For purposes of (b) and (c) above, modified AGI for a
taxable year is defined in Section 408A(c)(3)(C)(i) and does not
include any amount included in adjusted gross income as a result of a
rollover from a nonRoth IRA (a "conversion").
7. No amount is required to be distributed prior to the death of the Owner for
whose benefit the Contract was originally established.
8. Upon the death of the Owner (a) if the Owner dies on or after the Annuity
Date any remaining benefits will continue to be distributed at least as
rapidly as under the method of distribution being used prior to the Owner's
death; (b) if the Owner dies before the Annuity Date, the entire amount
payable to the Beneficiary will be distributed no later than December 31 of
the calendar year which contains the fifth anniversary of the date of the
Owner's death except to the extent that an election is made to receive
distributions in accordance with (i) (ii) or (iii) below:
(i) If any portion of the Contract proceeds is payable to a designated
Beneficiary, distributions may be made in installments over the life
or over a period not extending beyond the life expectancy of the
designated Beneficiary commencing no later than December 31 of the
calendar year immediately following the calendar year in which the
Owner died;
(ii) If the designated beneficiary is the Owner's surviving spouse, and
benefits are to be distributed in accordance with (i) above,
distributions must begin on or before the later of (a) December 31 of
the calendar year immediately following the calendar year in which the
Owner dies or (b) December 31 of the calendar year in which the Owner
would have attained age 70 1/2;
(iii)If the designated Beneficiary is the Owner's surviving spouse, the
spouse may treat the Contract as his or her own Roth IRA. This
election will be deemed to have been made if such surviving spouse
makes a regular contribution to the Contract, makes a rollover to or
from the Contract or fails to elect any of the above provisions.
Payments required under (I) or (ii) above must be made at intervals of no
longer than 1 year and must be either non-increasing or increasing as
provided in Q&A F-3 of Section 1.401(a)(9)-1 of the proposed regulations.
Life expectancy is computed by use of the expected return multiples in
Table V of "1.72-9 of the Income Tax Regulations. If the designated
Beneficiary is the individual's surviving spouse, then, unless otherwise
elected by the surviving spouse by the time distributions are required to
begin, the surviving spouse's life expectancy shall be recalculated
annually. Such election shall be irrevocable by the surviving spouse and
shall apply to all subsequent years. In the case of any other designated
Beneficiary, life expectancies shall be calculated using the attained age
of such Beneficiary during the calendar year in which distributions are
required to begin pursuant to (i) or (ii) above, and payments for any
subsequent calendar year shall be calculated based on such life expectancy
reduced by one for each calendar year which has elapsed since the calendar
year life expectancy was first calculated. Life expectancies shall not be
recalculated for payments made under an Annuity Option.
9. Separate records will be maintained for the interest of each Owner and the
Company will furnish annual calendar year reports concerning the status of
the Contract.
10. The Company may at its option either accept additional future payments or
terminate the Contract by a lump sum payment of the then present value of
the paid up benefit if no premiums have been received for two full
consecutive Contract Years and the paid up annuity benefit at maturity
would be less than $20 per month.
All other terms and conditions of the Contract remain unchanged
Fidelity Security Life Insurance Company has caused this Endorsement to be
signed by its President and Secretary
- --------------------------- ------------------------------------
Secretary President
[FIDELITY SECURITY LIFE LOGO]
APPLICATION FOR VARIABLE ANNUITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fidelity Security Life Insurance Company
3130 Broadway
Kansas City, MO 64111-2406
I am applying for a 403(b) 457 401(k) 401(a) annuity.
Name ______________________________________ Social Security # ________________
Last First Middle Initial
Mailing Address ________________________________________________________________
Please deliver my forms electronically where appropriate
E-mail Address _______________________________________________________________
City ____________________________ State ________________ Zip ____________
Employer ______________________________ Address ______________________________
Phones: Home ( )_________________________ Work ( )________________
Area Code Area Code
<TABLE>
<CAPTION>
<S> <C> <C>
Date of Birth (Mo/Day/Year) Annual Salary (TSA 403(b) Only) ___ Male
___ Female
Amount of periodic deposit The deposits are to start
$ __________________________________ Month ______________ Year ________
Billing: (Check One) ___ Payroll Deduction ___ Bank Draft ___ Direct Billing
Billing Mode: (Check One) ___ Monthly ___ Quarterly ___Semi-Annually ___Annually
Primary Beneficiary __________________________ Relationship ______________Born ____/____/____
Contingent Beneficiary ________________________ Relationship _____________Born ____/____/____
</TABLE>
Month and year you started employment ______/______
[ ] Fund Allocation Form attached.
[ ] Bank Draft Form attached (if using automatic draft).
[ ] I have read though the Prospectus and accompanying information.
X ___________________________________________________ ________________________
Signature Date Signed
Agent __________________________________________________________________________
APPLICATION FOR AN INDIVIDUAL OR
SINGLE PREMIUM VARIABLE ANNUITY
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 BROADWAY
KANSAS CITY MO 64111-2406
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
I am applying for a IRA Roth Non-Qualified Single Premium annuity.
A. OWNER
<S> <C>
Name _____________________________________ Date of Birth _____/_____/_____ Age __________
Address ______________________________________________________________________________
Street Address City State Zip
________________________________________ ____________________________ Male Female
E-Mail Address Social Security Number
*Employer________________________________*Address_____________________________________
*Single Premium Only *Single Premium Only
B. BENEFICIARY
Beneficiary's Name ___________________________________ Primary Joint
Relationship _______________ Date of Birth _____/_____/_____ Social Security Number ____________
Beneficiary's Name ___________________________________ Contingent Joint
Relationship _______________ Date of Birth _____/_____/_____ Social Security Number ____________
C ANNUITANT (If other than Owner)
Name _____________________________________ Date of Birth _____/_____/_____ Age ___________
Address ______________________________________________________________________________
Street Address City State Zip
Social Security Number ________________ Male Female (Roth Only) Annual Salary__________
D. PREMIUM AMOUNT
I intend to invest $____________ into Fidelity Security Life's Variable Annuity.
E. REPLACEMENT
Will the annuity you are buying from us replace any other insurance or annuity? Yes No
If yes, please give the name of the insurance company or companies and a contract or policy number for each
product being replaced. Please also complete the replacement forms. ________________________
_____________________________________________________________________________________
F. ADDITIONAL INSTRUCTIONS
_____________________________________________________________________________________
G. SIGNATURES
This signature verifies that I am applying for a Fidelity Security Life Single Premium Variable Annuity
Contract ___________________________________________________________, signed on
Signature
_____/_____/_____ in _____________________________ _____________.
Date City State
</TABLE>
[FIDELITY SECURITY LIFE LOGO]
VARIABLE ANNUITY
FUND ALLOCATION FORM
Fidelity Security Life Insurance Company
3130 Broadway
Kansas City, MO 64111-2406
- --------------------------------------------------------------------------------
Allocation is another way of saying divide. This form is asking you how you want
your contributions divided between the six investment options available to you.
Name ___________________________________ Social Security # __________________
Mailing Address ________________________________________________________________
E-Mail Address ________________________________________________________________
So that you may choose to have forms delivered electronically
City ______________________ State _______________ Zip _____________
Contract ID Number ____________________________
If New Applicant Leave Blank
Signature of Annuitant ____________________________________________________
<TABLE>
<CAPTION>
TRANSFER OF EXISTING BALANCES
(May Use Arrows To Illustrate)
TRANSFER FROM TRANSFER TO
<S> <C>
$ or % ______ Portfolio Fixed Account $ or % ______ Portfolio Fixed Account
$ or % ______ Money Market Portfolio $ or % ______ Money Market Portfolio
$ or % ______ Growth & Income Portfolio $ or % ______ Growth & Income Portfolio
$ or % ______ Large Cap Growth Portfolio $ or % ______ Large Cap Growth Portfolio
$ or % ______ Small Cap Equity Portfolio $ or % ______ Small Cap Equity Portfolio
$ or % ______ Berger/Biam IPT International Fund $ or % ______ Berger/Biam IPT International Fund
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF FUTURE CONTRIBUTIONS
<S> <C>
(skip if contribution amount is not changing) (skip if contribution amount is not changing)
My contributions currently are $ _________ paid Effective this date forward my contributions will be
$ _________ paid
__ Monthly __ Quarterly __ Semi-Annually __ Monthly __ Quarterly __ Semi-Annually__ Annually
__ Annually
</TABLE>
I would like my total contribution allocated (or divided) among the funds as
follows:
$ or % _______ FSL Portfolio Fixed Account
$ or % _______ Money Market Portfolio - Investors Mark Series Fund, Inc.
$ or % _______ Growth & Income Portfolio - Investors Mark Series Fund, Inc.
$ or % _______ Large Cap Growth Portfolio - Investors Mark Series Fund, Inc.
$ or % _______ Small Cap Equity Portfolio - Investors Mark Series Fund, Inc.
$ or % _______ Berger/BIAM IPT Internal Fund - Berger Institutional Products
Trust
PARTICIPATION AGREEMENT
Among
INVESTORS MARK SERIES FUND
and
FIDELITY SECURITY LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 19th day of March, 1999 by
and among FIDELITY SECURITY LIFE INSURANCE COMPANY, (hereinafter the "Insurance
Company"), a Missouri corporation, on its own behalf and on behalf of each
segregated asset account of the Insurance Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), INVESTORS MARK SERIES FUND, a Delaware corporation (the
"Series Fund") and INVESTORS MARK ADVISERS LLC, a Delaware limited liability
company ("IMA").
WHEREAS, the Series Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
variable annuity and life insurance contracts to be offered by separate accounts
of insurance companies which have entered into participation agreements
substantially identical to this Agreement ("Participating Insurance Companies")
and for qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Series Fund is divided into
several series of shares, each designated a "Fund" and representing the interest
in a particular managed portfolio of securities and other assets; and
WHEREAS, the Series Fund has obtained an order from the Securities and
Exchange Commission (the "Commission"), dated June 29, 1998, (File No.
812-11100), granting Participating Insurance Companies and their 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, (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 Series Fund to be sold to and held by Qualified Plans and
by variable annuity and variable life insurance separate accounts of life
insurance companies that may or may not be affiliated with one another (the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Series Fund is registered as an open-end management
investment company under the 1940 Act and the offering of its shares is
registered under the Securities Act of 1933, as amended (hereinafter the "1933
Act"); and
WHEREAS, IMA is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or
will register under the 1933 Act, certain variable annuity or variable life
insurance contracts identified by the form number(s) listed on Schedule B to
this Agreement, as amended from time to time hereafter by mutual written
agreement of all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds at
net asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the
Insurance Company, the Series Fund and IMA agree as follows:
Article I. Sale of Series Fund Shares
1.01 The Series Fund agrees to sell to the Insurance Company those shares of
the Series Fund which each Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the
Series Fund or its designee of the order for the shares of the Series
Fund. For purposes of this Section 1.1, the Insurance Company shall be
the designee of the Series Fund for receipt of such orders from the
Accounts and receipt by such designee shall constitute receipt by the
Series Fund; provided that the Series Fund receives notice of such
order by 8:00 a.m., Central Time, on the next following Business Day.
In this Agreement, "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Series Fund
calculates its net asset value pursuant to the rules of the Commission.
1.02 The Series Fund agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its
Accounts on those days on which the Series Fund calculates its Funds'
net asset values pursuant to rules of the Commission and the Series
Fund shall use reasonable efforts to calculate its Funds' net asset
values on each day on which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the directors of the Series
Fund may refuse to sell shares of any Fund to any person, or suspend or
terminate the offering of shares of any Fund if such action is required
by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the directors of the Series Fund 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 that Fund.
1.03 The Series Fund agrees that all shares of the Series Fund will be sold
only to Insurance Companies which have agreed to participate in the
Series Fund to fund their separate accounts and/or to Qualified Plans,
all in accordance with the requirements of Section 817(h) of the
Internal Revenue Code of 1986, as amended ("Code") and Treasury
Regulation 1.817-5. Shares of the Funds will not be sold directly to
the general public.
1.04 The Series Fund will not sell its shares to any insurance company or
separate account unless an agreement containing provisions
substantially the same as Sections 2.04, 3.04, 3.05, and Sections 7.01
to 7.07 of this Agreement is in effect to govern such sales.
1.05 The Series Fund agrees to redeem, on the Insurance Company's request,
any full or fractional shares of the Series Fund held by the Account,
executing such requests on a daily basis at the net asset value next
computed after receipt by the Series Fund or its designee of the
request for redemption. However, if one or more other series fund, that
the Insurance Company's separate account is purchasing shares of, has
determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one business day, but in no
event more than three Business Days, after the date on which the
redemption order is received, unless otherwise permitted by an order of
the Commission under Section 22(e) of the 1940 Act), the Series Fund
shall be permitted to delay sending redemption proceeds to the
Insurance Company by the same number of days that the other series fund
is delaying sending redemption proceeds to the shareholders of the
other Fund. For purposes of this Section 1.05, the Insurance Company
shall be the designee of the Series Fund for receipt of requests for
redemption from each Account and receipt by that designee shall
constitute receipt by the Series Fund; provided that the Series Fund
receives notice of the request for redemption by 8:00 a.m., Central
Time, on the next following Business Day.
1.06 The Insurance Company shall pay for Series Fund shares by 1:00 p.m.,
Central Time, on the next Business Day after an order to purchase
Series Fund shares is made in accordance with the provisions of Section
1.01 hereof. Payment shall be in federal funds transmitted by wire. For
the purpose of Sections 2.09 and 2.10, upon receipt by the Series Fund
of the federal funds so wired, such funds shall cease to be the
responsibility of the Insurance Company and shall become the
responsibility of the Series Fund. Payment of net redemption proceeds
(aggregate redemptions of a Fund's shares by an Account minus aggregate
purchases of that Fund's shares by that Account) of less than $1
million for a given Business Day will be made by wiring federal funds
to the Insurance Company on the next Business Day after receipt of the
redemption request. Payment of net redemption proceeds of $1 million or
more will be by wiring federal funds within three Business Days after
receipt of the redemption request. However, payment may be postponed
under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the
Securities and Exchange Commission exists, or as permitted by the
Securities and Exchange Commission.
1.07 Issuance and transfer of the Series Fund's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or
any Account. Shares ordered from the Series Fund will be recorded in an
appropriate title for each Account or the appropriate subaccount of
each Account.
1.08 The Series Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any
income, dividends or capital gain distributions payable on the Funds'
shares. The Insurance Company hereby elects to receive all income
dividends and capital gain distributions payable on a Fund's shares in
additional shares of that Fund. The Insurance Company reserves the
right to revoke this election and to receive all such income dividends
and capital gain distributions in cash. The Series Fund shall notify
the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.09 The Series Fund shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
and shall use its best efforts to make those per-share net asset values
available by 5:00 p.m., Central Time. If the Series Fund provides the
Insurance Company with materially incorrect share net asset value
information through no fault of the Insurance Company, the Insurance
Company on behalf of the Account, shall be entitled to an adjustment to
the number of shares purchased or redeemed to reflect the correct share
net asset value. Any material error in the calculation of net asset
value per share, dividend or capital gain information shall be reported
promptly upon discovery to the Insurance Company. Furthermore, IMA
shall be liable for the reasonable actual administrative costs incurred
by Insurance Company in relation to the correction of any material
error. Administrative costs shall include allocation of staff time who
actually worked on the correction, costs of outside service providers,
printing and postage.
Article II. Representations, Warranties and Agreements
2.01 The Insurance Company represents, warrants and agrees that the
offerings of 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
applicable state insurance suitability requirements. The Insurance
Company further represents 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 as a segregated asset
account prior to any issuance or sale thereof and has registered, or
warrants and agrees that prior to any issuance or sale of the Contracts
it will register, 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.
2.02 The Series Fund warrants and agrees that Series Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sale in compliance with the laws of the
State of Delaware and all applicable federal securities laws and that
the Series Fund is and shall remain registered under the 1940 Act. The
Series Fund warrants and agrees that it 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. The Series Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the
extent deemed advisable by the Series Fund or IMA.
2.03 The Series Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended, (the "Code") and warrants and agrees that it
will maintain its qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Insurance Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.04 The Insurance Company represents that the Contracts are currently
treated as annuity or life insurance contracts under applicable
provisions of the Code and warrants and agrees that it will make every
effort to maintain such treatment and that it will notify the Series
Fund and IMA immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.05 The Series Fund may elect to make payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the
Series Fund undertakes to have a board of trustees, a majority of whom
are not interested persons of the Series Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
2.06 The Series Fund makes no representation nor warranties as to whether
any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) complies or will comply with the
insurance laws or regulations of the various states.
2.07 The Series Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and represents,
warrants and agrees that it does and will comply in all material
respects with the 1940 Act.
2.08 IMA represents that it is and warrants that it shall remain duly
registered as an investment adviser under all applicable federal and
state securities laws and agrees that it shall perform its obligations
for the Series Fund in compliance in all material respects with the
laws of the State of Missouri and any applicable state and federal
securities laws.
2.09 The Series Fund and IMA represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and
other individuals or entities described in Rule 17g-1 under the 1940
Act dealing with the money and/or securities of the Series Fund are,
and shall continue to be at all times, covered by a blanket fidelity
bond or similar coverage for the benefit of the Series Fund in an
amount not less than the minimum coverage required currently by Rule
17g-1 under the 1940 Act or related provisions as may be promulgated
from time to time. That fidelity bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 The Insurance Company represents and warrants that all of its officers,
employees, investment advisers, and other individuals or entities
described in Rule 17g-1 under the 1940 Act shall to the extent required
by Rule 17g-1 be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Series Fund.
Article III. Disclosure Documents and Voting
3.01 At least annually, the Series Fund or its designee shall provide the
Insurance Company, free of charge, with as many copies of the current
prospectus for the shares of the Funds as the Insurance Company may
reasonably request for distribution to existing Contract owners whose
Contracts are funded by such shares. The Series Fund or its designee
shall provide the Insurance Company, at the Insurance Company's
expense, with as many more copies of the current prospectus for the
shares as the Insurance Company may reasonably request for distribution
to prospective purchasers of Contracts. If requested by the Insurance
Company in lieu thereof, the Series Fund or its designee shall provide
such documentation (including a "camera ready" copy of the prospectus
as set in type or, at the request of the Insurance Company, as a
diskette in the form sent to the financial printer) and other
assistance as is reasonably necessary in order for the parties hereto
once a year (or more frequently if the prospectus for the shares is
supplemented or amended) to have the prospectus for the Contracts and
the prospectus for the Series Fund shares and any other fund shares
offered as investments for the Contracts printed together in one
document. The expenses of such printing shall be apportioned between
(a) the Insurance Company and (b) the Series Fund in proportion to the
number of pages of the Contract, other fund shares prospectuses and the
Series Fund shares prospectus, taking account of other relevant factors
affecting the expense of printing' such as covers, columns, graphs and
charts; the Series Fund to bear the cost of printing the shares'
prospectus portion of such document for distribution only to owners of
existing Contracts funded by the Series Fund shares and the Insurance
Company to bear the expense of printing the portion of such documents
relating to the Account; provided, however, the Insurance Company shall
bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing
Contracts not funded by the shares.
3.02 The Series Fund's prospectus shall state that the Statement of
Additional Information for the Series Fund (the "SAI") is available
from the Series Fund and IMA, at its expense, shall print and provide
the SAI free of charge to the Insurance Company and to any owner of a
Contract or prospective owner who requests the SAI.
3.03 The Series Fund, at its expense, shall provide the Insurance Company
with copies of its proxy material, reports to shareholders and other
communications to shareholders in such quantity as the Insurance
Company shall reasonably require for distributing to Contract owners.
3.04 If and to the extent required by law, the Insurance Company shall:
(a) solicit voting instructions from Contract owners;
(b) vote the Series Fund shares in accordance with instructions
received from Contract owners; and
(c) vote Series Fund shares for which no instructions have been
received in the same proportion as Series Fund shares of that
Fund for which instructions have been received;
so long as and to the extent that the Commission continues to
interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Insurance Company reserves the
right to vote Series Fund shares held in any segregated asset
account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in
the Series Fund calculates voting privileges in a manner
consistent in all material respects with the standards set forth
on Schedule C attached hereto and incorporated herein by this
reference, which standards will also be provided to the other
Participating Insurance Companies. The Insurance Company shall
fulfill its obligation under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order. 3.05
The Series Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Series
Fund will either provide for annual meetings (except insofar as
the Commission may interpret Section 16 of the 1940 Act not to
require such meetings) or, as the Series Fund currently intends,
comply with Section 16(c) of the 1940 Act (although the Series
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 Series Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors and with whatever
rules the Commission may promulgate with respect thereto.
Article IV. Sales Material and Information
4.01 The Insurance Company shall furnish, or shall cause to be furnished, to
the Series Fund or its designee, each piece of sales literature or
other promotional material in which the Series Fund, a sub-adviser of
one of the Funds, or IMA is named, at least fifteen calendar days prior
to its use. No such material shall be used if the Series Fund or its
designee objects to such use within ten calendar days after receipt of
such material.
4.02 The Insurance Company shall not give any information or make any
representations or statements on behalf of the Series Fund or
concerning the Series Fund in connection with the sale of the Contracts
other than the information or representations contained in the Series
Fund's registration statement, prospectus or SAI, as that registration
statement, prospectus or SAI may be amended or supplemented from time
to time, or in reports or proxy statements for the Series Fund, or in
sales literature or other promotional material approved by the Series
Fund or its designee or by IMA or its designee, except with the
permission of the Series Fund or IMA or their designees.
4.03 The Series Fund, IMA or its designee, shall furnish, or shall cause to
be furnished, to the Insurance Company or its designee, each piece of
sales literature or other promotional material in which the Insurance
Company or the Account is named at least fifteen calendar days prior to
its use. No such material shall be used if the Insurance Company or its
designee objects to such use within ten calendar days after receipt of
that material.
4.04 The Series Fund and IMA, or their designees, shall not give any
information or make any representations on behalf of the Insurance
Company or concerning the Insurance Company, any Account, or the
Contracts other than the information or representations contained in a
registration statement, prospectus or statement of additional
information for the Contracts, as that registration statement,
prospectus or statement of additional information may be amended or
supplemented from time to time, or in published reports for any Account
which are approved by the Insurance Company for distribution to
Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the
permission of the Insurance Company.
4.05 The Series Fund will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales
literature or other promotional material, application for exemption,
request for no-action letter, and any amendment to any of the above,
that relate to the Series Fund or its shares, contemporaneously with
the filing of the document with the Commission, the National
Association of Securities Dealers, Inc. ("NASD"), or other regulatory
authorities.
4.06 The Insurance Company will provide to the Series Fund at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions,
piece of sales literature and other promotional material, application
for exemption, request for no-action letter, and any amendment to any
of the above, that relates to the Contracts or the Account,
contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
4.07 For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone
script or tape recording, videotape display, signs or billboards,
motion pictures, or other public media, sales literature (i.e., any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, shareholder newsletters, seminar
texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or
other communications distributed or made generally available to some or
all agents or employees, and registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy
materials.
4.08 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.
Article V. Fees and Expenses
5.01 The Series Fund and IMA shall pay no fee or other compensation to the
Insurance Company under this agreement, except as set forth in Section
5.04 and except that if the Series Fund or any Fund adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, IMA or the Series Fund may make payments to the Insurance
Company in amounts consistent with that 12b-1 plan, subject to review
by the directors of the Series Fund.
5.02 All expenses incident to performance by the Series Fund under this
Agreement shall be paid by the Series Fund. The Series Fund shall see
to it that any offering of its shares is registered and that all of its
shares are authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Series
Fund or IMA, in accordance with applicable state laws prior to their
sale. The Series Fund shall bear the cost of registration and
qualification of the Series Fund's shares, preparation and filing of
the Series Fund's prospectus and registration statement, proxy
materials and reports, setting the prospectus in type, setting in type
and printing the proxy materials and reports to shareholders, the
preparation of all statements and notices required by any federal or
state law, and all taxes on the issuance or transfer of the Series
Fund's shares.
5.03 The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of
distributing to Contract owners the Series Fund's prospectus, proxy
materials and reports.
5.04 The Insurance Company bears the responsibility and correlative expense
for administrative and support services for Contract owners. IMA
recognizes the Insurance Company as the sole shareholder of shares of
the Series Fund issued under this Agreement. From time to time, IMA may
pay amounts from its past profits to the Insurance Company for
providing certain administrative services for the Series Fund or for
providing other services that relate to the Series Fund. In
consideration of the savings resulting from such arrangement, and to
compensate the Insurance Company for its costs, IMA agrees to pay to
the Insurance Company quarterly an amount equal to 20 basis points
(0.2%) per annum of the prior quarter's average aggregate amount
invested by the Account in the Series Fund under this Agreement. Such
payments will be made only when the average aggregate amount invested
exceeds for the prior quarter $40,000 and shall be made for as long as
the Account invests in the Series Fund. The parties agree that such
payments are for administrative services and investor support services,
and do not constitute payment for investment advisory, distribution or
other services. Payment of such amounts by IMA shall not increase the
fees paid by the Series Fund or its shareholders.
Article VI. Diversification
6.01 The Series Fund will comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5 relating to the diversification
requirements for variable annuity, endowment, modified endowment or
life insurance contracts and any amendments or other modifications to
that Section or Regulation at all times necessary to satisfy those
requirements. The Series Fund will notify the Insurance Company
immediately if it has a reasonable basis for believing any Fund has
ceased to comply or might cease to comply and will immediately take all
reasonable steps necessary to adequately diversify the Fund to achieve
compliance.
Article VII. Potential Conflicts
7.01 The directors of the Series Fund will monitor the Series Fund for the
existence of any material irreconcilable conflict between the interests
of the variable Contract owners of all separate accounts investing in
the Series Fund and the participants of all Qualified Plans investing
in the Series 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 interpretive letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Fund are being managed; (e) a
difference in voting instructions given by variable annuity contract
and variable life insurance contract owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
variable contract owners. The directors of the Series Fund shall
promptly inform the Insurance Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
The directors of the Series Fund shall have sole authority to determine
whether an irreconcilable material conflict exists and their
determination shall be binding upon the Insurance Company.
7.02 The Insurance Company and IMA each will report promptly any potential
or existing conflicts of which it is aware to the directors of the
Series Fund. The Insurance Company and IMA each will assist the
directors of the Series Fund in carrying out their responsibilities
under the Mixed and Shared Funding Exemptive Order, by providing the
directors of the Series Fund with all information reasonably necessary
for them to consider any issues raised. This includes, but is not
limited to, an obligation by the Insurance Company to inform the
directors of the Series Fund whenever Contract owner voting
instructions are to be disregarded. These responsibilities shall be
carried out by the Insurance Company with a view only to the interests
of the Contract owners and by IMA with a view only to the interests of
Contract holders and Qualified Plan participants.
7.03 If it is determined by a majority of the directors of the Series Fund,
or a majority of the directors who are not interested persons of the
Series Fund, any of its Funds, or IMA (the "Independent Directors"),
that a material irreconcilable conflict exists, the Insurance Company
and/or other Participating Insurance Companies or Qualified Plans that
have executed participation agreements 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 Series Fund or any Fund and reinvesting those assets
in a different investment medium, including (but not limited to)
another Fund of the Series Fund, or submitting the question whether
such segregation should be implemented to a vote of all affected
variable contract owners and, as appropriate, segregating the assets of
any appropriate group (e.g., 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 variable contract owners the
option of making such a change; and (2) establishing a new registered
management investment company or managed separate account and obtaining
any necessary approvals or orders of the Commission in connection
therewith.
7.04 If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions
and that decision represents a minority position or would preclude a
majority vote, the Insurance Company may be required, at the Series
Fund's election, to withdraw the affected Account's investment in the
Series Fund and terminate this Agreement with respect to that Account;
provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Directors. Any
such withdrawal and termination must take place within six (6) months
after the Series Fund gives written notice that this provision is being
implemented, and, until the end of that six month period, the Series
Fund shall continue to accept and implement orders by the Insurance
Company for the purchase (and redemption) of shares of the Series Fund.
7.05 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the
Insurance Company will withdraw the affected Account's investment in
the Series Fund and terminate this Agreement with respect to that
Account within six months after the directors of the Series Fund inform
the Insurance Company in writing that they have determined that the
state insurance regulator's 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,
the Series Fund shall continue to accept and implement orders by the
Insurance Company for the purchase (and redemption) of shares of the
Series Fund.
7.06 For purposes of Sections 7.03 through 7.06 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 Series Fund be required to establish
a new funding medium for the Contracts. The Insurance Company shall not
be required by Section 7.03 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority
of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the directors of the Series Fund
determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Insurance Company will
withdraw the Account's investment in the Series Fund and terminate this
Agreement within six (6) months after the directors of the Series Fund
inform the Insurance Company in writing of the foregoing determination,
provided, however, that the withdrawal and termination shall be limited
to the extent required by the material irreconcilable conflict, as
determined by a majority of the Independent Directors.
7.07 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the 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
Series 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 those rules are applicable; and (b) Sections 3.04, 3.05 and 7.01
to 7.05 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to those Sections are
contained in the Rule(s) as so amended or adopted.
Article VIII. Indemnification
8.01 Indemnification By The Insurance Company
(a) The Insurance Company agrees to indemnify and hold harmless the
Series Fund and each trustee, officer, employee or agent of the
Series Fund, and each person, if any, who controls the Series
Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.01) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, 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, acquisition, or redemption
of the Series Fund's shares to or from the Accounts or the
Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Contracts
or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they are made, not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished in writing to the
Insurance Company by or on behalf of the Series 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 shares of the Series Fund;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of
the Series Fund not supplied by the Insurance Company, or
persons under its control) or wrongful conduct of the
Insurance Company or persons under its control, with respect
to the sale or distribution of the Contracts or Series Fund
Shares;
(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 Series
Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein, in light of
the circumstances under which they are made, 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 and in conformity with upon
information furnished in writing to the Series Fund by or on
behalf of the Insurance Company for use in conformity with
the sale of the Contract or shares of the Series Fund;
(iv) arise as a result of any failure by the Insurance Company 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, warranty or agreement made by the Insurance
Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Insurance
Company,
as limited by and in accordance with the provisions of Sections
8.01(b) and 8.01(c) hereof.
(b) The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against
an Indemnified Party that may arise from that Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Series Fund, whichever is
applicable.
(c) The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless that Indemnified Party shall have
notified the Insurance Company 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 that Indemnified Party (or after the Indemnified Party shall
have received notice of such service on any designated agent).
Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the
Insurance Company of its obligations hereunder except to the
extent that the Insurance Company has been materially prejudiced
by such failure to give notice. In addition, any failure by the
Indemnified Party to notify the Insurance Company of any such
claim shall not relieve the Insurance Company from any liability
which it may have to the Indemnified Party against whom the
action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Insurance Company shall be
entitled to participate, at its own expense, in the defense of
the action. The Insurance Company also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory
to the party named in the action; provided, however, that if the
Indemnified Party shall have reasonably concluded that there may
be defenses available to it which are different from or
additional to those available to the Insurance Company, the
Insurance Company shall not have the right to assume said
defense, but shall pay the costs and expenses thereof (except
that in no event shall the Insurance Company be liable for the
fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, which counsel shall be
reasonably satisfactory to the Insurance Company). After notice
from the Insurance Company to the Indemnified Party of the
Insurance Company's election to assume the defense thereof, and
in the absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Insurance Company
will not be liable to that party under this Agreement for any
legal or other expenses subsequently incurred by the party
independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the
Series Fund's shares or the Contracts or the operation of the
Series Fund.
8.02 Indemnification by IMA
(a) IMA agrees to indemnify and hold harmless the Insurance Company
and each of its directors, officers, employees or agents, and
each person, if any, who controls the Insurance Company within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.02) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of IMA) or
litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
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, acquisition or
redemption of the Series 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
of the Series Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if the statement or omission or alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to IMA or the Series Fund
by or on behalf of the Insurance Company for use in the
registration statement or prospectus for the Series Fund or
in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Series Fund shares;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for
the Contracts not supplied by IMA or persons under its
control) or wrongful conduct of the Series Fund, IMA or
persons under their control, with respect to the sale or
distribution of the Contracts or shares of the Series Fund;
(iii)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished in writing to the Insurance Company by
or on behalf of the Series Fund;
(iv) arise as a result of any failure by the Series 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 requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by IMA in Article
II or any other Article of this Agreement or arise out of or
result from any other material breach of this Agreement by
IMA;
as limited by and in accordance with the provisions of Sections
8.02(b) and 8.02(c) hereof.
(b) IMA shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from
the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by
reason of the Indemnified Party's reckless disregard of obligations
and duties under this Agreement.
(c) IMA shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified IMA 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 the
Indemnified Party (or after the Indemnified Party shall have received
notice of such service on any designated agent). Notwithstanding the
foregoing, the failure of any Indemnified Party to give notice as
provided herein shall not relieve IMA of its obligations hereunder
except to the extent that IMA has been prejudiced by such failure to
give notice. In addition, any failure by the Indemnified Party to
notify IMA of any such claim shall not relieve IMA from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties,
IMA will be entitled to participate, at its own expense, in the
defense thereof. IMA also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action;
provided, however, that if the Indemnified Party shall have reasonably
concluded that there may be defenses available to it which are
different from or additional to those available to IMA, IMA shall not
have the right to assume said defense, but shall pay the costs and
expenses thereof (except that in no event shall IMA be liable for the
fees and expenses of more than one counsel for Indemnified Parties in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances). After notice from IMA to the
Indemnified Party of IMA's election to assume the defense thereof, and
in the absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified Party,
the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and IMA will not be liable to that
party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with
the defense thereof other than reasonable costs of investigation.
(d) The Insurance Company agrees to notify IMA promptly 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.
8.03 Indemnification By the Series Fund
(a) The Series Fund agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents,
and each person, if any, who controls the Insurance Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.03) against any and all
losses, claims, damages, liabilities (including legal and other
expenses) to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as those
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the operations of the
Series Fund and: (i) arise as a result of any failure by the Series
Fund to provide the services and furnish the materials under the terms
of this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement); or (ii) arise out of or result from any material breach of
any representation, warranty or agreement made by the Series Fund in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Series Fund;
as limited by, and in accordance with the provisions of, Sections
8.03(b) and 8.03(c) hereof.
(b) The Series Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party that may
arise from the Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of the Indemnified Party's duties
or by reason of the Indemnified Party's reckless disregard of
obligations and duties under this Agreement.
(c) The Series Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless the Indemnified Party shall have notified the Series 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 the Indemnified Party (or after the Indemnified Party
shall have received notice of such service on any designated agent).
Notwithstanding the foregoing, the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Series Fund of
its obligations hereunder except to the extent that the Series Fund
has been prejudiced by such failure to give notice. In addition, any
failure by the Indemnified Party to notify the Series Fund of any such
claim shall not relieve the Series Fund from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Series
Fund will be entitled to participate, at its own expense, in the
defense thereof. The Series Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action; provided, however, that if the Indemnified Party shall have
reasonably concluded that there may be defenses available to it which
are different from or additional to those available to the Series
Fund, the Series Fund shall not have the right to assume said defense,
but shall pay the costs and expenses thereof (except that in no event
shall the Series Fund be liable for the fees and expenses of more than
one counsel for Indemnified Parties in connection with any one action
or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After
notice from the Series Fund to the Indemnified Party of the Series
Fund's election to assume the defense thereof, and in the absence of
such a reasonable conclusion that there may be different or additional
defenses available to the Indemnified Party, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by
it, and the Series Fund will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by
that party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Insurance Company and IMA agree promptly to notify the Series Fund
of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, the operation of the
Account, or the sale or acquisition of shares of the Series Fund.
8.04 If the indemnification provided for in this Article VIII is unavailable
to or insufficient to hold harmless an Indemnified Party under Sections
8.01, 8.02 or 8.03 above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Insurance
Company, the Series Fund and IMA from the sale, acquisition or
redemption of the Series Fund's shares to or from the Accounts or the
Contracts to which such loss, claim, damage or liability (or action in
respect thereof) relates. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if
the Indemnified Party failed to give the notice required under Section
8.01(c), 8.02(c) or 8.03(c), as applicable, then each indemnifying
party shall contribute to such amount paid or payable by such
Indemnified Party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the
Insurance Company, IMA and the Series Fund in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Insurance Company, IMA or the Series Fund and the parties'
relative, intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Insurance Company,
IMA and the Series Fund agree that it would not be just and equitable
if contribution pursuant to this Section 8.04 were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
Section 8.04. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this Section 8.04 shall be deemed
to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any
such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act of 1933)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
8.05 No indemnifying party shall, without the written consent of the
Indemnified Party, effect the settlement or compromise of any judgment
with respect to, any pending or threatened action or claim of which
indemnification or contribution may be sought hereunder (whether or not
the Indemnified Party is an actual or potential party to such action or
claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the Indemnified Party from all liability
arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any Indemnified Party.
Article IX. Applicable Law
9.01 This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.02 This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder,
including any exemptions from those statutes, rules and regulations the
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
10.01 This Agreement shall terminate:
(a) at the option of any party upon six (6) months advance written
notice to the other parties; provided, however, such notice shall
not be given earlier than one year following the date of this
Agreement; or
(b) at the option of the Insurance Company to the extent that shares
of Funds are not reasonably available to meet the requirements of
the Contracts as determined by the Insurance Company, provided,
however, that such a termination shall apply only to the Fund(s)
not reasonably available. Prompt written notice of the election
to terminate for such cause shall be furnished by the Insurance
Company to the Series Fund and IMA; or
(c) at the option of the Series Fund or IMA, in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or
any other regulatory body regarding the Insurance Company's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the
Series Fund's shares, provided, however, that the Series Fund
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Insurance Company to perform its
obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Series Fund
or IMA by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided,
however, that the Insurance Company determines in its sole
judgement exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon (i) the
ability of the Series Fund or IMA to perform its obligations
under this Agreement or (ii) the ability of the Insurance
Company to market the Contracts; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the
Contracts for which those Fund shares had been selected to serve
as the underlying investment media. The Insurance Company will
give at least 30 days' prior written notice to the Series Fund of
the date of any proposed vote to replace the Series Fund's
shares; or
(f) at the option of the Insurance Company, in the event any of the
Series Fund's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or exemptions
therefrom, or such law precludes the use of those shares as the
underlying investment media of the Contracts issued or to be
issued by the Insurance Company; or
(g) at the option of the Insurance Company, if the Series Fund ceases
to qualify as a regulated investment company under Subchapter M
of the Code or under any successor or similar provision, or if
the Insurance Company reasonably believes that the Series Fund
may fail to so qualify; or
(h) at the option of the Insurance Company, if the Series Fund fails
to meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Series Fund or IMA, if (1) the Series
Fund or IMA, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance
Company 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 material adverse
publicity will have a material adverse impact upon the business
and operations of either the Series Fund or IMA, (2) the Series
Fund or IMA shall notify the Insurance Company in writing of that
determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Insurance Company and
any other changes in circumstances since the giving of such a
notice, the determination of the Series Fund or IMA 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;
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably
exercised in good faith, that either the Series Fund or IMA 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 material adverse publicity will
have a material adverse impact upon the business and operations
of the Insurance Company or the ability of the Insurance Company
to market the Contracts, (2) the Insurance Company shall notify
the Series Fund and IMA in writing of the determination and its
intent to terminate the Agreement, and (3) after considering the
actions taken by the Series Fund and/or IMA and any other changes
in circumstances since the giving of such a notice, the
determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be
the effective date of termination;
(k) at the option of the Insurance Company, upon the Series Fund's or
IMA's breach of any material provision of this Agreement, which
breach has not been cured to the satisfaction of the Insurance
Company within ten days after written notice of such breach is
delivered to the Series Fund; or,
(l) at the option of the Series Fund, upon the Insurance Company's
breach of any material provision of this Agreement, which breach
has not been cured to the satisfaction of the Series Fund within
ten days after written notice of such breach is delivered to the
Insurance Company.
10.02 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.01(a) may be exercised
for any reason or for no reason.
10.03 No termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written
notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) In the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.01(a), 10.01(i), or
10.01(j) of this Agreement, the prior written notice shall be
given in advance of the effective date of termination as required
by those provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.01(c) or 10.01(d) above of this Agreement, the prior
written notice shall be given at least sixty (60) days before the
effective date of termination.
10.04 Notwithstanding any termination of this Agreement, subject to Section
1.02 of this Agreement and for so long as the Series Fund continues to
exist, the Series Fund and IMA shall at the option of the Insurance
Company, continue to make available additional shares of the Series
Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement ("Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate
investments in the Series Fund, redeem investments in the Series Fund
and/or invest in the Series Fund upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this
Section 10.04 shall not apply to any terminations under Article VII and
the effect of Article VII terminations shall be governed by Article VII
of this Agreement.
Article XI. Notices
11.01 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party
set forth below or at such other address as the other party may from
time to time specify in writing.
If to the Series Fund:
Investors Mark Series Fund
700 Karnes Blvd.
Kansas City, MO, 64108
Attention: President
If to the Insurance Company:
FIDELITY SECURITY LIFE INSURANCE COMPANY
3130 Broadway
Kansas City MO 64111
If to IMA:
Investors Mark Advisers LLC
700 Karnes Blvd.
Kansas City, MO, 64108
Attention: President
Article XII. Miscellaneous
12.01 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 unless and
until that information may come into the public domain. This section
shall survive termination of this Agreement.
12.02 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.
12.03 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.04 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.
12.05 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit
those authorities reasonable access to its books and records in
connection with any lawful investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
12.06 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.
12.07 This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns; provided, that no
party may assign this Agreement without the prior written consent of
the others.
12.08 If the Agreement terminates, the parties agree that Article VIII, and
to the extent that all or a portion of assets of the Account continue
to be invested in the Series Fund, Articles I, II, III, V, VI VII, IX
and XI will survive the termination and remain in effect until such
time as the assets of the Account are not so invested.
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 as of the date specified below.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
FIDELITY SECURITY LIFE INSURANCE INVESTORS MARK SERIES FUND INVESTORS MARK ADVISERS LLC
COMPANY
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
By its authorized officer, By its authorized officer, By its authorized officer,
By: _______________________ By: _______________________ By: _______________________
Title: ______________________ Title: ______________________ Title: _______________________
Date: ____________ Date: ____________ Date: ____________
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
Schedule A
Accounts
Name of Account: Fidelity Security Life Insurance Company's Separate Account M
Date of Resolution of Insurance Company's Board which Established the Account:
August 25, 1998
Schedule B
Contracts
1. Contract: Contact Form No. M-2011
Schedule C
Proxy Voting Procedure
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Series Fund by IMA, the Series Fund and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by IMA
as early as possible before the date set by the Series Fund for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time IMA will inform the Insurance Company of the
Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a
"tape run", or other activity, which will generate the names, addresses
and number of units which are attributed to each contract
owner/policyholder (the "Customer") as of the Record Date. Allowance
should be made for account adjustments made after this date that could
affect the status of the Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best efforts
to call in the number of Customers to IMA, as soon as possible, but no
later than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Insurance Company by the Series Fund. The
Insurance Company, at its expense, shall produce and personalize the
Voting Instruction cards. IMA must approve the Card before it is
printed. Allow approximately 2-4 business days for printing information
on the Cards. Information commonly found on the Cards includes:
a) name (legal name as found on account registration)
b) address
c) Fund or account number
d) coding to state number of units
e) individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Series Fund). (This and related
steps may occur later in the chronological process due to possible
uncertainties relating to the proposals.)
4. During this time, IMA will develop, produce, and the Series Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of
envelope sent to customers by Insurance Company will include:
a) Voting Instruction Card(s)
b) One proxy notice and statement (one document)
c) Return envelope (postage pre-paid by Insurance Company) addressed
to the Insurance Company or its tabulation agent
d) "Urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Series Fund.)
e) Cover letter - optional, supplied by Insurance Company and reviewed and
approved in advance by IMA.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge
at Insurance Company reviews and approves the contents of the mailing
package to ensure correctness and completeness. Copy of this approval
sent to IMA.
6. Package mailed by the Insurance Company.
7. The Series Fund must allow at least a 15 business day solicitation time
to the Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from
(but not including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure.
9. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to the Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified,"
i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
10. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
11. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Series Fund receives the
tabulations stated in terms of a percentage and the number of shares.)
IMA must review and approve tabulation format.
12. Final tabulation in shares is verbally given by the Insurance Company
to IMA on the morning of the meeting not later than 10:00 a.m. Denver
time. IMA may request an earlier deadline if required to calculate the
vote in time for the meeting.
13. A Certificate of Mailing and Authorization to Vote Shares will be
required from the Insurance Company as well as an original copy of the
final vote. IMA will provide a standard form for each Certification.
14. The Insurance Company will be required to box and archive the Cards
received from the Customers for seven (7) years or such other time as
may be required by applicable regulatory provisions. In the event that
any vote is challenged or if otherwise necessary for legal, regulatory,
or accounting purposes, IMA will be permitted reasonable access to such
Cards.
15. All approvals and "signing-off" may be done orally, but must always
be followed up in writing.
16. To the extent allowed by regulatory authorities, the Insurance Company
may permit Contract owners to use alternative means of voting (e.g.,
voting by telephone or by using the internet).
PARTICIPATION AGREEMENT
Among
BERGER INSTITUTIONAL PRODUCTS TRUST
BBOI WORLDWIDE LLC
and
FIDELITY SECURITY LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 13th day of April, 1999 by and
among FIDELITY SECURITY LIFE INSURANCE COMPANY, (hereinafter the "Insurance
Company"), a Missouri corporation, on its own behalf and on behalf of each
segregated asset account of the Insurance Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), BERGER INSTITUTIONAL PRODUCTS TRUST, a Delaware business
trust (the "Trust") and BBOI WORLDWIDE LLC, a Delaware limited liability company
("BBOI Worldwide").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for variable annuity
and life insurance contracts to be offered by separate accounts of insurance
companies which have entered into participation agreements substantially
identical to this Agreement ("Participating Insurance Companies") and for
qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated April 24, 1996 (File No. 812-9852),
granting Participating Insurance Companies and their 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, (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 Trust to be sold to and held by Qualified Plans and by variable
annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another (the "Mixed and
Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and the offering of its shares is registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, BBOI Worldwide is duly registered as an investment adviser under
the Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable annuity or variable life insurance
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement of
all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds at
net asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Trust and BBOI Worldwide agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust agrees to sell to the Insurance Company those shares of the
Trust which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
order for the shares of the Trust. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Trust for receipt of such orders
from the Accounts and receipt by such designee shall constitute receipt by the
Trust; provided that the Trust receives notice of such order by 8:00 a.m.,
Central Time, on the next following Business Day. In this Agreement, "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Trust calculates its net asset value pursuant to the rules of
the Commission.
1.2. The Trust agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Trust calculates its Funds' net asset values pursuant
to rules of the Commission and the Trust shall use reasonable efforts to
calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the trustees of the
Trust may refuse to sell shares of any Fund to any person, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the trustees of the Trust 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 that Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to
Accounts of Participating Insurance Companies and to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal revenue Code
of 1986, as amended (the "Code") and Treasury Regulation 1.817-5. No shares of
any Fund will be sold to the general public.
1.4. The Trust will not sell its shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Sections 2.4, 3.4, 3.5, and Sections 7.1 - 7.7 of this Agreement is in
effect to govern such sales.
1.5. The Trust agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Trust held by the Account, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. However, if one or more
Funds has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one business day, but in no event
more than three Business Days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the Commission under Section
22(e) of the 1940 Act), the Trust shall be permitted to delay sending redemption
proceeds to the Insurance Company by the same number of days that the Trust is
delaying sending redemption proceeds to the other shareholders of the Fund. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Trust for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Trust; provided that the Trust
receives notice of the request for redemption by 8:00 a.m., Central Time, on the
next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of each
Fund offered by the then-current prospectus of the Trust in accordance with the
provisions of that prospectus.
1.7. The Insurance Company shall pay for Trust shares by 2:00 p.m., Central
Time, on the next Business Day after an order to purchase Trust shares is made
in accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire. For the purpose of Sections 2.9 and 2.10,
upon receipt by the Trust of the federal funds so wired, such funds shall cease
to be the responsibility of the Insurance Company and shall become the
responsibility of the Trust. Payment of net redemption proceeds (aggregate
redemptions of a Fund's shares by an Account minus aggregate purchases of that
Fund's shares by that Account) of less than $1 million for a given Business Day
will be made by wiring federal funds to the Insurance Company on the next
Business Day after receipt of the redemption request. Payment of net redemption
proceeds of $1 million or more will be by wiring federal funds within three
Business Days after receipt of the redemption request. However, payment may be
postponed under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the Securities
and Exchange Commission exists, or as permitted by the Securities and Exchange
Commission.
1.8. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Trust will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Trust shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Trust shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 6:00 p.m.,
Central Time. If the Trust provides the Insurance Company with materially
incorrect share net asset value information through no fault of the Insurance
Company, the Insurance Company on behalf of the Account, shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect the correct
share net asset value. Any material error in the calculation of net asset value
per share, dividend or capital gain information shall be reported promptly upon
discovery to the Insurance Company. Furthermore, BBOI Worldwide shall be liable
for the reasonable administrative costs incurred by the Insurance Company in
relation to the correction of any material error. Administrative costs shall
include allocation of staff time, costs of outside service providers, printing
and postage.
ARTICLE II. Representations, Warranties and Agreements
2.1. The Insurance Company represents, warrants and agrees that the
offerings of 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 applicable state insurance
suitability requirements. The Insurance Company further represents that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale thereof as a segregated asset account under the laws of the State of
Missouri and has registered, or warrants and agrees that prior to any issuance
or sale of the Contracts it will register, 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 Trust warrants and agrees that Trust shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sale in compliance with the laws of the State of Delaware and all applicable
federal securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust warrants and agrees that it 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. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust or
BBOI Worldwide.
2.3. The Trust represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and warrants and agrees that it will maintain its
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Insurance Company represents that the Contracts are currently
treated as annuity or life insurance contracts under applicable provisions of
the Code and warrants and agrees that it will make every effort to maintain such
treatment and that it will notify the Trust and BBOI Worldwide immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Trust may elect to make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Trust, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Trust makes no representation warranties as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies or will comply with the insurance laws or
regulations of the various states.
2.7. The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and represents, warrants and
agrees that it does and will comply in all material respects with the 1940 Act.
2.8. BBOI Worldwide represents that it is and warrants that it shall remain
duly registered as an investment adviser under all applicable federal and state
securities laws and agrees that it shall perform its obligations for the Trust
in compliance in all material respects with the laws of the State of Colorado
and any applicable state and federal securities laws.
2.9. The Trust and BBOI Worldwide represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities described in Rule 17g-1 under the 1940 Act dealing with
the money and/or securities of the Trust are, and shall continue to be at all
times, covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust in an amount not less than the minimum coverage required currently by
Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from
time to time. That fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
described in Rule 17g-1 under the 1940 Act shall to the extent required by Rule
17g-1 be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Trust.
ARTICLE III. Disclosure Documents and Voting
3.1. At least annually, the Trust or its designee shall provide the
Insurance Company, free of charge, with as many copies of the current prospectus
for shares of the Funds as the Insurance Company may reasonably request for
distribution to existing Contract owners whose Contracts are funded by such
shares. The Trust or its designee shall provide the Insurance Company, at the
Insurance Company's expense, with as many more copies of the current prospectus
for the shares as the Insurance Company may reasonably request for distribution
to prospective purchasers of Contracts. If requested by the Insurance Company in
lieu thereof, the Trust or its designee shall provide such documentation
(including a camera ready copy of the prospectus as set in type or, at the
request of the Insurance Company, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus for the
shares is supplemented or amended) to have the prospectus for the Contracts and
the prospectus for the Trust shares and any other fund shares offered under the
Contracts printed together in one document. The expenses of such printing will
be apportioned between (a) the Insurance Company, (b) other funds, and (c) the
Trust in proportion to the number of pages of the Contract, other fund shares'
prospectuses and the Trust shares prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; the Trust to bear the cost of printing the shares' prospectus portion of
such document for distribution only to owners of existing Contracts funded by
the Trust shares and the Insurance Company to bear the expense of printing the
portion of such documents relating to the Account; provided, however, the
Insurance Company shall bear all printing expenses of such combined documents
where used for distribution to prospective purchasers or to owners of existing
Contracts not funded by the shares.
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust (the "SAI") is available from the Trust, and BBOI
Worldwide (or the Trust), at its expense, shall print and provide the SAI free
of charge to the Insurance Company and to any owner of a Contract or prospective
owner who requests the SAI.
3.3. The Trust, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to shareholders and other communications
to shareholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions received from
Contract owners; and
(iii)vote Trust shares for which no instructions have been received in the
same proportion as Trust shares of that Fund for which instructions
have been received;
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Trust calculates voting privileges in a
manner consistent with the standards set forth on Schedule C attached hereto and
incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies. The Insurance Company shall fulfill
its obligation under, and abide by the terms and conditions of, the Mixed and
Shared Funding Exemptive Order.
3.5. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Trust currently intends,
comply with Section 16(c) of the 1940 Act (although the Trust 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 Trust will act in accordance
with the Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of trustees and with whatever rules the Commission
may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, a sub-adviser of one of the Funds, or
BBOI Worldwide is named, at least fifteen calendar days prior to its use. No
such material shall be used if the Trust or its designee objects to such use
within ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the Trust's registration statement, prospectus or
SAI, as that registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee or by BBOI Worldwide or its designee, except with the permission of
the Trust or BBOI Worldwide or their designees.
4.3. The Trust, BBOI Worldwide, or its designee shall furnish, or shall
cause to be furnished, to the Insurance Company or its designee, each piece of
sales literature or other promotional material in which the Insurance Company or
the Account is named at least fifteen calendar days prior to its use. No such
material shall be used if the Insurance Company or its designee objects to such
use within ten calendar days after receipt of that material.
4.4. The Trust and BBOI Worldwide, or their designees, shall not give any
information or make any representations on behalf of the Insurance Company or
concerning the Insurance Company, any Account, or the Contracts other than the
information or representations contained in a registration statement, prospectus
or statement of additional information for the Contracts, as that registration
statement, prospectus or statement of additional information may be amended or
supplemented from time to time, or in published reports for any Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
4.5. The Trust will provide to the Insurance Company at least one complete
copy of each registration statement, prospectus, statement of additional
information, report, proxy statement, piece of sales literature or other
promotional material, application for exemption, request for no-action letter,
and any amendment to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of the document with the Commission, the
National Association of Securities Dealers, Inc. ("NASD"), or other regulatory
authorities.
4.6. The Insurance Company will provide to the Trust at least one complete
copy of each registration statement, prospectus, statement of additional
information, report, solicitation for voting instructions, piece of sales
literature and other promotional material, application for exemption, request
for no-action letter, and any amendment to any of the above, that relates to the
Contracts or the Account, contemporaneously with the filing of the document with
the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, shareholder
newsletters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested.
ARTICLE V. Fees and Expenses
5.1. The Trust and BBOI Worldwide shall pay no fee or other compensation to
the Insurance Company under this agreement, except as set forth in Section 5.4
and except that if the Trust or any Fund adopts and implements a plan pursuant
to Rule 12b-1 to finance distribution expenses, BBOI Worldwide or the Trust may
make payments to the Insurance Company in amounts consistent with that 12b-1
plan, subject to review by the trustees of the Trust.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that any offering of its
shares is registered and that all of its shares are authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Trust or BBOI Worldwide, in accordance with applicable state
laws prior to their sale. The Trust shall bear the cost of registration and
qualification of the Trust's shares, preparation and filing of the Trust's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders, the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Trust's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Trust's prospectus, proxy materials and reports.
5.4. The Insurance Company bears the responsibility and correlative expense
for administrative and support services for Contract owners. BBOI Worldwide
recognizes the Insurance Company as the sole shareholder of shares of the Trust
issued under this Agreement. From time to time, BBOI Worldwide may pay amounts
from its past profits to the Insurance Company for providing other services that
relate to the Trust. In consideration of the savings resulting from such
arrangement, and to compensate the Insurance Company for its costs, BBOI
Worldwide agrees to pay to the Insurance Company if on any day during the
six-month period from June 1, 1999 through November 30, 1999 the aggregate
amount invested by the Account in the Trust under this Agreement exceeds
$1,000,000. This amount shall be payable at the end of such six-month period and
shall be equal to 20 basis points (0.20%) per annum on the average aggregate
assets invested during such period. Subsequent to such time, BBOI Worldwide
agrees to pay to the Insurance Company quarterly an amount equal to 20 basis
points (0.20%) per annum of the prior quarter's average aggregate amount
invested by the Account in the Trust under this Agreement, but such payments
will be made only when the average aggregate amount invested during the prior
quarter exceeds $1,000,000, and shall be made for as long as the Account invests
in the Trust. The parties agree that such payments are for administrative
services and investor support services, and do not constitute payment for
investment advisory, distribution or other services. Payment of such amounts by
BBOI Worldwide shall not increase the fees paid by the Trust or its
shareholders. The obligation to pay the amounts provided for in this Section 5.4
may be assigned by BBOI Worldwide in its discretion to Berger Associates, Inc.,
or other entity acceptable to the Insurance Company.
ARTICLE VI. Diversification
6.1. The Trust will comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5 relating to the diversification requirements for variable
annuity, endowment, modified endowment or life insurance contracts and any
amendments or other modifications to that Section or Regulation at all times
necessary to satisfy those requirements. The Trust will notify the Insurance
Company immediately upon having a reasonable basis for believing any Fund has
ceased to comply or might not so comply and will immediately take all reasonable
steps to adequately diversify the Fund to achieve compliance.
ARTICLE VII. Potential Conflicts
7.1. The trustees of the Trust will monitor the Trust for the existence of
any material irreconcilable conflict between the interests of the variable
Contract owners of all separate accounts investing in the Trust and the
participants of all Qualified Plans investing in the Trust. 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 interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The trustees of
the Trust shall promptly inform the Insurance Company if they determine that an
irreconcilable material conflict exists and the implications thereof. The
trustees of the Trust shall have sole authority to determine whether an
irreconcilable material conflict exists and their determination shall be binding
upon the Insurance Company.
7.2. The Insurance Company and BBOI Worldwide each will report promptly any
potential or existing conflicts of which it is aware to the trustees of the
Trust. The Insurance Company and BBOI Worldwide each will assist the trustees of
the Trust in carrying out their responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the trustees of the Trust with all
information reasonably necessary for them to consider any issues raised. This
includes, but is not limited to, an obligation by the Insurance Company to
inform the trustees of the Trust whenever Contract owner voting instructions are
to be disregarded. These responsibilities shall be carried out by the Insurance
Company with a view only to the interests of the Contract owners and by BBOI
Worldwide with a view only to the interests of Contract holders and Qualified
Plan participants.
7.3. If it is determined by a majority of the trustees of the Trust, or a
majority of the trustees who are not interested persons of the Trust, any of its
Funds, or BBOI Worldwide (the "Independent Trustees"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies or Qualified Plans that have executed participation
agreements shall, at their expense and to the extent reasonably practicable (as
determined by a majority of the Independent Trustees), 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 Trust or any Fund and reinvesting those assets in a different
investment medium, including (but not limited to) another Fund of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected variable contract owners and, as appropriate, segregating the
assets of any appropriate group (e.g., 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 variable contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account and obtaining any necessary approvals or orders of the Commission in
connection therewith.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Trust's election, to withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to that Account; 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 Trustees. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented, and, until the
end of that six month period, the Trust shall continue to accept and implement
orders by the Insurance Company for the purchase (and redemption) of shares of
the Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Trust and
terminate this Agreement with respect to that Account within six months after
the trustees of the Trust inform the Insurance Company in writing that they have
determined that the state insurance regulator's 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 Trustees.
Until the end of the foregoing six month period, the Trust shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Trust.
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 Trust be required to establish a new funding medium for the Contracts. The
Insurance Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the trustees of the Trust
determine that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Insurance Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six (6) months after
the trustees of the Trust inform the Insurance Company in writing of the
foregoing determination, provided, however, that the withdrawal and termination
shall be limited to the extent required by the 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 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 Trust 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 those rules are applicable; and (b) Sections 3.4, 3.5, 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 those Sections are contained in
the Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Insurance Company
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Trust and each trustee, officer, employee or agent of the Trust, and each
person, if any, who controls the Trust 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 the Insurance Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, 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, acquisition,
or redemption of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the
Insurance Company by or on behalf of the Trust 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
shares of the Trust;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Trust not supplied by the Insurance Company, or persons under its
control) or wrongful conduct of the Insurance Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Trust Shares;
(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 Trust 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 Trust by or on behalf of the
Insurance Company;
(iv) arise as a result of any failure by the Insurance Company 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, warranty or agreement made by the Insurance
Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Trust, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company 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 that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust's shares or the Contracts or the
operation of the Trust.
8.2. Indemnification by BBOI Worldwide
8.2(a). BBOI Worldwide agrees to indemnify and hold harmless the Insurance
Company and each of its directors, officers, employees or agents, and each
person, if any, who controls the Insurance Company 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, damages, liabilities (including
amounts paid in settlement with the written consent of BBOI Worldwide) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale, acquisition or redemption of
the Trust'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 of the
Trust (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 the statement or omission or
alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to BBOI
Worldwide or the Trust by or on behalf of the Insurance Company
for use in the registration statement or prospectus for the Trust
or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Trust shares;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by BBOI Worldwide or persons under its
control) or wrongful conduct of the Trust, BBOI Worldwide or
persons under their control, with respect to the sale or
distribution of the Contracts or shares of the Trust;
(iii)arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished in writing to the Insurance
Company by or on behalf of the Trust;
(iv) arise as a result of any failure by the Trust 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
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by BBOI Worldwide in
this Agreement or arise out of or result from any other material
breach of this Agreement by BBOI Worldwide;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b) BBOI Worldwide shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c) BBOI Worldwide shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified BBOI Worldwide 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 the
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve BBOI Worldwide of its obligations hereunder except to the extent that
BBOI Worldwide has been prejudiced by such failure to give notice. In addition,
any failure by the Indemnified Party to notify BBOI Worldwide of any such claim
shall not relieve BBOI Worldwide from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, BBOI Worldwide will be entitled to participate, at its
own expense, in the defense thereof. BBOI Worldwide also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action; provided, however, that if the Indemnified Party shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to BBOI Worldwide, BBOI Worldwide shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall BBOI Worldwide be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
BBOI Worldwide to the Indemnified Party of BBOI Worldwide's election to assume
the defense thereof, and in the absence of such a reasonable conclusion that
there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and BBOI Worldwide will not be liable to that party
under this Agreement for any legal or other expenses subsequently incurred by
that party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.2(d) The Insurance Company agrees to notify BBOI Worldwide promptly of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Trust
8.3(a). The Trust agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents, and each
person, if any, who controls the Insurance Company 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, damages, liabilities (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation, warranty or agreement made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Trust of its
obligations hereunder except to the extent that the Trust has been prejudiced by
such failure to give notice. In addition, any failure by the Indemnified Party
to notify the Trust of any such claim shall not relieve the Trust from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Trust will be
entitled to participate, at its own expense, in the defense thereof. The Trust
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action; provided, however, that if the Indemnified
Party shall have reasonably concluded that there may be defenses available to it
which are different from or additional to those available to the Trust, the
Trust shall not have the right to assume said defense, but shall pay the costs
and expenses thereof (except that in no event shall the Trust be liable for the
fees and expenses of more than one counsel for Indemnified Parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances).
After notice from the Trust to the Indemnified Party of the Trust's election to
assume the defense thereof, and in the absence of such a reasonable conclusion
that there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Trust will not be liable to that party under
this Agreement for any legal or other expenses subsequently incurred by that
party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.3(d). The Insurance Company and BBOI Worldwide agree promptly to notify
the Trust of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
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
any exemptions from those statutes, rules and regulations the 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 upon six months advance written notice to
the other parties; provided, however, such notice shall not be given
earlier than one year following the date of this Agreement; or
(b) at the option of the Insurance Company to the extent that shares of
Funds are not reasonably available to meet the requirements of the
Contracts as determined by the Insurance Company, provided, however,
that such a termination shall apply only to the Fund(s) not reasonably
available. Prompt written notice of the election to terminate for such
cause shall be furnished by the Insurance Company to the Trust and
BBOI Worldwide; or
(c) at the option of the Trust or BBOI Worldwide, in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or any
other regulatory body regarding the Insurance Company's duties under
this Agreement or related to the sale of the Contracts, the operation
of any Account, or the purchase of the Trust's shares, provided,
however, that the Trust 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 Insurance Company to
perform its obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Trust or BBOI
Worldwide by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided, however,
that the Insurance Company determines in its sole judgement exercised
in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Trust or BBOI
Worldwide to perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the
Contracts for which those Fund shares had been selected to serve as
the underlying investment media. The Insurance Company will give at
least 30 days' prior written notice to the Trust of the date of any
proposed vote to replace the Trust's shares; or
(f) at the option of the Insurance Company, in the event any of the
Trust's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such
law precludes the use of those shares as the underlying investment
media of the Contracts issued or to be issued by the Insurance
Company; or
(g) at the option of the Insurance Company, if the Trust ceases to qualify
as a regulated investment company under Subchapter M of the Code or
under any successor or similar provision, or if the Insurance Company
reasonably believes that the Trust may fail to so qualify; or
(h) at the option of the Insurance Company, if the Trust fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of either the Trust or BBOI Worldwide, if (1) the Trust
or BBOI Worldwide, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance
Company 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 material adverse publicity will
have a material adverse impact upon the business and operations of
either the Trust or BBOI Worldwide, (2) the Trust or BBOI Worldwide
shall notify the Insurance Company in writing of that determination
and its intent to terminate this Agreement, and (3) after considering
the actions taken by the Insurance Company and any other changes in
circumstances since the giving of such a notice, the determination of
the Trust or BBOI Worldwide 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
(j) at the option of the Insurance Company, if (1) the Insurance Company
shall determine, in its sole judgment reasonably exercised in good
faith, that either the Trust or BBOI Worldwide 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 material adverse publicity will have a material adverse impact upon
the business and operations of the Insurance Company, (2) the
Insurance Company shall notify the Trust and BBOI Worldwide in writing
of the determination and its intent to terminate the Agreement, and
(3) after considering the actions taken by the Trust and/or BBOI
Worldwide and any other changes in circumstances since the giving of
such a notice, the determination shall continue to apply on the
sixtieth (60th) day following the giving of the notice, which sixtieth
day shall be the effective date of termination; or
(k) at the option of the Insurance Company, upon the Trust's breach of any
material provision of this Agreement, which breach has not been cured
to the satisfaction of the Insurance Company within thirty days after
written notice of such breach is delivered to the Trust; or
(l) at the option of the Trust, upon the Insurance Company's breach of any
material provision of this Agreement, which breach has not been cured
to the satisfaction of the Trust within thirty days after written
notice of such breach is delivered to the Insurance company.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. No termination of this Agreement shall be effective unless and until
the party terminating this Agreement gives prior written notice to all other
parties to this Agreement of its intent to terminate, which notice shall set
forth the basis for the termination. Furthermore,
(a) In the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.1(a), 10.1(i) or 10.1(j)
of this Agreement, the prior written notice shall be given in advance
of the effective date of termination.
(b) In the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice
shall be given at least sixty (60) days before the effective date of
termination.
10.4. Notwithstanding any termination of this Agreement, subject to Section
1.2 of this Agreement and for so long as the Trust continues to exist, the Trust
and BBOI Worldwide shall at the option of the Insurance Company, continue to
make available additional shares of the Trust pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement ("Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of Article VII terminations
shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Trust shares attributable to
the Contracts (as opposed to Trust shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(a "Legally Required Redemption"), or (iii) as permitted under an order of
substitution by the Commission. Upon request, the Insurance Company will
promptly furnish to the Trust and BBOI Worldwide the opinion of counsel for the
Insurance Company (which counsel shall be reasonably satisfactory to the Trust
and BBOI Worldwide) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, the Insurance Company shall
not prevent new Contract owners from allocating payments to a Fund that formerly
was available under the Contracts without first giving the Trust or BBOI
Worldwide 45 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
If to the Trust:
210 University Boulevard, Suite 900
Denver, Colorado 80206
Attention: Brian S. Ferrie, Vice President
If to the Insurance Company:
3130 Broadway
Kansas City, Missouri 64111-2406
Attention: Leland Schmitt
If to BBOI Worldwide:
210 University Boulevard, Suite 700
Denver, Colorado 80206
Attention: Brian S. Ferrie
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 unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
lawful investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns; provided, that no party may
assign this Agreement without the prior written consent of the others.
12.8. If this Agreement terminates, the parties agree that Article VIII,
and to the extent that all or a portion of assets of the Account continue to be
invested in the Trust, Articles I, II, III, V, VI, VII, IX and XI, will remain
in effect after termination.
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
as of the date specified below.
Insurance Company:
FIDELITY SECURITY LIFE INSURANCE COMPANY
By its authorized officer,
By:_____________________________________
Title:__________________________________
Date:___________________________________
Trust:
BERGER INSTITUTIONAL PRODUCTS TRUST
By its authorized officer,
By:_____________________________________
Title:__________________________________
Date:___________________________________
BBOI Worldwide:
BBOI WORLDWIDE LLC
By its authorized officer,
By:_____________________________________
Title:__________________________________
Date:___________________________________
Schedule A
Accounts
Name of Account
Separate Account M
Date of Resolution of Insurance Company's Board which Established the Account
August 25, 1998
Schedule B
Contracts
1. Contract Form - M2011
Schedule C
Proxy Voting Procedure
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Trust by BBOI Worldwide, the Trust and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by BBOI
Worldwide as early as possible before the date set by the Trust for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time BBOI Worldwide will inform the Insurance Company
of the Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best efforts to
call in the number of Customers to BBOI Worldwide, as soon as possible, but
no later than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Trust. The Insurance Company, at
its expense, shall produce and personalize the Voting Instruction cards.
BBOI Worldwide must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes: a. name (legal name as
found on account registration) b. address c. Fund or account number d.
coding to state number of units e. individual Card number for use in
tracking and verification of votes (already on Cards as printed by the
Trust). (This and related steps may occur later in the chronological
process due to possible uncertainties relating to the proposals.)
4. During this time, BBOI Worldwide will develop, produce, and the Trust will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Insurance Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to customers
by Insurance Company will include: a. Voting Instruction Card(s) b. One
proxy notice and statement (one document) c. Return envelope (postage
pre-paid by Insurance Company) addressed to the Insurance Company or its
tabulation agent d. "Urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be supplied by the
Trust.) e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by BBOI Worldwide.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to BBOI
Worldwide.
6. Package mailed by the Insurance Company. * The Trust must allow at least a
15-day solicitation time to the Insurance Company as the shareowner. (A
5-week period is recommended.) Solicitation time is calculated as calendar
days from (but not including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure.
8. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on those
Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Trust receives the tabulations
stated in terms of a percentage and the number of shares.) BBOI Worldwide
must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company to
BBOI Worldwide on the morning of the meeting not later than 10:00 a.m.
Denver time. BBOI Worldwide may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
BBOI Worldwide will provide a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes, BBOI
Worldwide will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
April 14, 1999
Board of Directors
Fidelity Security Life Insurance Company
3130 Broadway
Kansas, City, MO 64111-2406
RE: Opinion of Counsel - FSL Separate Account M
- -----------------------------------------------
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Variable Deferred Annuity
Contracts (the "Contracts") to be issued by Fidelity Security Life Insurance
Company and its separate account, FSL Separate Account M.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. FSL Separate Account M is a Unit Investment Trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the
"Act"), and is currently registered with the Securities and Exchange
Commission, pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to
a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such
an Owner will have a legally-issued, fully paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ JUDITH A. HASENAUER
__________________________
Judith A. Hasenauer
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-69647 of Fidelity Security Life Insurance Company on Form N-4 of our report
dated March 31, 1999, appearing in the Statement of Additional Information,
which is part of this Registration Statement.
Deloitte & Touche
Kansas City, Missouri
April 14, 1999
